<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 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.
[ ] 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:
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(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:
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(5) Total fee paid:
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[ ] 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
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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
WESTERN WATER COMPANY
4660 LA JOLLA VILLAGE DRIVE
SUITE 825
SAN DIEGO, CALIFORNIA 92122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1998
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 Tuesday, September 15, 1998, 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 2001 or until the director's successor has been duly elected
and qualified;
(2) To approve an increase of 800,000 shares in the number of shares of
Common Stock reserved for issuance under the Company's 1997 Stock
Option Plan from 600,000 to 1,400,000 shares;
(3) To ratify an amendment of the Company's 1997 Stock Option Plan
increasing the limitation on the number of shares of Common Stock
that may be granted to a person, in any fiscal year, pursuant to
options under the 1997 Stock Option Plan from 200,000 shares to a
new maximum of 650,000 shares;
(4) To ratify the appointment of KPMG Peat Marwick LLP as the
independent accountants of the Company for the fiscal year ending
March 31, 1999; and
(5) 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 July 24, 1998 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
August 14, 1998
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
SEPTEMBER 15, 1998
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
September 15, 1998, and at any adjournment or postponement thereof. This proxy
statement is first being mailed to stockholders on or about August 14, 1998. 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 an
increase of 800,000 shares in the number of shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan from 600,000 to 1,400,000
shares; (iii) the ratification of an amendment of the Company's 1997 Stock
Option Plan increasing the limitation on the number of shares of Common Stock
that may be granted to a person, in any fiscal year, pursuant to options under
the 1997 Stock Option Plan from 200,000 shares to a new maximum of 650,000
shares; and (iv) the ratification of the appointment of KPMG Peat Marwick LLP as
the independent accountants of the Company for the fiscal year ending March 31,
1999. 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.
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 July 24, 1998 are
entitled to notice of and to vote, as one class, at the meeting or any
adjournment
<PAGE> 4
thereof. The outstanding voting securities of the Company on July 24, 1998
consisted of 8,235,816 shares of Common Stock and 9,809 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 July 24, 1998. All of the outstanding shares of Series C
Preferred stock on July 24, 1998 are convertible into an aggregate of 590,191
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 increase in the number
of shares of Common Stock reserved for issuance under the 1997 Stock Option
Plan, the amendment of the Company's 1997 Stock Option Plan increasing the
limitation on the number of shares of Common Stock that may be granted, 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 classes having one member and the
third class 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 Scott A. Katzmann to serve a
three-year term expiring in 2001.
If Mr. Katzmann 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 2001
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION FOR THE
POSITIONS WITH PAST FIVE YEARS AND
NAME AGE COMPANY CERTAIN OTHER DIRECTORSHIPS
- ---- --- -------------- ----------------------------
<S> <C> <C> <C>
Scott A. Katzmann 42 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.
</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
- ---- --- -------------- ----------------------------
<S> <C> <C> <C>
Incumbent Director Whose Term of Office Will Expire in 1999
William D. Watt 58 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.
Incumbent Directors Whose Terms of Office Will Expire in 2000
Peter L. Jensen 47 Director, since October April 1989 to April 1998, President and Chief
1984; Chairman since April Executive Officer of the Company; 1984 to
1989 April 1989, President and Chief Operating
Officer of the Company; 1983 to April 1989,
Director, President and Chief 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).
Michael P. George 48 Director, President and President and Chief Executive Officer of the
Chief Executive Officer Company since April 1998; Managing Director
since April 1998 of J.P. Morgan, an investment banking firm,
from 1992 to April 1998; an officer of The
First Boston Corporation, an investment
banking firm, from 1984 to 1992; Vice
President with Lehman Brothers Kuhn Loeb, an
investment banking firm, from 1978 to 1984;
attorney at O'Connor & Hannan, a law firm,
from 1975 to 1978.
</TABLE>
3.
<PAGE> 6
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 1998, the Board of Directors held
seven meetings. All directors attended all meetings held during their tenure
during the fiscal year other than Mr. Watt, who attended six of the seven
meetings.
