<PAGE> 1
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
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14A-12
WESTERN WATER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l),
or 14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] 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:_________________________________________
2) Form, Schedule or Registration Statement No.:___________________
3) Filing Party:___________________________________________________
4) Date Filed:_____________________________________________________
<PAGE> 2
WESTERN WATER COMPANY
4660 LA JOLLA VILLAGE DRIVE
SUITE 825
SAN DIEGO, CALIFORNIA 92122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1997
Notice is hereby given that the Annual Meeting of Stockholders of
Western Water Company, a Delaware corporation (the "Company"), will be held at
the Century Plaza Hotel and Tower, Cedar Room, 2055 Avenue of the Stars, Los
Angeles, California on Wednesday, October 15, 1997, at 10:00 a.m., for the
following purposes:
(1) To elect one member of the Company's Board of Directors for
the three-year term expiring at the annual meeting of
stockholders to be held in 2000 or until the director's
successor has been duly elected and qualified;
(2) To approve the adoption of the Company's 1997 Stock Option
Plan;
(3) To ratify the appointment of KPMG Peat Marwick LLP as the
independent accountants of the Company for the fiscal year
ending March 31, 1998; and
(4) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Your attention is directed to the accompanying proxy statement. Only
stockholders of record at the close of business on September 10, 1997 will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
Please sign, date and complete the enclosed proxy and return it
promptly in the accompanying pre-addressed envelope, whether or not you expect
to attend the Annual Meeting, to ensure that your shares will be represented. A
majority of the outstanding shares of voting stock must be represented (in
person or by proxy) at the Annual Meeting in order that business may be
transacted. Therefore, your promptness in returning the enclosed proxy will help
to ensure that the Company will not have to bear the expense of undertaking a
second solicitation. A stockholder who executes and returns the accompanying
proxy may revoke such proxy at any time before it is voted at the Annual Meeting
by following the procedures set forth in the attached proxy.
By Order of the Board of Directors
Ronald I. Simon
Secretary
San Diego, California
September 15, 1997
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE,
IN ORDER TO ENSURE THAT YOUR VOTES ARE COUNTED.
<PAGE> 3
WESTERN WATER COMPANY
4660 LA JOLLA VILLAGE DRIVE
SUITE 825
SAN DIEGO, CALIFORNIA 92122
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1997
INTRODUCTION
PERSONS MAKING THE SOLICITATION
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Western Water Company (the "Company")
of proxies for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on October 15, 1997, and at any adjournment thereof. This proxy
statement is first being mailed to stockholders on or about September 15, 1997.
You are requested to sign, date and return the enclosed proxy card in order to
ensure that your shares are represented at the Annual Meeting.
A form of proxy is enclosed for your use. The shares represented by
each properly executed unrevoked proxy will be voted as directed by the
stockholder executing the proxy. If no direction is made, the shares represented
by each properly executed unrevoked proxy will be voted "FOR" (i) the election
of management's nominee for the Board of Directors, (ii) the approval of the
Company's 1997 Stock Option Plan; and (iii) the ratification of the appointment
of KPMG Peat Marwick LLP as the independent accountants of the Company for the
fiscal year ending March 31, 1998. With respect to any other item of business
that may come before the Annual Meeting, the proxy holders will vote the proxy
in accordance with the recommendation of management of the Company.
The cost of solicitation of proxies, including the cost of
preparation and mailing of the Notice of Annual Meeting, this Proxy Statement,
and the enclosed proxy, will be borne by the Company. It is anticipated that
brokerage houses, fiduciaries, nominees, and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy material to beneficial owners of
stock held in their names. Directors, officers, or employees of the Company may
solicit proxies by telephone or in person without additional compensation. The
Company has engaged D. F. King & Co., Inc., 77 Water Street, New York, N. Y.
10005, to solicit proxies, and anticipates paying compensation to that solicitor
for such services in an amount of approximately $6,500, plus expenses.
REVOCABILITY OF PROXY
Any proxy given by a stockholder of the Company may be revoked at
any time before it is voted at the Annual Meeting by a written notice to the
Secretary of the Company, or upon request if the stockholder is present at the
meeting. Each valid proxy returned that is not revoked, unless indicated
otherwise on the proxy card, will be voted in the election of directors for the
nominee as described herein.
VOTING SECURITIES
Holders of record of the Company's Common Stock, $.001 par value
(the "Common Stock") and the Company's Series C Convertible Redeemable Preferred
Stock ("Series C Preferred Stock") at the close of business on September 10,
1997 are entitled to notice of and to vote, as one class, at the meeting or any
adjournment thereof. The outstanding voting securities of the Company on
September 10, 1997 consisted of
<PAGE> 4
8,236,119 shares of Common Stock and 9,135 shares of Series C Preferred Stock.
Holders of Common Stock are entitled to cast one vote per share on each matter
presented for consideration and action by the stockholders. Holders of Series C
Preferred Stock are entitled to cast the number of votes per share of Series C
Preferred Stock on each matter presented for consideration and action by the
stockholders as if the Series C Preferred Stock had been converted into Common
Stock on September 10, 1997. All of the outstanding shares of Series C Preferred
stock on September 10, 1997 are convertible into an aggregate of 549,625 shares
of Common Stock. The presence, in person or by proxy, of stockholders entitled
to cast at least a majority of the votes entitled to be cast by all stockholders
will constitute a quorum for the transaction of business at the Annual Meeting.
Abstentions may be specified as to all proposals to be brought
before the Annual Meeting other than the election of directors. Votes cast by
proxy or in person at the Annual Meeting will be tabulated by the inspectors of
election appointed for the meeting, and will determine whether or not a quorum
is present. The inspectors of election will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. Approval of the Company's 1997 Stock
Option Plan and the ratification of the appointment of the independent
accountants will require the affirmative vote of at least a majority in voting
interest of the stockholders present in person or by proxy at the Annual Meeting
and entitled to vote thereon. If a broker indicates on the proxy that it does
not have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with
respect to that matter and, therefore, will have no effect on the outcome of the
vote.
The Director to be elected at the Annual Meeting will be elected by
a plurality of the votes cast. Only votes cast for a nominee will be counted,
except that each properly executed unrevoked proxy will be voted for
management's nominee for the Board of Directors in the absence of instructions
to the contrary. Abstentions, broker non-votes and instructions on a proxy to
withhold authority to vote for management's nominee will result in the nominee
receiving fewer votes.
ELECTION OF DIRECTOR
The authorized number of Directors of the Company is currently fixed
at four and is divided into three classes, two of the classes having one member
and the third having two members. The Directors in each class are elected for
three-year terms, so that the term of office of one class of Directors expires
at each annual meeting. For election as a Director at the Annual Meeting, the
Board of Directors has approved the nomination of Peter L. Jensen to serve a
three-year term expiring in 2000.
If Mr. Jensen becomes unavailable for election, the accompanying
proxy will be voted for the election of such person, if any, as shall be
recommended by the Board of Directors, or will be voted in favor of holding a
vacancy to be filled at a later date by the Directors.
