UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
___
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
___
|___|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13883
CALIFORNIA WATER SERVICE GROUP
(Exact name of registrant as specified in its charter)
California 77-0448994
(State or other jurisdiction (I.R.S. Employer identification No.)
of incorporation or organization)
1720 North First Street, San Jose, CA. 95112
(Address of principal executive offices) (Zip Code)
1-408-367-8200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding
as of October 30, 1998 - 12,619,140.
This Form 10-Q contains a total of 21 pages.
CALIFORNIA WATER SERVICE GROUP
CONSOLIDATED BALANCE SHEET
SEPT 30, 1998 DEC 31, 1997
(In Thousands)
ASSETS
Utility plant $670,021 $647,648
Less depreciation and amortization 198,838 187,241
Net utility plant 471,183 460,407
Current assets:
Cash and cash equivalents 1,616 1,742
Receivables 18,341 14,862
Unbilled revenue 8,286 5,136
Materials and supplies 2,193 2,105
Taxes and other prepaid expenses 5,986 4,423
Total current assets 36,422 28,268
Regulatory assets 38,748 38,345
Other deferred assets 4,136 4,277
$550,489 $531,297
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $44,941 $44,941
Retained earnings 123,174 119,124
Total common shareholders' equity 168,115 164,065
Preferred stock 3,475 3,475
Long term debt 139,205 139,205
Total capitalization 310,795 306,745
Current liabilities:
Short-term borrowings 13,000 14,500
Accounts payable 20,923 15,499
Accrued expenses and other liabilities 23,890 13,145
Total current liabilities 57,813 43,144
Unamortized investment tax credits 3,006 3,006
Deferred income taxes 26,694 25,761
Advances for construction 95,474 95,878
Contributions in aid of construction 44,215 44,270
Regulatory liabilities 12,492 12,493
$550,489 $531,297
See accompanying notes on page 5 2
CALIFORNIA WATER SERVICE GROUP
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED: Sept 30
1998 1997
In Thousands
Operating revenue $62,263 $59,551
Operating expenses:
Operation 36,610 35,971
Maintenance 2,253 2,560
Depreciation and amortization 3,641 3,435
Income taxes 5,662 5,025
Property and other taxes 2,094 2,020
Total operating expenses 50,260 49,011
Net operating income 12,003 10,540
Other income and expenses, net 279 257
12,282 10,797
Interest on long term debt 2,836 2,889
Other interest 305 48
3,141 2,937
Net income 9,141 7,860
Preferred dividends 38 38
Net income available for common stock $9,103 $7,822
Weighted average common shares outstanding 12,619 12,619
Basic earnings per share of common stock $0.72 $0.62
Dividends per share of common stock $0.2675 $0.2638
FOR THE NINE MONTHS ENDED:
In Thousands
Operating revenue $141,943 $152,192
Operating expenses:
Operation 86,964 89,005
Maintenance 6,655 6,782
Depreciation and amortization 10,922 10,211
Income taxes 8,449 12,372
Property and other taxes 5,890 5,783
Total operating expenses 118,880 124,153
Net operating income 23,063 28,039
Other income and expenses, net 632 613
23,695 28,652
Interest on long term debt 8,508 8,668
Other interest 896 324
9,404 8,992
Net income 14,291 19,660
Preferred dividends 114 114
Net income available for common stock $14,177 $19,546
Weighted average common shares outstanding 12,619 12,619
Basic earnings per share of common stock $1.12 $1.55
Dividends per share of common stock $0.8025 $0.7913
See accompanying notes on page 5 3
CALIFORNIA WATER SERVICE GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
In Thousands
SEPTEMBER 30
1998 1997
Operating activities:
Net Income $14,291 $19,660
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,922 10,211
Regulatory assets and liabilities, net (404) (153)
Deferred income taxes and investment tax credits,
net 933 708
Change in operating assets and liabilities:
Receivables (3,478) (3,471)
Unbilled revenue (3,150) (2,405)
Materials and supplies (43) 233
Taxes and other prepaid expenses (1,562) (1,898)
Accounts payable 5,424 4,309
Accrued expenses and other liabilities 10,743 6,915
Other changes, net 473 714
Net adjustments 19,858 15,163
Net cash provided by operating activities 34,149 34,823
Investing activities:
Utility plant expenditures (23,210) (21,795)
Financing activities:
Net short-term borrowings (1,500) (5,500)
Advances for construction 2,628 3,562
Contributions in aid of construction 948 1,343
Refunds of advances for construction (2,899) (2,767)
Dividends paid (10,242) (10,100)
Net cash used in financing activities (11,065) (13,462)
Change in cash and cash equivalents (126) (434)
Cash and cash equivalents at beginning of period 1,742 1,368
Cash and cash equivalents at end of period $1,616 $934
See accompanying notes on page 5 4
Notes:
1.Due to the seasonal nature of the water business, the results for interim
periods are not indicative of the results for a twelve month period.