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 two meetings. All members
of the Audit Committee participated in the two Audit Committee meetings 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, 1998, the Company's Compensation
Committee held two meetings. The Compensation Committee establishes the
compensation of executive officers and administers the Company's stock option
plans. The Compensation Committee currently consists 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 July 24, 1998 concerning
the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- --------------------- --- -------------------------------------------
<S> <C> <C>
Peter L. Jensen 47 Chairman of the Board
Michael P. George 48 President and Chief Executive Officer
Ronald I. Simon 59 Vice President, Chief Financial Officer and
Secretary
Roger S. Faubel 49 Vice President
Zach A. McReynolds 41 Vice President
</TABLE>
For biographical information regarding Mr. Jensen and Mr. George, see the
biographies under the heading "Directors Whose Terms of Office Will Continue
After the Meeting" 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 internet service company. From
1986 to 1990, Mr. Simon was the Managing Director and Chief Financial Officer of
Henley Group, Inc.
Roger S. Faubel joined the Company in June 1997 and became a Vice
President of the Company in February 1998. Mr. Faubel is also the President of
Roger Faubel Public Affairs, Inc., a public affairs consulting firm. From 1972
to 1996, Mr. Faubel was a Director of Field Operations, Public Affairs for
Southern California Edison Company, an electric utility.
4.
<PAGE> 7
Zach A. McReynolds was employed as a Vice President of the Company in June
1998. From 1995 until his employment with the Company, Mr. McReynolds was
President of ZAMIV Corporation, a financial consulting firm. From 1993 to 1995,
Mr. McReynolds was a Vice President for Morgan Stanley & Co., Inc., an
investment banking firm. From 1988-1993, Mr. McReynolds was Vice President for
Rauscher Pierce Refsnes, Inc., an investment banking firm.
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 July 24, 1998 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 380,538(3) 4.6% 0 0% 4.3%
Michael P. George 0 0% 0 0% 0%
John H. Huston 235,026(4) 3.0% 0 0% 2.8%
Eric R. Robbins 0 0 0 0% 0%
Ronald I. Simon 56,000(5) * 0 0% *
Zach A. McReynolds 0 * 0 0% *
Roger S. Faubel 4,334(6) * 0 0% *
Scott A. Katzmann 59,422(7) * 0 0% *
William D. Watt 19,996(5) * 0 0% *
Cramer Rosenthal McGlynn, Inc. 496,300 6.0% 0 0% 5.6%
707 Westchester Ave.
White Plains, N.Y. 10604
T. Rowe Price Associates, Inc. 1,109,914(8) 13.5% 4,360(10) 44.4% 12.6%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price New Era Fund Inc. 131,157(9) 1.6% 2,180 22.2% 1.5%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price Small-Cap Value 131,157(9) 1.6% 2,180 22.2% 1.5%
Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202
Ashford Capital Partners, L.P. 65,578(9) * 1,090(11) 11.1% *
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Wisconsin Alumni Research Foundation 65,578(9) * 1,090 11.1% *
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Ashford Capital Management, Inc. as 177,048(9) 2.1% 2,943(12) 30.0% 2.0%
investment advisor for certain investment
accounts
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
</TABLE>
5.
<PAGE> 8
<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>
Warburg, Pincus Asset Management, Inc. 848,150(13) 10.3% 0 0 9.6%
466 Lexington Ave.
New York, NY 10017
All directors and executive 520,290(14) 6.3% 0 0% 5.9%
Officers as a group (7 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 8,235,816 votes entitled to be cast by the holders of the
outstanding Common Stock and 590,191 votes entitled to be cast by the
holders of the 9,809 shares of outstanding Series C Preferred Stock.
(3) Includes 161,668 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes 60,000 shares of Common Stock issuable upon exercise of currently
exercisable options. Mr. Huston, a named executive officer in the
compensation tables, has not been an officer or director of the Company
since December 1997.
(5) Represents shares of Common Stock issuable upon exercise of currently
exercisable options.
(6) Includes 3,334 shares of Common Stock issuable upon exercise of currently
exercisable options.
(7) Consists of 39,426 immediately exercisable stock purchase warrants and
19,996 shares of Common Stock issuable upon exercise of currently
exercisable options.