The following chart sets forth biographical information concerning
(i) the nominee for election as Director and (ii) the other Directors who will
continue in office after the meeting.
2.
<PAGE> 5
NOMINEE FOR ELECTION TO TERM EXPIRING IN 2000
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION FOR THE
POSITIONS WITH PAST FIVE YEARS AND
NAME AGE COMPANY CERTAIN OTHER DIRECTORSHIPS
- ---- --- -------------- ----------------------------
<S> <C> <C> <C>
Peter L. Jensen 46 Director, since October 1984 to April 1989, President and Chief
1984; Chairman, President Operating Officer of the Company; 1983 to
and Chief Executive Officer April 1989, Director, President and Chief
since April 1989 Operating Officer of Yuba Natural Resources,
Inc. ("YNR"), a publicly-held company; April
1989 to August 1990, Director, President and
Chief Executive Officer of YNR; August 1990
to July 1994, Director of Yuba WestGold, Inc.
(formerly known as YNR).
</TABLE>
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION FOR THE
POSITIONS WITH PAST FIVE YEARS AND
NAME AGE COMPANY CERTAIN OTHER DIRECTORSHIPS
- ---- --- -------------- ----------------------------
Incumbent Directors Whose Terms of Office Will Expire in 1998
<S> <C> <C> <C>
Scott A. Katzmann 41 Director since June 1997 March 1993 to present, Managing Director of
Paramount Capital, Inc., an investment
banking firm; October 1982 to March 1993,
Director of CS First Boston Corporation, an
investment banking firm; March 1994 to
present, director of Conversion Technologies,
a publicly-held advanced materials company.
John H. Huston 46 Senior Vice President since November 1993 to present, Chairman of
March 1997; Vice President Integrated Water Technologies, Inc. (formerly
from February 1992 to BCI Geonetics, Inc.); 1983 to 1992, owner or
March 1997; Director since co-owner of the Procyon Group, a water
November 1994 related company; 1987 to March 1992, the date
on which Nigel Corporation was acquired by the
Company, director and executive officer of Nigel
Corporation.
Incumbent Director Whose Term of Office Will Expire in 1999
William D. Watt 57 Director since December August 1995 to present, principal and a
1996 director of SCCOT Financial Group
Incorporated, a privately held investment
banking firm; 1973 through August 1995,
investment banker at Lazard Freres & Co., an
investment banking firm.
</TABLE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 1997, the Board of Directors
held five meetings. Messrs. Jensen and Huston attended all meetings held during
the fiscal year. Mr. Watt attended all meeting held during the fiscal year after
the date of his election to the Board of Directors. Mr. Katzmann was not a
director during the last fiscal year.
3.
<PAGE> 6
The Company's Audit Committee reviews the independence, professional
services, fees, plans and results of the independent auditors' engagement and
recommends their retention or discharge to the Board of Directors. During the
last completed fiscal year, the Audit Committee held one meeting. All members of
the Audit Committee participated in the one Audit Committee meeting held during
the last completed fiscal year. The Audit Committee currently consists of Mr.
Watt and Mr. Katzmann.
During the fiscal year ended March 31, 1997, the Company's
Compensation Committee held one meeting. The Compensation Committee establishes
the compensation of executive officers and administers the Company's stock
option plans. The Compensation Committee currently consist of Messrs. Watt and
Katzmann.
Other than the Audit Committee and the Compensation Committee, the
Company has no other committees of its Board of Directors.
EXECUTIVE OFFICERS
The following chart sets forth information as of September 10, 1997
concerning the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Peter L. Jensen 46 Chairman of the Board, President and Chief
Executive Officer
Ronald I. Simon 58 Vice President, Chief Financial Officer and
Secretary
John H. Huston 46 Senior Vice President and Director
Eric R. Robbins 35 Vice President
</TABLE>
For biographical information regarding Messrs. Jensen and Huston,
see their biographies under "Election of Director" above.
Ronald I. Simon was elected Vice President, Chief Financial Officer
and Secretary of the Company in May 1997. Since 1974, Mr. Simon has also been
the President of Ronald I. Simon, Inc., a financial consulting firm. From 1993
to 1997, Mr. Simon served as the Chairman of the Board of Sonant Corporation, an
interactive voice response equipment company. Since 1995, Mr. Simon also has
been a director of Citadel Corporation, a real estate company, and a director of
SoftNet Systems, Inc., a document management and telecommunications equipment
and internet service company. From 1986 to 1990, Mr. Simon was the Managing
Director and Chief Financial Officer of Henley Group, Inc.
Eric R. Robbins has been a Vice President of the Company since
November 1995. During 1995, Mr. Robbins was a Vice President at L.H. Friend,
Weinress, Frankson & Presson, an investment banking firm. During 1994, Mr.
Robbins was the Senior Vice President - Public Finance at Chilton & O'Connor,
Incorporated, an investment banking firm. During 1993, Mr. Robbins was a Vice
President at Sutro & Co., Incorporated. Prior thereto, Mr. Robbins was the
Finance Budget Manager for the California Department of Finance and a Senior
Consultant for the California Assembly Water, Parks & Wildlife Committee.
4.
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock and Series C Preferred Stock
as of September 10, 1997 by (i) each person who is known by the Company to own
more than 5% of the outstanding Common Stock or Series C Preferred Stock; (ii)
each of the Company's directors (including the director nominee); (iii) each of
the executive officers named in the compensation tables included below in this
Proxy Statement; and (iv) all current officers and directors (including the
director nominee) of the Company as a group.
<TABLE>
<CAPTION>
Common Stock Series C Preferred Stock
-------------------------- ---------------------------
Percent of Votes
Name and Address of Number Percent Number Percent Of All Classes of
Beneficial Owner(1) of Shares of Class of Shares of Class Capital Stock(2)
------------------- ---------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Peter L. Jensen 346,870(3) 4.2% 0 0 3.9%
John H. Huston 289,126(4) 3.5% 0 0 3.3%
Eric R. Robbins 60,000(5) * 0 0 *
Marilyn B. Dreyer 109,517(6) 1.3% 0 0 1.2%
Scott A. Katzmann 46,090(7) * 0 0 *
William D. Watt 6,664(8) * 0 0 *
Cramer Rosenthal McGlynn, Inc. 977,600(9) 11.9% 0 0 11.1%
707 Westchester Ave
White Plains, N.Y. 10604
T. Rowe Price Associates, Inc. 1,062,482(10) 12.1% 4,060(12) 44.4% 12.1%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price New Era Fund Inc. 122,141(11) 1.4% 2,030 22.2% 1.4%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price Small-Cap Value 122,141(11) 1.4% 2,030 22.2% 1.4%
Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202
Ashford Capital Partners, L.P. 61,070(11) * 1,015(13) 11.1% *
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Wisconsin Alumni Research Foundation 61,070(11) * 1,015 11.1% *
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Ashford Capital Management, Inc. as 164,882(11) 1.9% 2,741(14) 30.0% 1.9%
investment advisor for certain
investment accounts
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
All directors and executive 728,750(15) 8.8% 0 0% 8.3%
Officers as a group (6 persons)
</TABLE>
- -------------------------
* Less than 1%.