2.The interim financial information is unaudited. In the opinion of management,
the accompanying financial statements reflect all adjustments which are
necessary to provide a fair statement of the results for the periods covered.
The adjustments consist only of normal recurring adjustments.
3.Basic earnings per share are calculated on the weighted average number of
common shares outstanding during the period and net income available for
common stock as shown on the Consolidated Statement of Income. The Group has
no dilutive securities, accordingly, dilutive earnings per share is not shown.
4.Refer to 1997 Annual Report on Form 10-K for a summary of significant
accounting policies and detailed information regarding the financial
statements.
5
PART I FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This 10-Q filing of California Water Service Group ("Group") contains forward
looking statements. Readers are directed to review the comments regarding
forward looking statements contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section of the
1997 Annual Report to shareholders. The 1997 Annual Report to shareholders
was incorporated by reference in Group's 1997 Form 10-K filing.
RESULTS OF THIRD QUARTER OPERATIONS
Third quarter net income was $9,141,000, equivalent to $0.72 per common share.
This represents a $0.10 or 16% increase from the $0.62 earned in last year's
third quarter.
Operating revenue increased $2,712,000 to $62,263,000. The revenue increase
was primarily due to the passage of "El Nino" which had negatively impacted
revenue and constrained earnings during the first half of 1998. The return
of normal weather resulted in an increase in customer water consumption by 2%,
adding $1,753,000 to revenue.
Usage by 3,100 new customers added in the last twelve months added $494,000 and
increased customer rates added $465,000. Average revenue per customer
increased $6.60 or 4%. A breakdown of the net increase in operating revenue
is accounted for in the following table:
General rate increases $51,000
Step rate increases 414,000
Total rate increases 465,000
Increased consumption 1,753,000
Usage by 3,100 new customers 494,000
Net revenue increase $2,712,000
Total operating expenses increased 2% this quarter:
Water production for the quarter was 1% more than last year's level. Well
production provided 54% of the supply with 46% purchased from wholesale
suppliers.
Water production costs, which include purchased water, purchased power and pump
taxes, increased $564,000. The purchased water increase was modest because
wholesale supplier rate increases in eight districts ranged between 1% and 5%,
while three districts experienced a 13% rate decrease. The components of water
production expense and the changes from last year are shown in the table below:
Third Quarter
1998 Cost Change
Purchased water $17,764,000 $573,000
Purchased power 4,794,000 (36,000)
Pump taxes 1,746,000 27,000
Total $24,304,000 $564,000
Other operations expense categories increased $75,000. The impact of the 3.0%
general wage increase, which was effective at the start of the year, additional
hours worked and increases in related employee benefits increased expenses.
However, there were decreases in other expense categories including chemicals,
telephone expense, general corporate and employee relocations, which offset the
increased payroll.
Maintenance expense was lower this year due to reduced expenditures required
for tank maintenance and pump equipment maintenance and repair.