(8) Based on information contained in a statement on Schedule 13G/A filed by
T. Rowe Price Associates, Inc. with the Securities and Exchange Commission
on February 13, 1998, and includes the shares of Series C Preferred Stock
issued on July 15, 1998 as a dividend. Represents 847,600 shares of Common
Stock beneficially owned by T. Rowe Price Associates, Inc., and 262,314
shares of Common Stock issuable upon the conversion of the 4,360 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.
(9) Represents shares of Common Stock issuable upon the conversion of the
shares of Series C Preferred Stock owned by such beneficial owners.
(10) 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.
(11) 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. Excludes the 2,943
shares of Series C Preferred Stock (177,048 shares of Common Stock) held
of record and beneficially by or on behalf of certain investment advisory
client accounts managed by Ashford Capital Management, Inc., as investment
adviser, as indicated in footnote (12) below.
(12) 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 (11) above.
(13) The information presented with respect to Warburg, Pincus Asset
Management, Inc. is as reported by Warburg, Pincus Asset Management, Inc.
pursuant a Schedule 13G/A filed with the Securities and Exchange
Commission on April 9, 1998. As reported, Warburg, Pincus Asset
Management, Inc. serves as investment adviser to many accounts including
various registered investment companies.
(14) Includes 300,420 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,
1998, 1997 and 1996 of (i) all persons who served as the Chief Executive Officer
of the Company during the fiscal year ended March 31, 1998 and (ii) each of the
other executive officers of the Company whose total annual salary and bonus
during the fiscal year ended March 31, 1998 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
Annual Compensation Compensation Awards
------------------------------------- ---------------------
Number Stock All Other
Name and Principal Position Year Salary Bonus Option Shares Granted Compensation
- --------------------------- ---- ------ ----- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Peter L. Jensen 1998 $239,350 $100,000 0
Chairman, President and 1997 $215,460 $ -0- 125,000
Chief Executive Officer(1) 1996 $198,510 $ -0- 60,000
John H. Huston 1998 $133,073 $90,000 0 $128,461(3)
Senior Vice President(2) 1997 $179,550 $ -0- 100,000
1996 $157,115 $ -0- 36,000
Eric R. Robbins 1998 $133,894 $85,000 0 $27,500(5)
Vice President(4) 1997 $123,417 $ -0- 100,000
1996 $ 41,385(6) $ -0- 60,000
Ronald I. Simon 1998 $159,375(7) $ -0- 200,000 $139,500(8)
Vice President,
Chief Financial Officer
</TABLE>
- ----------
(1) Mr. Jensen resigned as President and Chief Executive Officer after the
fiscal year ended March 31, 1998.
(2) Mr. Huston resigned from the Company in December 1997.
(3) Represents $100,000 severance payment made to Mr. Huston in December 1997
in connection with the termination of his employment agreement, plus
$28,461 of accrued vacation pay owing to Mr. Huston.
(4) Mr. Robbins resigned from the Company in January 1998.
(5) Represents amounts paid to Mr. Robbins during the fiscal year ended March
31, 1998 in connection with the termination of his employment agreement.
(6) Mr. Robbins joined the Company in November 1995.
(7) Mr. Simon joined the Company in May 1997.
(8) Reflects the annualized portion of the difference between the exercise
price of 80,000 options granted to Mr. Simon and the market price at the
time of the grant.
Option Grants. The following table provides information on stock options
granted in the fiscal year ended March 31, 1998 to the Named Executives.
OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Percentage of
Total Options Potential Realizable Value at Assumed
Granted to Exercise or Annual Rates of Stock Appreciation
Options Employees in Base Price Expiration For Option Term
-------------------------------------------
Name Granted Fiscal Year (per share) Date 0%(7) 5%(8) 10%(8)
- ----------------------- ------------ ---------------- ---------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald I. Simon 60,000(1) 18.5% $13.50(4) May 2007 $ 0 $ 509,405 $1,290,931
60,000(2) 18.5% $9.50(5) May 2007 $240,000 $ 749,405 $1,530,931
80,000(3) 25% $6.75(6) May 2007 $540,000 $1,219,206 $2,261,242
</TABLE>
- ----------
(1) Options to purchase 20,000 shares are exercisable commencing two years
after the date of grant, and the options for the purchase of 40,000 shares
are exercisable three years after the date of grant.