(1) Except as otherwise indicated, the address of each stockholder is c/o the
Company at 4660 La Jolla Village Drive, Suite 825, San Diego, California
92122.
(2) Based on 8,236,119 votes entitled to be cast by the holders of the
outstanding Common Stock and 549,625 votes entitled to be cast by the
holders of the 9,135 shares of outstanding Series C Preferred Stock.
(3) Includes 100,000 of Common Stock shares issuable upon exercise of
currently exercisable options.
(4) Includes 84,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(5) Consists of 60,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
5.
<PAGE> 8
(6) Includes 35,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(7) Consists of 39,426 immediately exercisable stock purchase warrants and
6,664 shares of Common Stock issuable upon exercise of currently
exercisable options.
(8) Represents shares of Common Stock issuable upon exercise of currently
exercisable options.
(9) Based on information contained in a statement on Schedule 13 filed by the
named person.
(10) Represents 818,200 shares of Common Stock beneficially owned by T. Rowe
Price Associates, Inc., and 244,282 shares of Common Stock issuable upon
the conversion of the 4,060 shares of Series C Preferred Stock
beneficially owned by T. Rowe Price Associates Inc. T. Rowe Price
Associates, Inc. is the investment advisor of various registered
investment companies and investment advisory clients, including T. Rowe
Price New Era Fund Inc. and T. Rowe Price Small-Cap Value Fund Inc. T.
Rowe Price Associates, Inc. disclaims beneficial ownership of these
shares.
(11) Represents shares of Common Stock issuable upon the conversion of the
shares of Series C Preferred Stock owned by such beneficial owners.
(12) Represents the shares of Series C Preferred Stock owned by T. Rowe Price
New Era Fund Inc. and T. Rowe Price Small- Cap Value Fund Inc., of which
T. Rowe Price Associates, Inc. is the investment advisor.
(13) Reflects shares held of record and beneficially owned by Ashford Capital
Partners, L.P., a Delaware limited partnership, of which the general
partner is Ashford Capital Management, Inc. Ashford Capital management,
Inc., acting as general partner, has the sole power to vote and dispose of
securities on behalf of Ashford Capital Partners, L.P.
(14) Reflects shares held of record and beneficially owned by separate
investment accounts on behalf of twenty (20) different investors for which
Ashford Capital Management, Inc. acts as investment adviser and has the
sole power to vote and dispose of such securities as attorney-in-fact with
respect to such accounts. Excludes shares held by Ashford Capital
Partners, L.P. for which Ashford Capital Management, Inc. acts as general
partner, as indicated in footnote (13) above.
(15) Includes 283,426 shares of Common Stock issuable upon exercise of
currently exercisable options and warrants.
6.
<PAGE> 9
EXECUTIVE COMPENSATION
Summary Compensation Table. The following tables set forth certain
information concerning the annual and long-term compensation for services
rendered to the Company in all capacities for the fiscal years ended March 31,
1997, 1996 and 1995 of (i) all persons who served as the Chief Executive Officer
of the Company during the fiscal year ended March 31, 1997 and (ii) each of the
other executive officers of the Company whose total annual salary and bonus
during the fiscal year ended March 31, 1997 exceeded $100,000. (The Chief
Executive Officer and the other named officers are collectively referred to as
the "Named Executives.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Number Stock
Name and Principal Position Year Salary Bonus Option Shares Granted
- --------------------------- ---- ------ ----- ---------------------
<S> <C> <C> <C> <C>
Peter L. Jensen 1997 $215,460 $ -0- 125,000
Chairman, President and 1996 $198,510 $ -0- 60,000
Chief Executive Officer 1995 $180,000 $ -0- -0-
John H. Huston 1997 $179,550 $ -0- 100,000
Senior Vice President 1996 $157,115 $ -0- 36,000
1995 $140,655 $ -0- -0-
Eric R. Robbins 1997 $123,417 $ -0- 100,000
Vice President 1996 $ 41,385(1) $ -0- 60,000
1995 -0- $ -0- -0-
Marilyn B. Dreyer 1997 $190,423(2) $ -0- 20,000(2)
Chief Financial Officer 1996 $ 92,500 $ -0- 15,000
1995 $ 82,500 $ -0- -0-
</TABLE>
- ------------------
(1) Mr. Robbins joined the Company in November 1995.
(2) Includes $102,500 and 20,000 options paid in February 1997 to Ms. Dreyer
in connection with the termination of her employment with the Company.
Option Grants. The following table provides information on stock
options granted in the fiscal year ended March 31, 1997 to the Named Executives.
OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Percentage of Potential Realizable
Total Options Value at Assumed Annual
Granted to Exercise or Rates of Stock Appreciation
Options Employees in Base Price Expiration For Option Term(4)
---------------------------
Name Granted Fiscal Year (per share)(2) Date 5% 10%
---- ------- ------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Jensen 125,000(1) 28% $13.750 Feb. 2007 $1,080,900 $2,739,200
-$18.184(1)(3)
John H. Huston 100,000(1) 23% $13.750 Feb. 2007 $864,700 $2,191,400
-$18.184(1)(3)
Eric R. Robbins 100,000(1) 23% $13.750 Feb. 2007 $864,700 $2,191,400
-$18.184(1)(3)
Marilyn B. Dreyer 20,000(5) 5% $14.125 Feb. 2007 $173,000 $438,200
</TABLE>
- ------------------
(1) 34% of the options are exercisable commencing one year after the date of
grant, 33% are exercisable two years after the date of grant, and 33% are
exercisable three years after the date of grant.
(2) All options were granted at a price equal to or greater than the market
value (the closing stock price for the Company's Common Stock as reported
on the Nasdaq National Market) on the date of grant.
7.
<PAGE> 10
(3) The exercise price is $13.75 per share for the options exercisable after
the first year, $15.812 per share for the options exercisable after the
second year, and $18.184 for the options exercisable after the third year.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
(5) The options are immediately exercisable.
Aggregated Option Exercises in Last Fiscal Year and Year-End Option
Values. The following table sets forth information regarding stock options that
were exercised by the Named Executives during the last fiscal year and the
number and value of unexercised options owned at March 31, 1997 by the Named
Executives.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1997 AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of
Shares Unexercised Options Unexercised Options
Acquired Value at March 31, 1997 At March 31, 1997(1)
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Jensen -0- $ -0- 100,000 145,000 $1,425,000 $2,066,000
John H. Huston -0- -0- 84,000 112,000 $1,197,000 $1,596,000
Eric R. Robbins -0- -0- 40,000 120,000 $ 570,000 $1,710,000
Marilyn B. Dreyer -0- -0- 50,000 -0- $ 712,500 $ -0-
</TABLE>
- -----------------
(1) The value of unexercised options represents the excess of the market value
of the Common Stock on March 31, 1997 over the exercise price of the
options.