Depreciation and amortization expense increased $206,000 due to increased
depreciation expense authorized by the Commission in the rate case decisions
and a greater depreciable plant investment. The additional expense is
reflected in customer rates.
Federal and state income taxes increased $637,000 because of greater taxable
income.
Other income and expense, reported on a pretax basis, was $279,000. Other
income included $318,000 from nonregulated operations. Netted against other
income was $39,000 of other expenses, which included contributions and costs
of maintaining nonregulated properties.
RESULTS FOR THE NINE MONTHS
Net income for the nine months ending September 30, 1998 was $14,291,000,
equivalent to $1.12 per common share. This represents a $0.43 or 28% decrease
from the $1.55 earned for the same period last year. Part of the decline in
earnings was attributable to one-time purchased water refunds received in May
1997 from wholesale water suppliers totaling $2,512,000 or $0.12 per share.
Operating revenue declined $10,249,000 to $141,943,000. The revenue decrease
was primarily due to the impact of "El Nino" which negatively impacted revenue
and constrained earnings during the first two 1998 quarters. As reported
above, the return of normal weather resulted in an increase in customer water
consumption during the third quarter. Since January 1, 1998, 2,800 new
customers have been added. Average consumption per metered customer declined
12% from last year and average revenue per customer decreased $30.08 or 7%,
both indications of the negative impact of "El Nino" weather during the first
half of the year. A breakdown of the net decrease in operating revenue is
accounted for in the following table:
General rate increases $502,000
Step rate increases 1,028,000
Offset rate increases 217,000
Total rate increases 1,747,000
Decreased consumption (13,075,000)
Usage by 2,800 new customers 1,079,000
Net revenue decrease $(10,249,000)
Total operating expenses decreased 4%.
Water production was 13% less than last year. Well production provided 51% of
the supply with 48% purchased from wholesale suppliers and 1% produced through
a local watershed. Because of the decline in water production, purchased
water, purchased power and pump taxes each declined. Water production costs,
which include purchased water, purchased power and pump taxes, decreased
$3,231,000. The decline in purchased water cost would have been greater
except that in May 1997 one-time refunds were received from wholesale water
suppliers totaling $2,512,000.
The components of water production expense and the changes from last year are
shown in the table below:
Year to Date
1998 Cost Change
Purchased water $39,004,000 $(1,294,000)
Purchased power 8,759,000 (1,410,000)
Pump taxes 3,118,000 (527,000)
Total $50,881,000 $(3,231,000)
Besides water production costs, other operation expense categories decreased
$2,042,000. The impact of the 3.0% general wage increase, which was effective
at the start of the year, additional hours worked and increases in related
employee benefits increased operating expenses. However, there were decreases
in other expense categories including chemicals, CPUC reimbursement fee,
telephone expense, general corporate and employee relocations which offset the
increased payroll.
Maintenance expense was lower this year due to reduced expenditures required
for tank maintenance, water treatment equipment maintenance and pump equipment
maintenance and repair.
Depreciation and amortization expense increased $711,000 due to increased
depreciation expense authorized by the Commission in the rate case decisions
and a greater depreciable plant investment. The additional expense is
reflected in customer rates.
The largest decrease in operating expense was Federal and state income taxes
which declined due to lower taxable income.
Other income and expense, reported on a pretax basis, was $632,000. Other
income included $856,000 from nonregulated operations. Netted against other
income was $224,000 of other expenses, which included contributions and costs
of operating and maintaining nonregulated properties.
REGULATORY MATTERS
1998 rate case applications were filed with the California Public Utilities
Commission ("Commission") on July 31 for rate increases in four districts
(Bear Gulch, East Los Angeles, Hermosa Redondo and Visalia) representing 25%
of total regulated customers. The applications request additional annual
revenue of about $7,000,000 with a return on equity of 11.85%. Based on the
Commission's processing schedule, a decision regarding the applications is
expected from the full Commission in the second quarter of 1999.