7.
<PAGE> 10
(2) Options to purchase 40,000 shares are exercisable commencing one year
after the date of grant, and the options for the purchase of 20,000 shares
are exercisable two years after the date of grant.
(3) 20% of the options became exercisable on December 15, 1997, and 20% will
become exercisable on each of December 15, 1998, December 15, 1999,
December 15, 2000 and December 15, 2001.
(4) These 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.
(5) These options were initially granted at an exercise price of $13.50 per
share. The exercise price was reduced to $9.50 in March 1998. See
"Ten-Year Option Repricings," below.
(6) The closing stock price for the Common Stock on the date of grant was
$13.50.
(7) Represents the value of the option at the grant date based on the
difference between the closing stock price on the date of grant and the
exercise price reflected in the table.
(8) 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.
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, 1998 by the Named
Executives.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1998
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of
Unexercised Options Unexercised Options
Shares at March 31, 1998 At March 31, 1998(1)
Acquired Value ------------------------------ -------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Jensen -0- $ -0- 161,668 83,332 $ 303,750 $ -0-
Ronald I. Simon -0- -0- 16,000 184,000 60,000 300,000
John H. Huston -0- -0- 196,000 -0- 303,750 -0-
Eric R. Robbins -0- -0- 160,000 -0- -0- -0-
</TABLE>
- ----------
(1) The value of unexercised options represents the excess of the market value
of the Common Stock on March 31, 1998 over the exercise price of the
options.
Ten-Year Option Repricings. The following table sets forth information
regarding the adjustment ("repricing") of the exercise price of stock options
previously awarded to any of the Named Executives.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length of
Number of original
securities Market price Exercise option term
underlying of stock at price at remaining at
options/SARs time of time of New date of
repriced or repricing or repricing or exercise repricing or
Name Date amended(#) amendment($) amendment($) price($) amendment
- ---- ----------------- ------------------ ------------------ ----------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald I. Simon March 6, 1998 60,000 $ 9.50 $ 13.50 $9.50 9 years
Vice President,
Chief Financial Officer
and Secretary
</TABLE>
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 is automatically granted an option on
the first business day of each fiscal year to purchase 20,000 shares of
8.
<PAGE> 11
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 are 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. Mr. Watt and Mr. Katzmann were each granted
options to purchase 20,000 shares on April 1, 1998, which options are
exercisable at a price of $10.875 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 April 20, 1998, the Company entered into
two-year employment agreements with Michael P. George and Ronald I. Simon
pursuant to which Messrs. George and Simon agreed to serve as Chief Executive
Officer and President and the Vice President and Chief Financial Officer,
respectively, of the Company. The employment agreements provide for a annual
base salary of $250,000 and $210,000 for Messrs. George and Simon, 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. George and Simon will fully vest upon the merger of the Company if
the Company is not the surviving entity, the sale of 50% or more of the
Company's assets, or if a "group," as defined under Section 13(d) of the
Securities Exchange Act of 1934, acquires 50% or more of the outstanding Common
Stock. In connection with his employment with the Company, Mr. George was
granted options to purchase 150,000 shares of Common Stock at a price of $10.875
per share, options to purchase an additional 250,000 shares at a price of $15.40
per share, and options to purchase an additional 250,000 shares at a price of
$21.00 per share. The options vest over a three-year period commencing on the
first anniversary of the date of grant. Of the foregoing options that were
granted to Mr. George, 500,000 are contingent upon the approval of the
stockholders of the proposal to increase the size of the 1997 Stock Option Plan
described in this Proxy Statement.
On August 15, 1997, the Company entered into a two-year employment
agreement with Peter L. Jensen pursuant to which Mr. Jensen agreed to serve as
the Chairman of the Board, President and Chief Executive Officer of the Company.
The employment agreement provides for an annual base salary of $250,000, subject
to cost of living increases. Mr. Jensen resigned as President and Chief
Executive Officer in April 1998, but continues to act as the Company's Chairman
of the Board. Other than the change in Mr. Jensen's offices, the employment
agreement continues to be in effect.