Director Compensation. Effective August 15, 1997, Directors who are
not employees of the Company receive a fee of $15,000 per year for service on
the Board of Directors and an additional fee of $5,000 per year for service on
each committee of the Board of Directors. In addition, all directors are
reimbursed for all out-of-pocket expenses incurred by them in connection with
attending board meetings. Each non-employee director will automatically be
granted an option on the first business day of each fiscal year to purchase
20,000 shares of Common Stock at an exercise price equal to the closing price
for the Common Stock as reported by The Nasdaq Stock Market on the date of grant
of such option. All such options will be exercisable on the date of grant as to
6,664 shares, with additional increments of 6,668 becoming exercisable on the
first and second anniversary of grant. Prior to August 15, 1997, each
non-employee director automatically received an option to purchase 10,000 shares
of Common Stock as of the first business day of each fiscal year. Mr. Watt and
Mr. Abramson, a former outside director, were each granted options to purchase
10,000 shares on April 1, 1997, which options are exercisable at a price of
$13.650 per share. In connection with Mr. Katzmann's appointment as director on
June 1, 1997, Mr. Katzmann received options to purchase 10,000 shares. Mr.
Katzmann's options are exercisable at a price of $14.50 per share. In addition,
options to purchase 10,000 shares were granted to each of Mr. Watt and Mr.
Katzmann on August 15, 1997, which options are exercisable at $15.875 per share.
Employment Agreements. On August 15, 1997, the Company entered into
two-year employment agreements with Peter L. Jensen, John H. Huston and Eric R.
Robbins pursuant to which Messrs. Jensen, Huston and Robbins shall serve as the
Chairman of the Board, Chief Executive Officer and President, the Senior Vice
President and the Vice President, respectively, of the Company. The employment
agreements provide for a annual base salary of $250,000, $185,000 and $165,000
for Messrs. Jensen, Huston and Robbins, respectively, subject to adjustment for
cost of living increases and other specified benefits such as reimbursement for
expenses, provide that each such executive officer may participate in the
Company's incentive compensation programs and stock option plans to the extent
deemed appropriate by the Board of Directors. Each of the new employment
agreements also provides that all unvested stock options granted to Messrs.
Jensen, Huston and Robbins will fully vest upon the merger, sale or similar
event of the Company if the Company is not the surviving entity.
8.
<PAGE> 11
Ronald I. Simon serves as Vice President and Chief Financial Officer
of the Company at an annual salary of $185,000. In connection with his
employment by the Company in May 1997, Mr. Simon was granted a ten-year option
to purchase 120,000 shares of Common Stock at an exercise price of $13.50 per
share. Of the option, 40,000 shares will vest annually on each of the first
three anniversaries of his employment date. In addition Mr. Simon was granted an
option to purchase 80,000 shares of Common Stock at an exercise price of $6.75
per share. Of the option, 16,000 shares will vest on December 15 of 1997, 1998,
1999, 2000 and 2001. The option shall remain in effect until May 2007. The
Company has also agreed that Mr. Simon's salary and other benefits will remain
in effect for one year after the termination of his employment and the vesting
period of his options will be extended for an additional year if Mr. Simon is
terminated by the Company without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No members of the Compensation Committee are, or since April 1, 1996
have been, officers of the Company or have had any material business
relationship with the Company.
STOCK OPTION PLANS
1990 Stock Option Plan. Pursuant to the 1990 Stock Option Plan (the
"1990 Plan") adopted by the Company in July 1990, 400,000 shares of Common Stock
of the Company are reserved for issuance upon exercise of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and nonqualified stock options that may be granted to
officers, directors, employees, consultants and others performing services for
the Company. The 1990 Plan is currently administered by the Compensation
Committee of the Board of Directors (previously by the full Board), which
designates the optionees, exercise prices and dates of grant. The exercise price
may not be less than the fair market value of the Common Stock on the date of
grant (110% of the fair market value for qualified options with respect to
optionees who are 10% or more shareholders of the Company). Options are
nonassignable and may be exercised only by the option holder while in the
service of the Company or within three months after termination of employment or
cessation of services to the Company (one year for terminations resulting from
death or disability). Options may be exercisable from the date they are granted
and, if they are exercisable in installments, may be exercised on a cumulative
basis at any time before expiration. All options expire no later than ten years
from the date of grant.
1993 Stock Option Plan. The 1993 Stock Option Plan (the "1993 Plan")
authorizes the granting during the period commencing on April 20, 1993, the date
of adoption of the 1993 Plan by the Board of Directors of the Company, and
concluding on the tenth anniversary thereof, of both incentive stock options
within the meaning of Section 422 of the Code, and nonqualified stock options to
officers, non-employee directors, employees, consultants and others performing
services for the Company to purchase in the aggregate 400,000 shares of the
Company's Common Stock. In December 1996, the stockholders of the Company
approved an amendment to the 1993 Plan to increase the total number of shares
available for option grants to 800,000.
The 1993 Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee designates the optionees, number
of options, exercise prices, dates of grant, exercise period and other terms and
conditions.
9.
<PAGE> 12
The purchase price to be paid upon exercise of each incentive stock
option granted pursuant to the 1993 Plan shall be no less than the fair market
value of the Common Stock on the date the option is granted, or 110% of such
fair market value in the case of any optionee holding in excess of 10% of the
combined voting power of all classes of the Company's capital stock (or the
stock of a parent or subsidiary of the Company) as of the date of grant. Fair
market value is equal to the closing price of the Company's Common Stock. The
purchase price of each nonqualified option granted to officers and other key
employees shall be determined by the Compensation Committee. The purchase price
is payable in full by cash, check, surrender of Common Stock of the Company
having a market value equal to the option price of the shares to be purchased,
or so-called cashless exercises as permitted by law, or any combination of cash,
check, shares and cashless exercises. The Compensation Committee in its sole
discretion may extend credit to pay the purchase price of the shares of Common
Stock acquired upon exercise of an option, such credit to be evidenced by
optionee's interest-bearing promissory note and secured by the Common Stock
issued on exercise of the option. The Compensation Committee has complete
discretion to establish the amount and terms of any credit extended. The
Compensation Committee also has complete discretion to determine the interest
rate to be charged on such credit.
Options granted under the 1993 Plan become exercisable and shall
expire on such dates as determined by the Compensation Committee, provided,
however, that no term may exceed ten years from the date of grant, or five years
from the date of grant in the case of any optionee holding more than 10 percent
of the combined voting power of all classes of the Company's capital stock (or
the stock of a parent or subsidiary of the Company) as of the date of grant.
After options become exercisable they may be exercised at any time or from time
to time as to any part thereof. The Compensation Committee may, at any time
after grant of the option and from time to time increase the number of shares
purchasable in any installment, subject to certain limitations.