An application to increase rates in the Hawthorne district which is operated
under a long-term lease was also filed. In accordance with the lease
agreement, this application will be processed by the Hawthorne city council.
Decisions were received in July 1998 from the Commission on the applications
filed in July 1997. These decisions affect four districts (Marysville,
Oroville, Selma and South San Francisco) representing 7% of the regulated
customers. The decisions are expected to provide $299,000 during 1998,
$267,000 in 1999 and $121,000 in the years 2000 and 2001. Rate increases in
the Selma and Oroville districts will be tied to future changes in a price
index.
LIQUIDITY
Interest expense on long-term debt decreased by $53,000 as a result of the
retirement of Series L first mortgage bonds and annual first mortgage bond
sinking fund payments made in the fourth quarter of 1997. Short-term interest
expense increased $257,000 due to additional borrowings under the bank line of
credit. At September 30, 1998, $13 million was borrowed under the credit line
at an effective interest rate of 7.05%. At September 30, 1997, $2 million was
outstanding under the credit line.
The Group plans to issue long-term debt during the fourth quarter of 1998 or
early in 1999 to replace outstanding short-term bank borrowings.
The third quarter common dividend was paid on August 15, 1998, at $0.2675 per
share. The $0.2675 represents a $0.00375 or 1.4% increase in the quarterly
dividend rate from last year as approved by the Board of Directors at their
January meeting. Annualized, the dividend rate is $1.07 per common share
compared to $1.055 in 1997. Based on the 12-month earnings per share at
September 30, 1998, the dividend payout ratio is 76%.
About 11% of the outstanding shares participate in the reinvestment program
under Group's Dividend Reinvestment and Stock Purchase Plan ("Plan"). No new
common shares were issued under the Plan during the quarter. Shares required
for the dividend reinvestment and stock purchase options were purchased on the
open market and distributed to Plan participants.
Shares are also purchased on the open market to fulfill the requirements of the
Company sponsored Employee Savings Plan (401(k)). Purchases are made on a
biweekly basis.
Book value per common share was $13.32 at September 30, 1998, compared to
$12.98 a year earlier.
During the quarter, utility plant expenditures totaled $6,959,000 for additions
to and replacements of utility plant. Of that amount, $6,696,000 was funded
through Group's construction budget with the balance consisting of funds
received from developers as contributions in aid of construction and refundable
advances for construction. The 1998 Group construction budget is $31,000,000.
WATER SUPPLY
The Group believes that its various sources of water supply are sufficient to
meet customer demand for the remainder of the year. Historically,
approximately half of the water source is purchased from wholesale suppliers
with the other half pumped from wells.
Storage in state reservoirs was 136% of historic average as of September 30,
1998, and groundwater levels remain adequate. Because the first part of the
summer was relatively cool with no sustained hot weather until mid-July,
melting of the very large mountain snowpack was slow. The abundant snowpack
provides runoff to streams and reservoirs as it melts during the remaining
summer months.
YEAR 2000 UPDATE
Group continues to modify and implement its Year 2000 readiness program as
described in the 10Q filed for the quarter ended June 30, 1998.
In the second quarter 10Q filing, Group indicated that it was considering using
an outside consultant to review and assess the Year 2000 readiness plan. An
independent consultant was retained and a risk assessment completed on
October 23, 1998. While the consultants report was positive, it did identify
several areas which require additional attention. Attention is being given
to implement the consultant's recommendations.
Installation of the PeopleSoft accounting and human resources software packages
continues on schedule. Both systems are scheduled to be in place before mid
year 1999.
The $300,000 estimated remediation cost for Year 2000 readiness has not
changed. Operating units continue to work with suppliers to assure availability
of necessary products or services. This work will continually be updated
through the remainder of 1998 and throughout 1999. One objective of
continued updating is to learn of any changes in a supplier's ability to
provide necessary products and services. It is also designed to allow time
for alternative plans should circumstances warrant.