The Company entered into a letter agreement with Zach McReynolds in June
1998 pursuant to which Mr. McReynolds agreed to be employed as a Vice President
of the Company. The letter agreement provides that Mr. McReynolds will receive
an annual salary of $185,000 and will be eligible to participate in any new
employee bonus plan that the Company may develop. In connection with his
employment with the Company, Mr. McReynolds was granted options to purchase
50,000 shares of Common Stock at a price of $9.1875 per share, options to
purchase an additional 75,000 shares at a price of $15.50 per share, and options
to purchase an additional 75,000 shares at a price of $21.00 per share. The
options vest over a three-year period and are contingent upon the approval of
the stockholders of the proposal to increase the size of the 1997 Stock Option
Plan described in this Proxy Statement.
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
9.
<PAGE> 12
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.
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
and method of exercise 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.
10.
<PAGE> 13
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. For a description of the essential features of
the 1997 Stock Option Plan, see "Amendment Increasing the Size of the 1997 Stock
Option Plan."
COMPENSATION OF EXECUTIVE OFFICERS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement in whole or in part, the following report and the
Performance Graph on page 13 shall not be incorporated by reference into any
such filings.
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. The Company's Compensation Committee is
currently comprised of William D. Watt and Scott A. Katzmann.
The Compensation Committee establishes and periodically reviews and
revises the compensation of the Chief Executive Officer and the management
employees who report to the Chief Executive Officer. 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.
Compensation of Chief Executive Officers
The compensation of Mr. Jensen, the Chief Executive Officer of the Company
until April 1998, consisted of base salary, bonus and incentive stock options.
The Compensation Committee periodically reviewed Mr. Jensen's salary and total
compensation based on the Company's financial, strategic and other goals. 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 a bonus of $100,000 during the past
fiscal year.
11.
<PAGE> 14
Option Repricing
In March 1998, the Board of Directors (including the Compensation
Committee) determined that it was in the best interest of the Company to offer
to reprice certain of the then-existing stock options of the Company with
exercise prices in excess of the then-current fair market value of the Company's
Common Stock. Given the substantial decline in fair market value of the
Company's Common Stock in the six months prior to March 1998, and the fact that
many of the Company's employees had commenced work at the Company during that
period, certain of the Company's employees held stock option grants, before the
repricing, with exercise prices substantially in excess of the fair market value
of the Company's Common Stock in March 1998.
The objectives of the 1997 Stock Option Plan are to promote the interests
of the Company by providing employees and consultants an incentive to acquire a
proprietary interest in the Company and to continue to render services to the
Company. It was the view of the Board that stock options with exercise prices
substantially above the current market price of the Company's Common Stock
provided little equity incentive, particularly to employees of relatively short
tenure. The Board thus concluded that such option grants failed to meet the
specific objectives of the 1997 Stock Option Plan and should be repriced.
In this context, The Board of Directors decided that effective March 6,
1998 certain employees, officers and directors holding options under the 1997
Stock Option Plan with exercise prices in excess of the fair market value of the
Company's Common Stock on March 6, 1998 would receive one-for-one repricing of
their then-existing unexercised stock options with a new exercise price set at
$9.50 per share, the closing sale price and fair market value of the Company's
Common Stock on March 6, 1998. Upon reconsidering the reasons for repricing the
options, the Board subsequently rescinded the repricing of the options held by
the Company's former Chief Executive Officer and by the members of the Board of
Directors, and also rescinded the repricing of some of the options of one of the
Company's officers. Excluding the option repricings that were rescinded, the
total number of stock option shares that were repriced was 111,000. Other than
the change in the exercise price, the affected options remain the same.
It is the opinion of the Board of Directors and the Compensation Committee
that this program helped build optionee morale and provided new incentives for
the Company's employees and management.
Compliance With Internal Revenue Code Section 162(m)
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to publicly held companies for compensation exceeding $1 million paid
to certain of the corporation's executive officers. However, compensation which
qualifies as "performance-based" is excluded from the $1 million limit if, among
other requirements, the compensation is payable upon attainment of
pre-established, objective performance goals under a plan approved by the
stockholders.