Options granted under the 1993 Plan expire on such date as the
Compensation Committee has determined. Options are not transferable except by
will or by the laws of descent and distribution; during the life of the person
to whom the option is granted, that person alone may exercise them. All rights
to exercise options terminate three months from the date a grantee ceases to be
an employee of the Company or any subsidiary for any reason other than death or
disability.
If a grantee dies while in the employ of the Company, his or her
option may be exercised at any time within 12 months following the grantee's
death by his or her estate or by the person or persons to whom the grantee's
rights under the option passed by will or operation of law, but only to the
extent such option was exercisable by the grantee at the time of his or her
death. Except for certain stated provisions covering termination, disability or
death, no option may be exercised after the expiration of its original term.
The 1993 Plan, as amended, also provides that each non-employee
director will automatically be granted an option on the first business day of
each fiscal year to purchase 20,000 shares of Common Stock at an exercise price
equal to the closing price for the Common Stock as reported by The Nasdaq Stock
Market on the date of grant of such option.
1997 Stock Option Plan. In July 1997, the Board of Directors adopted
the Company's 1997 Stock Option Plan, subject to stockholder approval. See
"Adoption of 1997 Stock Option Plan."
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is
composed entirely of directors who have never been employees of the Company, is
responsible for setting and administering the policies and programs that govern
both annual and long-term compensation.
At the beginning of the fiscal year ended March 31, 1997, the
Company's Compensation Committee was comprised of Jeffrey A. Smith and Jay B.
Abramson. In December 1996, William D. Watt became a member of the Compensation
Committee to replace Mr. Smith, who resigned from the Board of Directors in
August 1996. In June 1997, Scott A. Katzmann replaced Mr. Abramson on the
Compensation Committee.
10.
<PAGE> 13
The Company's compensation program consists of two elements: (1) an
annual cash salary component, i.e., base salary and cash bonuses when warranted,
and (2) a long-term component, i.e., stock options. The amount of salary and
bonus, if any, is established by the Compensation Committee for each position
based on the executive's job description and a general assessment of the
executive's performance, experience and potential. The long-term component of
the compensation program consists of the annual grant of stock options, which
the Compensation Committee believes provides the executive with the incentive to
implement the Company's annual objectives and strategy and aligns his interest
with that of the stockholders. Stock options gain value to the extent the price
of the Company's Common Stock increases above the option exercise price, thereby
creating a similar objective for both management and the stockholders.
Consistent with the Company's compensation policies, the Company
paid Mr. Jensen, the Company's Chief Executive Officer, the cash amount
established under his employment agreement, as amended in November 1995. Mr.
Jensen was not paid a cash bonus. However, in recognition of Mr. Jensen's
performance during the past fiscal year in advancing the Company's water
development activities in Southern California, the Compensation Committee
granted Mr. Jensen and certain other key executives stock options. The number of
options granted to Mr. Jensen was 125,000. In order to maintain the incentive
element of the compensation program, the options become exercisable over a
period of three years and the exercise price increases during each of the next
three years. The option exercise price for the 41,668 options that are
exercisable after the first year was set at $13.75 per share, the fair market
value of the Company's Common Stock on the date of grant. The option exercise
price for the 41,666 options that are exercisable in each of the second and
third years increases to $15.812 for the second year options and to $18.184 for
the third year options. The three-year employment agreement between the Company
and certain of the key employees of the Company, including Mr. Jensen, expired
during the last fiscal year. In August 1997, the Company entered into new
two-year agreements with these executives, including Mr. Jensen. See "Executive
Compensation -- Employment Agreements" above.
No member of the past Compensation Committee is, or during Fiscal
1997 was, a former officer or employee of the Company or of its subsidiary.
Current Compensation Committee:
William D. Watt and Scott A. Katzmann
11.
<PAGE> 14
COMPARATIVE STOCK PERFORMANCE
The chart below sets forth a line graph comparing the performance of
the Company's Common Stock against the Total Return Index for the Nasdaq Stock
Market (US) ("Nasdaq Broad Market Index") and the Nasdaq Non-Financial Stocks
Index for the period commencing March 31, 1992 and ending March 31, 1997. The
chart sets the value of an investment in Western Water Company Common Stock and
the value of each index at 100 on March 31, 1992 and assumes that dividends were
reinvested.
The stockholder return shown on the following graph is not
necessarily indicative of future performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Company's Common Stock 100.00 118.52 196.30 259.26 375.31 281.48
Nasdaq Broad Market Index 100.00 114.96 124.08 138.03 187.39 208.49
Nasdaq Non-Financial Stock Index 100.00 107.89 118.37 129.70 174.94 188.96
</TABLE>
12.
<PAGE> 15
ADOPTION OF 1997 STOCK OPTION PLAN
In July 1997, the Board of Directors approved the Company's 1997
Stock Option Plan, subject to stockholder approval. The purpose of the 1997
Stock Option Plan is to enable the Company to attract and retain top-quality
employees, officers, directors and consultants and to provide such employees,
officers, directors and consultants with an incentive to enhance stockholder
return. The full text of the 1997 Stock Option Plan appears as Appendix 1 to
this Proxy Statement and the description of the 1997 Stock Option Plan herein is
qualified by reference to the text of the 1997 Stock Option Plan.
DESCRIPTION OF THE 1997 STOCK OPTION PLAN
The key terms of the 1997 Stock Option Plan are outlined below.
The 1997 Stock Option Plan provides for the grant of options to
officers, directors, other key employees and consultants of the Company to
purchase up to an aggregate of 600,000 shares of Common Stock. There are
currently four officers, two non-employee directors and eleven other employees
of the Company who would be eligible for the grant of options. The 1997 Stock
Option Plan is administered by the Board of Directors or a committee of the
Board, and is currently administered by the Compensation Committee of the Board
of Directors, which has complete discretion to select the optionees and to
establish the terms and conditions of each option, subject to the provisions of
the 1997 Stock Option Plan. If necessary in order to comply with Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Section 162(m) of the Code, the committee shall, in the Board's discretion, be
comprised solely of "non-employee directors" within the meaning of said Rule
16b-3 and "outside directors" within the meaning of Section 162(m) of the Code.
Options granted under the 1997 Stock Option Plan may be "incentive stock
options" as defined in Section 422 of the Code, or nonqualified options, and
will be designated as such.
The exercise price of incentive stock options may not be less than
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one calendar year pursuant to incentive stock
options under the 1997 Stock Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the 1997 Stock Option Plan at
an exercise price less than the fair market value of the Common Stock on the
date of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of Common Stock that may be acquired pursuant to such
options in any one year.
In general, upon termination of employment of an optionee, all
options granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate one year following termination of employment.