ACCOUNTING PRONOUNCEMENTS
There were no accounting pronouncements issued during the period that would
have a significant impact on Group.
BUSINESS OPPORTUNITIES
In the 1997 Annual Report to shareholders, Group indicated that it would be
carefully evaluating the potential risk and return of business opportunities
in Central and South America. That assessment has been completed. Group
concluded that the risks and potential returns do not warrant pursuing
business opportunities in Central or South America. In accordance with its
growth strategy, Group will continue to investigate opportunities in the
western United States.
REAL ESTATE PROGRAM
Group's subsidiary, California Water Service Company ("Company") owns more
than 850 real estate parcels. Certain parcels are not necessary for or used
in water utility operations. A program has been developed to realize the
value of the surplus properties. The program will be ongoing over a period of
several years. Over the next four years, Group estimates that gross property
transactions totaling several million could be completed.
SHAREHOLDER PROPOSALS
The Board of Directors amended Group's bylaws to require that shareholder
proposals for consideration at an annual shareholders' meeting or nomination of
a candidate for director (other than a nomination by the Board's nominating
committee) must be submitted to Group at least 150 days before the anniversary
date of the previous year's annual meeting. The advance notice requirement is
intended to allow management sufficient time to review and consider any
shareholder proposal or nomination. Proposals and nominations will no longer
be accepted from the floor at the annual shareholders' meeting. Because of
the timing of this action, the deadline for the shareholders' meeting scheduled
for April 21, 1999 will be approximately 30 days later or December 14. The
December 14 date will be about 120 days before the anniversary date of the
1998 annual meeting. The 150 day requirement will be effective for the year
2000 annual meeting. Consistent with Securities and Exchange Commission rules,
the deadline for any proposal to be eligible for inclusion in Group's 1999
proxy statement was November 11, 1998, as announced in the 1998 proxy
statement. The full text of the bylaw amendment is included as an exhibit
with this filing.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
Sequential
Exhibit Page Numbers
Number Description in this Report
10.18 Amendment to bylaws regarding timing for 11
submission of shareholder proposals for
consideration at annual shareholder meetings
and shareholder nominations of directors
10.19 Certificate of Determination filed with state 14
of California regarding Series D Participating
Preferred Shares. These shares are relative to
Shareholder Rights Plan and would be issued
if the rights plan were triggered. The certificate
was adopted earlier this year as part of the rights
plan and was refiled in a revised form at the
Secretary of State's request.
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
authorized undersigned.
CALIFORNIA WATER SERVICE GROUP
Registrant
October 27, 1998
/s/ Gerald F. Feeney
GERALD F. FEENEY
Vice President, Chief Financial Officer and Treasurer
Exhibit 10.18 Amendment to Bylaws regarding Shareholder Proposals and
Nominations
RESOLVED, that the Bylaws of California Water Service Group are amended by
adding a new section 11.17 to read as follows:
Section 11.17 Notice of Shareholder Business and Nominations.
(a)Annual Meetings of Shareholders.
(1)Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (A) pursuant to the
corporation's notice of meeting, (B) by or at the direction of the Board of
Directors or (C) by any shareholder of the corporation who was a shareholder
of record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complied with the notice procedures
set forth in this Bylaw.
(2)For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (C) of paragraph (a)(1) of
this Bylaw, the shareholder must have given timely notice thereof in writing
to the Secretary of the corporation and such other business must be a proper
matter for shareholder action. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 150th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be so delivered not later than the close of
business on the later of the 150th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
shareholder's notice as described above. Such shareholder's notice shall set
forth:
(A)as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected);
(B)as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and
(C)as to the shareholder giving the notice and the beneficial owner,if any, on
whose behalf the nomination or proposal is made;
(i)the name and address of such shareholder, as they appear on the
corporation's books, and of such beneficial owner; and
(ii)the class and number of shares of the corporation which are owned
beneficially and of record by such shareholder and such beneficial
owner.