The compensation to be paid to the Company's executive officers for the
March 31, 1998 fiscal year did not exceed the $1 million limit per officer, nor
is it expected that the compensation to be paid to the company's executive
officers for fiscal 1999 will exceed that limit. The Company's 1997 Stock Option
Plan is structured so that any compensation income realized by an executive
officer as a result of the exercise of an outstanding option or the sale of
option shares under the 1997 Stock Option Plan will qualify as
"performance-based" compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Compensation Committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
continue to monitor the compensation levels potentially payable under the
Company's cash compensation programs, but intends to retain the flexibility
necessary to provide total cash compensation in line with competitive practice,
the Company's compensation philosophy and the Company's best interests.
No member of the past Compensation Committee is, or during Fiscal 1998
was, a former officer or employee of the Company or of its subsidiary.
Current Compensation Committee: William D. Watt and Scott A. Katzmann
12.
<PAGE> 15
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, 1993 and ending March 31, 1998. 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, 1993 and assumes that dividends were
reinvested.
The stockholder return shown on the following graph is not necessarily
indicative of future performance.
[STOCK PERFORMANCE GRAPHIC]
<TABLE>
<CAPTION>
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Company's Common Stock 100.00 165.63 218.75 316.67 237.50 158.33
Nasdaq Broad Market Index 100.00 107.94 120.07 163.01 181.37 275.03
Nasdaq Non-Financial Stock Index 100.00 109.71 120.21 162.15 175.14 263.47
</TABLE>
13.
<PAGE> 16
AMENDMENT INCREASING THE SIZE OF THE 1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan was adopted by the Board of Directors
in July 1997 and was thereafter approved by the stockholders. During the fiscal
year ended March 31, 1998, the Company granted options for the purchase of a
total of 176,000 shares of Common Stock, leaving a total of 424,000 options
available for grant. After March 31, 1998, the Company hired a new President and
Chief Executive Officer (Mr. George) and a new Vice President (Mr. McReynolds).
In connection with hiring these executives, the Company granted Mr. George
options to purchase a total of 650,000 shares of Common Stock, and granted Mr.
McReynolds options to purchase 200,000 shares. Of these options, options to
purchase 200,000 shares were granted at an exercise price equal to the market
price on the date of grant, and options to purchase the remaining 650,000 shares
were granted at exercise prices substantially higher than the market price on
the date of grant. Although the Company had sufficient shares available under
the 1997 Stock Option Plan to issue the market price options, the number of
above market options exceeded the remaining number shares available under the
1997 Stock Option Plan. Since the Board of Directors believed that granting the
options at the above market price would be in the best interests of the
Company's stockholders, the Board of Directors approved an amendment to the 1997
Stock Option Plan to increase the number of shares reserved for issuance
thereunder by an additional 800,000 shares to 1,200,000 shares. In addition to
the grants to Mr. George and Mr. McReynolds, the increase in the number of
shares under the 1997 Stock Option Plan is necessary in order to allow the
Company to continue to provide additional equity incentives to other existing
and future eligible employees and directors. The Company believes that its
ability to grant stock options is critical to its success in attracting and
retaining experienced and qualified employees.
The foregoing options granted to Messrs. George and McReynolds to purchase
850,000 shares are exercisable in three equal annual installments, commencing on
the first anniversary of the date of the grant. Of Mr. George's options, 150,000
have an exercise price of $10.875 per share, 250,000 have an exercise price of
$15.40 per share, and 250,000 have an exercise price of $21.00 per share. Of Mr.
McReynolds' options, 50,000 have an exercise price of $9.1875 per share, 75,000
have an exercise price of $15.50 per share, and 75,000 have an exercise price of
$21.00 per share. All of the options granted to Mr. McReynolds, and options
granted to Mr. George for the purchase of 500,000 shares were granted contingent
upon obtaining stockholder approval of an amendment increasing the number of
options available for grant under the 1997 Stock Option Plan. In the event the
amendment to the 1997 Stock Option Plan is not approved by the Company's
stockholders, these options so granted under the 1997 Stock Option Plan shall
automatically terminate. As of the record date of the Annual Meeting, the market
value of shares subject to outstanding options under the 1997 Stock Option Plan
(excluding the options granted to Messrs. George and McReynolds) was
approximately $2,194,500, based upon the closing price of the Common Stock on
the Nasdaq Stock Market System on such date ($10,269,500 if the options granted
to Messrs. George and McReynolds are included).