Options may not be exercised more than ten years after the grant
date (five years after the grant date if the grant is an incentive stock option
to an employee who owns more than 10% of the total combined voting power of all
classes of capital stock of the Company). Except with the express approval of
the administrator with respect to nonqualified options, options granted under
the 1997 Stock Option Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the 1997 Stock Option Plan, shares
subject to cancelled or terminated options are reserved for subsequently granted
options. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as stock splits,
stock dividends, recapitalizations or reclassifications. The 1997 Stock Option
Plan is effective for ten years, unless sooner terminated or suspended. The 1997
Stock Option Plan provides that options covering no more than 200,000 shares of
Common Stock may be granted to any one employee in any twelve month period.
13.
<PAGE> 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
If an option is treated as an incentive stock option, the optionee
will recognize no income upon grant or exercise of the option unless the
alternative minimum tax rules apply. Upon an optionee's sale of the shares
(assuming that the sale occurs at least two years after grant of the option and
at least one year after exercise of the option), any gain will be taxed to the
optionee under beneficial capital gains tax rates. If the optionee disposes of
the shares prior to the expiration of the above holding periods, then the
optionee will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value of
the shares at the exercise date or the sale price of the shares. Any gain or
loss recognized on such a premature sale of the shares in excess of the amount
treated as ordinary income will be capital gain or loss. Under recently enacted
capital gains legislation, the maximum federal tax rate applicable to such stock
held for more than 12 months but less than 18 months is 28% and the maximum
federal tax rate applicable to such stock held for at least 18 months is 20%.
All other options granted under the 1997 Stock Option Plan are
nonqualified stock options and will not qualify for any special tax benefits to
the optionee. An optionee generally will not recognize any taxable income at the
time he or she is granted a nonqualified stock option. However, upon exercise of
the nonqualified stock option, the optionee will recognize ordinary income for
federal income tax purposes in an amount equal to the excess of the then fair
market value of each share over its exercise price. Upon an optionee's resale of
such shares, any difference between the sale price and the fair market value of
such shares on the date of exercise will be treated as capital gain or loss and
will generally qualify for beneficial capital gains rates depending on the
length of the holding period.
Subject to the limits on deductibility of employee remuneration
under Section 162(m) of the Code, the Company will generally be entitled to a
tax deduction in the amount that an optionee recognizes as ordinary income with
respect to an option. Options granted to executive officers under the 1997 Stock
Option Plan are intended to qualify as performance-based compensation for
purposes of Section 162(m) of the Code, and the Company will generally be
entitled to a tax deduction in the amount recognized by such officers upon
exercise of the options. No tax authority or court has ruled on the
applicability of Section 162(m) to the 1997 Stock Option Plan and any final
determination of the deductibility of amounts realized upon exercise of an
option granted under the 1997 Stock Option Plan could ultimately be made by the
Internal Revenue Service or a court having final jurisdiction with respect to
the matter. The Company retains the right to grant options under the 1997 Stock
Option Plan in accordance with the terms of the 1997 Stock Option Plan
regardless of any final determination as to the applicability of Section 162(m)
of the Code to these grants.
The foregoing does not purport to be a complete summary of the
federal income tax considerations that may be relevant to holders of options or
to the Company. It also does not reflect provisions of the income tax laws of
any municipality, state or foreign country in which an optionee may reside, nor
does it reflect the tax consequences of an optionee's death.
PARTICIPATION IN THE 1997 STOCK OPTION PLAN
Grants under the 1997 Stock Option Plan are made at the discretion
of the administrator of the 1997 Stock Option Plan and future grants under the
1997 Stock Option Plan have not yet been determined. In May and July 1997,
options to purchase 145,000 shares of Common Stock were granted to Ronald I.
Simon, the Company's new Chief Financial Officer, and an employee of the Company
under the 1997 Stock Option Plan at an exercise price of $13.50 and $14.50 per
share, the market price of the Common Stock on the date of grant. Such option
grants under the 1997 Stock Option Plan were made subject to stockholder
approval shall be ratified if the 1997 Stock Option Plan is approved by the
stockholders of the Company. In the event the 1997 Stock Option Plan is not
approved by the Company's stockholders before June 1, 1998, the options so
granted under the 1997 Stock Option Plan shall automatically terminate.
14.
<PAGE> 17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, as well as persons who own more than
ten percent of the Company's Common Stock, to file with the Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the Common Stock. Directors, executive officers and greater-than-ten-percent
stockholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of copies of reports filed with the
Commission and submitted to the Company since April 1, 1996 and on
representations by certain directors and executive officers of the Company, the
Company believes that, with the exception of delinquent filings referred to
below, all persons subject to the reporting requirements of Section 16(a) filed
all required reports on a timely basis during the past fiscal year. The
following persons failed to file the required reports reflecting the grant of
stock options to them during the past fiscal year: Peter L. Jensen, Jay B.
Abramson, John H. Huston, Eric R. Robbins, Marilyn B. Dreyer, and Edward A.
Beeman. In addition, Mr. Jensen failed to file a report in connection with his
gift of shares to a charitable organization.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of KPMG Peat Marwick
LLP ("Peat Marwick") as the Company's independent auditors for the year ending
March 31, 1998, subject to ratification by the stockholders. Effective March 24,
1997, the Company appointed Peat Marwick to replace Harlan & Boettger LLP
("Harlan & Boettger") as the Company's independent auditors. A representative of
Peat Marwick is expected to attend the Company's Annual Meeting. He or she will
have an opportunity to make a statement, if he or she desires to do so, and will
be available to respond to appropriate questions.
Effective March 24, 1997, the Company advised Harlan & Boettger, its
prior certifying accountants, that it had decided to change accounting firms.
Harlan & Boettger's report dated May 20, 1996 and its report dated May 18, 1995
on the financial statements of the Company for the fiscal years ended March 31,
1996 and 1995, respectively, do not contain an adverse opinion or a disclaimer
of opinion, and were not qualified as to uncertainty, audit scope or accounting
principles. The decision to change accounting firms was made by the Board of
Directors upon the recommendation of the Audit Committee. There have been no
disagreements with Harlan & Boettger on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure during
the fiscal years ended March 31, 1996 and 1995 and the subsequent interim period
preceding the dismissal of Harlan & Boettger, which disagreements, if not
resolved to the satisfaction of Harlan & Boettger, would have caused it to make
reference to the subject matter of the disagreement in connection with its
reports. Effective March 24, 1997, the Company engaged Peat Marwick as its new
certifying accountants. The Company has not, during the fiscal years ended March
31, 1995 and March 31, 1996 or the subsequent interim period, consulted with
Peat Marwick regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements.
Stockholder ratification of the selection of Peat Marwick as the
Company's independent public accountants is not required by the Company's Bylaws
or otherwise. However, the Board is submitting the selection of Peat Marwick to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Board will reconsider whether or
not to retain that firm. Even if the selection is ratified, the Board in their
discretion may direct the appointment of a different independent accounting firm
at any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
15.
<PAGE> 18
STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF STOCKHOLDERS
Stockholders of the Company who intend to submit proposals to the
Company's stockholders at the next annual meeting of stockholders must submit
such proposals to the Company no later than May 15, 1998 in order for such
proposals to be included in the proxy materials. Stockholder proposals should be
submitted to Ronald I. Simon, Secretary, Western Water Company, 4660 La Jolla
Village Drive, Suite 825, San Diego, California 92122.