(b)Special Meetings of Shareholders.
Only such business shall be conducted at a special meeting of shareholders as
shall have been brought before the meeting pursuant to the corporation's
notice of meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of shareholders at which directors
are to be elected pursuant to the corporation's notice of meeting (1) by or
at the direction of the Board of Directors or (2) by any shareholder of the
corporation who is a shareholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Bylaw. In the event
the corporation calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board of Directors, any such shareholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the later of the 150th
day prior to such special meeting or the 10th day following the day on which
public announcement is first made of the date of the special meeting and of
the nominees proposed by the Board of Directors to be elected at such meeting.
In no event shall the public announcement of an adjournment of a special
meeting commence a new time period for the giving of a shareholder's notice
as described above.
(c)General.
(1)Only such persons who are nominated in accordance with the procedures set
forth in this Bylaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Articles of
Incorporation or the Bylaws of the corporation, the Chairman of the meeting
shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made,
or proposed, as the case may be, in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall
be disregarded.
(2)For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported buy the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3)Notwithstanding the foregoing provisions of this Bylaw, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of (A)
shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (B) holders of
any series of Preferred Stock to elect directors under specified circumstances.
(4)If the adoption of this Section 11.17 is first included in a public
announcement made less than 180 days before the next annual meeting of
shareholders but more than 150 days before such meeting, the deadline for
submission of proposals and nominations to be considered meeting shall be
120 days rather than 150 days.
Exhibit 10.19 Certificate of Determination filed with state of California
regarding Series D Participating Preferred Shares. These shares
are relative to Shareholder Rights Plan and would be issued if the
rights plan were triggered. The certificate was adopted earlier
this year as part of the rights plan and was refiled in a revised
form at the Secretary of State's request.
CERTIFICATE OF DETERMINATION
SERIES D PARTICIPATING PREFERRED SHARES
OF
CALIFORNIA WATER SERVICE GROUP
Pursuant to Section 401 of the California Corporations Code of the State of
California:
We, Peter C. Nelson, President and Chief Executive Officer, and Paul Ekstrom,
Secretary, of California Water Service Group, a corporation organized and
existing under the laws of California (hereinafter called the "Corporation"),
do hereby certify as follows:
1.On January 28, 1998, the Board of Directors of the Corporation adopted a
resolution designating 221,000 shares of Preferred Stock as Series D
Participating Preferred Stock.
2.No shares of Series D Participating Preferred Stock have been issued.
3.Pursuant to the authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, the following resolution was
duly adopted by the Board of Directors on January 28, 1998 creating the
series of Preferred Stock designated as Series D Participating Preferred
Stock:
RESOLVED FURTHER, That the Board of Directors, pursuant to the authority
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is created, and that the determination and
amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
"Series D Participating Preferred Stock:
Paragraph 1.Designation and Amount. The shares of such series shall be
designated as "Series D Participating Preferred Stock" (the "Series D
Preferred Stock") and the number of shares constituting the Series D
Preferred Stock shall be 221,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors prior to the issuance of any
Series D Preferred Stock.
Paragraph 2.Dividends and Distributions.
(A)Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series D Preferred Stock with respect to dividends, the holders of shares of
Series D Preferred Stock, in preference to the holders of Common Stock, no
par value (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, as and when declared by the Board of
Directors out of the surplus or net profits, dividends payable in cash on
the same date as dividends upon the Corporation's Series C (each such payment
date referred to herein as a "Dividend Payment Date") and in the same manner
as dividends upon the Corporation's Series C, commencing on the first Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series D Preferred Stock, in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of the Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Dividend Payment Date or, with respect to the first Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series D
Preferred Stock. If the Corporation shall fail to pay any such dividends upon
all the issued and outstanding Series D Preferred Stock, the deficiency in
dividends shall be fully paid but without interest before any dividends
shall be set apart or paid on the Common Stock. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which holders of shares
of Series D Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by
a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B)The Corporation shall declare a dividend or distribution on the Series D
Preferred Stock as provided in paragraph (A) of this Paragraph 2 immediately
after it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock).