At the Annual Meeting, the stockholders are being asked to approve an
increase of 800,000 shares of Common Stock available for issuance under 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. 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.
14.
<PAGE> 17
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.
Currently, 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; however, as part of this Proxy Statement and at the Annual
Meeting, the stockholders are being asked to ratify an amendment to the 1997
Stock Option Plan that will increase this limitation to 650,000 shares. See,
"Amendment of the 1997 Stock Option Plan."
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
15.
<PAGE> 18
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.
AMENDMENT OF THE 1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan provides that no eligible person
shall be granted option during any twelve-month period covering more than
200,000 shares. In connection with the grant of options to purchase a total of
650,000 shares to Michael P. George, the Company's new President and Chief
Executive Officer, the Board of Directors approved and amendment to the 1997
Stock Option Plan to increase the limitation on the number of shares that may be
granted to any eligible person in any fiscal year from 200,000 to 650,000. The
increase in the maximum number of shares that can be granted in any fiscal year
was necessary due to the options granted to Mr. George and in order to give the
Board of Directors additional capacity in the future to attract and retain key,
experienced and qualified employees who are critical to the immediate and
long-term success of the Company. The Company believes that the proposed
increase is desirable so that the Company can grant such options if the need
arises. The essential features of the 1997 Stock Option Plan are described above
in "Amendment Increasing the Size of the 1997 Stock Option Plan."
At the Annual Meeting, the stockholders are being asked to ratify the
increase in the limitation on the number of shares of Common Stock that may be
granted to eligible persons, in any fiscal year, pursuant to options under the
terms of the 1997 Stock Option Plan from 200,000 shares to a new maximum of
650,000 shares.
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, 1997 and on representations by
certain directors and executive officers of the Company, the Company believes
that all persons subject to the reporting requirements of Section 16(a) filed
all required reports on a timely basis during the past fiscal year.
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, 1999, subject to ratification by the stockholders. A representative of Peat
Marwick is expected to attend the Company's Annual Meeting. He or she will have
an
16.
<PAGE> 19
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 LLP
("Harlan & Boettger"), its prior certifying accountants, that it had decided to
change accounting firms. Harlan & Boettger's report dated May 20, 1996 on the
financial statements of the Company for the fiscal year ended March 31, 1996
does not contain an adverse opinion or a disclaimer of opinion, and was 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 year
ended March 31, 1996 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 year ended 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.
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 April 4, 1999 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.
By Order of the Board of Directors
Ronald I. Simon
Secretary
August 14, 1998
17.
<PAGE> 20
WESTERN WATER COMPANY
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 on the
reverse side, all shares of Common Stock of Western Water Company held of
record by the undersigned on July 24, 1998 at the annual meeting of
stockholders to be held at 10:00 a.m. on September 15, 1998 or any adjournment
thereof.
IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE
o FOLD AND DETACH HERE o
<PAGE> 21
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 1,2,3 and 4.
Please mark
your vote as X
indicated in
this example
(1)Election of directors:
FOR WITHHOLD
Scott A. Katzmann AUTHORITY
to vote for
Scott A. Katzmann
[ ] [ ]
(2)Proposal to ratify an increase of 800,000
shares in the number of Common Stock reserved
for issuance under the Company's 1997 Stock
Option Plan from 600,000 to 1,400,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) Proposal to ratify an amendment of the Company's 1997 Stock Option Plan
increasing the limitation on the number of shares of Common Stock that may
be granted to a person, in any fiscal year, pursuant to options under the
1997 Stock Option Plan from 200,000 shares to a new maximum of 650,000
shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(4) Proposal to ratify the appointment of KPMG Peat Marwick LLP as the
independent accountants of the Company for the fiscal year ending March 31,
1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(5) In their discretion, the proxy holders are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
Dated:_____________________, 1998
_________________________________
(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 titles 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.
*FOLD AND DETACH HERE*