OTHER MATTERS
If any matters not referred to in this Proxy Statement should
properly come before the meeting, the persons named in the proxies will vote the
shares represented thereby in accordance with their judgment. Management is not
aware of any such matters that may be presented for action at the meeting.
Matters incident to the conduct of the meeting may be voted upon pursuant to the
proxies.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge a copy of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997 as filed
with the Securities and Exchange Commission to any stockholder desiring a copy.
Stockholders may write to the Company at:
Western Water Company
4660 La Jolla Village Drive
Suite 825
San Diego, California 92122
Attn: Ronald I. Simon
By Order of the Board of Directors
Ronald I. Simon
Secretary
September 15, 1997
16.
<PAGE> 19
APPENDIX 1
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
The purposes of the 1997 Stock Option Plan ("Plan") of Western Water
Company, a Delaware corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants
to improve operations and increase profits of the
Company;
(b) Encourage selected employees, directors and consultants
to accept or continue employment or association with the
Company or its Affiliates; and
(c) Increase the interest of selected employees, directors
and consultants in the Company's welfare through
participation in the growth in value of the common stock
of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), or "nonqualified options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee of
the Company or of any Affiliate (as defined below) of the Company is eligible to
receive NQOs or ISOs under this Plan. Every person who at the date of grant is a
consultant to, or non-employee director of, the Company or any Affiliate (as
defined below) of the Company is eligible to receive NQOs under this Plan. The
term "Affiliate" as used in this Plan means a parent or subsidiary corporation
as defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Code. The term "employee" includes an officer or director
who is an employee of the Company. The term "consultant" includes persons
employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject to the provisions of Section 6.1.1 of this Plan, the total
number of shares of stock which may be issued under Options granted pursuant to
this Plan shall not exceed 600,000 shares of Common Stock. The shares covered by
the portion of any grant under this Plan which expires unexercised shall become
available again for grants under this Plan. No eligible person shall be granted
Options during any twelve-month period covering more than 200,000 shares.
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") to which
administration of this Plan, or of part of this Plan, is delegated by the Board
(in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable laws.
If necessary in order to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Section 162(m) of the Code,
the Committee shall, in the Board's discretion, be comprised solely of
"non-employee directors" within the meaning of said Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The foregoing
notwithstanding, the Administrator may delegate nondiscretionary administrative
duties to such
A-1
<PAGE> 20
employees of the Company as it deems proper and the Board, in its absolute
discretion, may at any time and from time to time exercise any and all rights
and duties of the Administrator under this Plan.
(b) Subject to the other provisions of this Plan, the Administrator shall
have the authority, in its discretion: (i) to grant Options; (ii) to determine
the fair market value of the Common Stock subject to Options; (iii) to determine
the exercise price of Options granted; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted, and the number of
shares subject to each Option; (v) to interpret this Plan; (vi) to prescribe,
amend, and rescind rules and regulations relating to this Plan; (vii) to
determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to accelerate the exercisability of an Option after
issuance; (xi) to authorize any person to execute on behalf of the Company any
instrument evidencing the grant of an Option; and (xii) to make all other
determinations deemed necessary or advisable for the administration of this
Plan. The Administrator may delegate nondiscretionary administrative duties to
such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after 10 years from the
date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement, in
form satisfactory to the Administrator, executed by the Company and the person
to whom such Option is granted.
(c) The stock option agreement shall specify whether each Option it
evidences is an NQO or an ISO, provided, however, (i) all Options granted under
this Plan to employees of the Company are intended to qualify as ISOs to the
maximum extent allowable under the Code, and (ii) all Options granted under this
Plan to non-employee directors and consultants of the Company are intended to be
NQOs.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may
approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval, and the date of
approval shall be deemed to be the date of grant unless otherwise specified by
the Administrator.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section
6.1.2, if the stock of the Company is changed by reason of a stock split,
reverse stock split, stock dividend, or recapitalization, combination or
reclassification, appropriate adjustments shall be made by the Board in (a) the
number and class of shares of stock subject to this Plan and each Option
outstanding under this Plan, and (b) the exercise price of each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result of any such adjustments. Each such adjustment
shall be subject to approval by the Board in its sole discretion.
A-2
<PAGE> 21
6.1.2 Corporate Transactions. In the event of a Corporate
Transaction (as defined below), the Administrator shall notify each optionee at
least 30 days prior thereto. To the extent not previously exercised, all Options
shall terminate immediately prior to the consummation of such Corporate
Transaction unless the Administrator determines otherwise in the exercise of its
sole discretion; provided, however, that the Administrator, in the exercise of
its sole discretion, may permit exercise of any Options prior to their
termination, even if such Options would not otherwise have been exercisable. A
"Corporate Transaction" means a liquidation or dissolution of the Company, a
merger or consolidation of the Company with or into another corporation or
entity, a sale of all or substantially all of the assets of the Company, or a
purchase of more than 50 percent of the outstanding capital stock of the Company
in a single transaction or a series of related transactions by one person or
more than one person acting in concert.
6.1.3 Time of Option Exercise. Subject to Section 5 and
Section 6.3.4, an Option granted under this Plan shall be exercisable in
accordance with a schedule as may be set by the Administrator and specified in
the written stock option agreement relating to such Option. In any case, no
Option shall be exercisable until a written stock option agreement in form
satisfactory to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. The date of grant of an Option
under this Plan shall be the effective date of the stock option agreement
granting the Option.
6.1.5 General Nontransferability of Option Rights; Limited
Transferability of NQOs. Except with the express written approval of the
Administrator which approval the Administrator is authorized to give only with
respect to NQOs, no Option granted under this Plan shall be assignable or
otherwise transferable by the optionee except by will or by the laws of descent
and distribution. During the life of the optionee, an Option shall be
exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. The Administrator, in the exercise of
its absolute discretion after considering any tax, accounting and financial
consequences, may authorize any one or more of the following additional methods
of payment:
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest would be imputed), which promissory note may be either
secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company);
(b) Subject to the discretion of the Administrator and
the terms of the stock option agreement granting the Option, delivery by the
optionee of shares of Common Stock already owned by the optionee for all or part
of the Option price, provided the fair market value (determined as set forth in
Section 6.1.10) of such shares of Common Stock is equal on the date of exercise
to the Option price, or such portion thereof as the optionee is authorized to
pay by delivery of such stock;
(c) Subject to the discretion of the Administrator,
through the surrender of shares of Common Stock then issuable upon exercise of
the Option, provided the fair market value (determined as set forth in Section
6.1.9) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by
surrender of such stock; and
(d) By means of so-called cashless exercises as
permitted under applicable rules and regulations of the Securities and Exchange
Commission and the Federal Reserve Board.