(C)The Board of Directors may fix a record date for the determination of
holders of shares of Series D Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not
less than 10 nor more than 60 days prior to the date fixed for the payment
thereof.
Paragraph 3.Voting Rights.The holders of shares of Series D Preferred Stock
shall have the following voting rights:
(A)Subject to the provision for adjustment hereinafter set forth, each share of
Series D Preferred Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the number of votes per share to
which holders of shares of Series D Preferred Stock were entitled
immediately prior to such an event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B)Except as otherwise provided herein, in any other Certificate of Amendment
to the Articles of Incorporation or Certificate of Determination creating a
series of Preferred Stock or any similar stock, or by law, the holders of
shares of Series D Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of shareholders of the Corporation.
(C)Except as set forth herein, or as otherwise provided by law, holders of
Series D Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Paragraph 4.Certain Restrictions.
(A)Whenever quarterly dividends or other dividends or distributions payable on
the Series D Preferred Stock as provided in Paragraph 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series D
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i)declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock;
(ii)declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
except dividends paid ratably on the Series D Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii)redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series D Preferred Stock; or
(iv)redeem or purchase or otherwise acquire for consideration any
shares of Series D Preferred Stock, or any shares of stock ranking on a parity
with the Series D Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series
or classes.
(B)The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Paragraph 4, purchase or otherwise acquire such shares at such time and in
such manner.
Paragraph 5.Reacquired Shares.Any shares of Series D Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a
new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth
herein, in the Articles of Incorporation, or in any other Certificate of
Amendment to the Articles
of Incorporation or Certificate of Determination creating a series of
Preferred Stock or any
similar stock or as otherwise required by law.
Paragraph 6.Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding
up) to the Series D Preferred Stock unless, prior thereto, the holders of
shares of Series D
Preferred Stock shall have received a minimum of $100.00 per share, plus an
amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of
such payment, provided that the holders of shares of Series D Preferred Stock
shall be entitled
to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series D Preferred Stock,
except distributions made ratably on the Series D Preferred Stock and all
such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding
up. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Paragraph 7.Consolidation, Merger, etc.In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock
are exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case each share of Series D Preferred Stock
shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock into a greater or lesser number of shares of
Common Stock), then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series D Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Paragraph 8.Redemption.The shares of Series D Preferred Stock may be redeemed
at the option of the Corporation in whole or in part upon any Dividend Payment
Date and in the manner prescribed in the Corporation's Articles of
Incorporation, upon at least 30 days notice to the holder of record thereof
at a redemption price per share equal to 100 times the fair
market value of a share of Common Stock on such date, together with all
accrued dividends on the Series D Preferred Stock.
Paragraph 9.Rank.The Series D Preferred Stock shall rank, (i) with respect to
the payment of dividends in parity with the Series C Preferred Stock and
(ii) with respect to the distribution of assets, junior to all other series
of the Corporation's Preferred Stock.
Paragraph 10.Amendment.The Articles of Incorporation shall not be amended in
any manner which would materially alter or change the powers, preferences or
special rights of the Series D Preferred Stock so as to affect them adversely
without, in addition to any other vote of shareholders required by law, the
affirmative vote of the holders of at least a majority of the
outstanding shares of Series D Preferred Stock, voting together as a single
class.
Paragraph 11.Fractional Shares.The Series D Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of the Series D Preferred Stock."
4.We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and
correct of our own knowledge.
Executed on February 13, 1998, at San Jose, California.
Signed
/s/ Peter C. Nelson
PETER C. NELSON
President and Chief Executive Officer
/s/ Paul G. Ekstrom
PAUL G. EKSTROM
Corporate Secretary
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