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6.1.7 Withholding and Employment Taxes. In the case of an
employee exercising a NQO, at the time of exercise and as a condition thereto,
or at such other time as the amount of such obligations becomes determinable,
the optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. Such obligation to remit may be satisfied, if
authorized by the Administrator in its sole discretion, after considering any
tax, accounting and financial consequences, by the optionee's (i) delivery of a
promissory note in the required amount on such terms as the Administrator deems
appropriate, (ii) tendering to the Company previously owned shares of Stock or
other securities of the Company with a fair market value equal to the required
amount, or (iii) agreeing to have shares of Common Stock (with a fair market
value equal to the required amount) which are acquired upon exercise of the
Option withheld by the Company.
6.1.8 Other Provisions. Each Option granted under this Plan
may contain such other terms, provisions, and conditions not inconsistent with
this Plan as may be determined by the Administrator, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.9 Determination of Value. For purposes of this Plan, the
fair market value of Common Stock or other securities of the Company shall be
determined as follows:
(a) If the stock of the Company is regularly quoted by
a recognized securities dealer, and selling prices are reported, its fair market
value shall be the closing price of such stock on the date the value is to be
determined, but if selling prices are not reported, its fair market value shall
be the mean between the high bid and low asked prices for such stock on the date
the value is to be determined (or if there are no quoted prices for the date of
grant, then for the last preceding business day on which there were quoted
prices).
(b) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry, the Company's management, and the values of
stock of other corporations in the same or a similar line of business.
6.1.10 Option Term. Subject to Section 6.3.4, no Option
shall be exercisable more than 10 years after the date of grant, or such lesser
period of time as is set forth in the stock option agreement (the end of the
maximum exercise period stated in the stock option agreement is referred to in
this Plan as the "Expiration Date").
6.2 Terms and Conditions to Which Only NQOs Are Subject.
Options granted under this Plan which are designated as NQOs shall be subject to
the following terms and conditions:
6.2.1 Exercise Price. (a) The exercise price of a NQO shall
be determined by the Administrator at the time the Option is granted.
6.2.2 Termination of Employment. If for any reason an
optionee ceases to be employed by the Company or any of its Affiliates, Options
that are NQOs held at the date of Termination (to the extent then exercisable)
may be exercised in whole or in part at any time within one year of the date of
such Termination (but in no event after the Expiration Date). For purposes of
this Section 6.2.2, "employment" includes service as a director or as a
consultant. For purposes of this Section 6.2.2, an optionee's employment shall
not be deemed to terminate by reason of sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed 90 days or, if longer, if the optionee's right to reemployment
by the Company or any Affiliate is guaranteed either contractually or by
statute.
6.3 Terms and Conditions to Which Only ISOs Are Subject.
Options granted under this Plan which are designated as ISOs shall be subject to
the following terms and conditions:
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<PAGE> 23
6.3.1 Exercise Price. (a) The exercise price of an ISO shall
be not less than the fair market value (determined in accordance with Section
6.1.9) of the stock covered by the Option at the time the Option is granted.
(b) The exercise price of an ISO granted to any Ten
Percent Stockholder shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.9) of the stock covered by the Option
at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code (a
disposition within two years from the date of grant of the Option or within one
year after the transfer such stock on exercise of the Option), the holder of the
stock immediately before the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Term. Notwithstanding Section 6.1.10, no ISO granted
to any Ten Percent Stockholder shall be exercisable more than five years after
the date of grant.
6.3.5 Termination of Employment. If for any reason an
optionee ceases to be employed by the Company or any of its Affiliates, Options
that are ISOs held at the date of Termination (to the extent then exercisable)
may be exercised in whole or in part at any time within one year of the date of
such Termination (but in no event after the Expiration Date). For purposes of
this Section 6.3.5, an optionee's employment shall not be deemed to terminate by
reason of sick leave, military leave or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall
give written notice to the Company at its principal executive office, to the
attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise price and withholding taxes as provided
in Sections 6.1.6 and 6.1.7. The date the Company receives written notice of an
exercise hereunder accompanied by payment of the exercise price will be
considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of
exercise of an Option and the payments called for by Section 7(a), the Company
shall, without stock issue or transfer taxes to the optionee or other person
entitled to exercise the Option, deliver to the optionee or such other person a
certificate or certificates for the requisite number of shares of stock. An
optionee or permitted transferee of the Option shall not have any privileges as
a stockholder with respect to any shares of stock covered by the Option until
the date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
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<PAGE> 24
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
10. NONEXCLUSIVITY OF THIS PLAN
The adoption of this Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under this Plan.
11. SECURITIES LAW REQUIREMENTS
The Company's obligation to issue shares of Common Stock upon
exercise of an option is expressly conditioned upon the completion by the
Company of any registration or other qualification of such shares under any
state and/or federal law or rulings and regulations of any government regulatory
body or the making of such investment representations or other representations
and undertakings by the optionee (or his legal representative, heir or legatee,
as the case may be) in order to comply with the requirements of any exemption
from any such registration or other qualification of such shares which the
Company in its sole discretion shall deem necessary or advisable. The Company
may refuse to permit the sale or other disposition of any shares acquired
pursuant to any such representation until it is satisfied that such sale or
other disposition would not be in contravention of applicable state or federal
securities law.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes or (b) the Board otherwise concludes that
stockholder approval is advisable.
13. EFFECTIVE DATE OF PLAN; TERMINATION
This Plan shall become effective upon adoption by the Board
provided, however, that no Option shall be exercisable unless and until written
consent of the stockholders of the Company, or approval of stockholders of the
Company voting at a validly called stockholders' meeting, is obtained within
twelve months after adoption by the Board. If such stockholder approval is not
obtained within such time, Options granted hereunder shall terminate and be of
no force and effect from and after expiration of such twelve-month period.
Options may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws. This Plan (but
not Options previously granted under this Plan) shall terminate within ten years
from the date of its adoption by the Board.
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<PAGE> 25
WESTERN WATER COMPANY
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter L. Jensen and Ronald I. Simon,
and either of them, as proxy holders with power to appoint his/her substitute
and hereby authorizes the proxy holders to represent and vote, as designated
below, all the shares of Common Stock of Western Water Company held of record
by the undersigned on September 10, 1997 at the annual meeting of shareholders
to be held on October 15, 1997 or any adjournment thereof.
(1) Election of Director:
[ ] FOR Peter L. Jensen [ ] WITHHOLD AUTHORITY to vote for Peter L. Jensen
(2) Proposal to approve adoption of the Company's 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Proposal to ratify the appointment of KPMG Peat Marwick LLP as the
independent accountants of the Company for the fiscal year ending
March 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In the discretion of the proxies to vote upon such other business as may
properly come before the meeting or any adjournment thereof.
<PAGE> 26
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made,
this proxy will be voted "FOR" proposals 1, 2 and 3.
- ------------------------------------------------------------------------------
Dated: (Signature) (Signature, if held jointly)
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
authorized partner.
[ ]
PLEASE PROMPTLY MARK, SIGN,
DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
[ ]
