<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] 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.
$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:
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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:
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(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 14, 1999
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, Cypress Room, 2055 Avenue of the Stars, Los
Angeles, California on Tuesday, September 14, 1999, at 10:00 a.m., for the
following purposes:
(1) To elect two members of the Company's Board of Directors for the
three-year term expiring at the annual meeting of stockholders to be
held in 2002 or until the directors' successor has been duly elected
and qualified;
(2) To ratify the appointment of KPMG LLP as the independent accountants
of the Company for the fiscal year ending March 31, 2000;
(3) To authorize the possible issuance of Common Stock equal to 20% or
more of the outstanding Common Stock (or voting power) upon the
conversion of shares of Series D Convertible Redeemable Preferred
Stock that may be sold in the future; 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 July 27, 1999 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.
The Board of Directors would like to thank Bill Watt, who retired from the
Board of Directors on July 22, 1999, for serving as a Director of the Company.
By Order of the Board of Directors
Ronald I. Simon
Secretary
San Diego, California
August 16, 1999
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 14, 1999
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 14, 1999, and at any adjournment or postponement thereof. This proxy
statement is first being mailed to stockholders on or about August 16, 1999. 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" the election of
management's nominees for the Board of Directors, the authorization of the
possible issuance of Common Stock equal to 20% or more of the outstanding Common
Stock (or voting power) upon the conversion of shares of Series D Convertible
Redeemable Preferred Stock that may be sold in the future, and the ratification
of the appointment of KPMG LLP as the independent accountants of the Company for
the fiscal year ending March 31, 2000. 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"), the Company's Series C Convertible Redeemable Preferred Stock
("Series C Preferred Stock") and the Company's Series D Convertible Redeemable
Preferred Stock ("Series D Preferred Stock") at the close of business on July
27, 1999 are entitled to notice of and to vote, as one class, at the meeting or
any adjournment thereof. The
1
<PAGE> 4
outstanding voting securities of the Company on July 27, 1999 consisted of
7,932,616 shares of Common Stock, 10,165 shares of Series C Preferred Stock and
10,000 shares of Series D 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 and Series D Preferred
Stock are entitled to cast the number of votes per share of Series C Preferred
Stock and Series D Preferred Stock on each matter presented for consideration
and action by the stockholders as if the Series C Preferred Stock and Series D
Preferred Stock had been converted into Common Stock on July 27, 1999. All of
the outstanding shares of Series C Preferred Stock and Series Preferred Stock on
July 27, 1999 are convertible into an aggregate of 611,593 and 1,112,347 shares
of Common Stock, respectively. 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 (a) the proposal to permit
the issuance of 20% or more of the outstanding Common Stock upon the conversion
of shares of Series D Preferred Stock and (b) 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. The holder of the Series D Preferred Stock has
informed the Company that it will not vote on the proposal regarding the
issuance of 20% or more of the outstanding Common Stock upon the conversion of
shares of Series D Preferred Stock. 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 Directors to be elected at the Annual Meeting will be elected by a
plurality of the votes cast. Only votes cast for the nominees will be counted,
except that each properly executed unrevoked proxy will be voted for
management's nominees 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 nominees will result in the nominees
receiving fewer votes.
ELECTION OF DIRECTORS
The authorized number of Directors of the Company is currently fixed at
six and is divided into three classes, each 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 nominations of
Ronald I. Simon and David A. Abel to serve a three-year term expiring in 2002.
If Messrs. Simon or Abel become unavailable for election, the accompanying
proxy will be voted for the election of such persons, 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
nominees for election as Director and (ii) the other Directors who will continue
in office after the meeting.
2
<PAGE> 5
NOMINEES FOR ELECTION TO TERM EXPIRING IN 2002
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION FOR THE
POSITIONS WITH PAST FIVE YEARS AND
NAME AGE COMPANY CERTAIN OTHER DIRECTORSHIPS
- ---- --- -------------- ----------------------------
<S> <C> <C> <C>
Ronald I. Simon 60 Executive Vice President May 1997 to April 1999, Vice President of the
since April 1999; Chief Company; 1974 to present, President of Ronald I.
Financial Officer and Simon, Inc. a financial consulting firm; 1993 to
Secretary since May 1997 1997, Chairman of the Board of Sonant Corporation,
an interactive voice response equipment company;
1995 to present, Director of Citadel Holdings
Corporation, a real estate investment company;
1995 to present, Director of SoftNet Systems,
Inc., an internet service provider; 1995 to
present, Director of Westcorp Investments, a
wholly-owned subsidiary of Westcorp Inc., the
holding company for Western Financial Bank; May
1999 to present, Director of Collateral
Therapeutics, Inc., a developer of non-surgical
gene therapy products to treat cardiovascular
disease; 1986 to 1990, Managing Director and Chief
Financial Officer of Henley Group, Inc.
David A. Abel 53 Director since 1980 to present, President and Chief Executive
November 1998 Officer of ABL, Incorporated, a consulting firm;
1997 to present, Director of the Metro Forum
Project, a foundation to engage citizen leaders in
an exploration of the fiscal constraints on local
government; 1996 to present, Chairman of the Los
Angeles County Economy & Efficiency Commission;
1997 to present, Chairman of CALSTART, one of
seven national corsortia working to build and
support an advanced transportation technology;
1984 to present, Director of SuperShuttle
International, Inc. a transportation 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 Directors Whose Terms of Office Will Expire in 2000
Peter L. Jensen 48 Director, since April 1989 to April 1998, President and Chief
October 1984; Executive Officer of the Company and its
Chairman since predecessors; 1983 to April 1989, Director,
April 1990 President and Chief Operating Officer of a
predecessor of the Company.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Michael Patrick George 49 Director, President and President and Chief Executive Officer of the
Chief Executive Officer Company since April 1998; Managing Director of
since April 1998 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.
Incumbent Directors Whose Term of Office Will Expire in 2001
Juan Ras Sirera 51 Director since From 1999 to present, Director General of Sociedad
October 1998 General de Aguas de Barcelona S. A. ("Agbar");
from 1975 to present, Chairman and Chief Executive
Officer of several companies controlled by Agbar:
Sorea S. A., Aquagest S. A., Ansa S. A., water
distribution companies, Cespa S.A., Cespa GR S.
A., waste collection and treatment companies,
Searsa S. A., Netaigua S. A., sewage treatment
companies; Member of the Board of several
companies of Agbar's group, Amaem S. A., Emarasa,
Emuasa.
Scott A. Katzmann 43 Director since March 1993 to present, Managing Director of
June 1997 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>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 1999, the Board of Directors held
eight meetings. All directors attended at least 75% of the meetings during the
year or, in the case of Messrs. Abel and Ras, since they joined the Board.
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. During the fiscal year ended March 31, 1999, the
Audit Committee consisted of Mr. Watt and Mr. Ras.
During the fiscal year ended March 31, 1999, the Company's Compensation
Committee held one meeting. The Compensation Committee establishes the
compensation of executive officers and administers the
4
<PAGE> 7
Company's stock option plans. The Compensation Committee consists of Messrs.
Abel, Katzmann, and Ras.
The Company's Nomination Committee consisted of Messrs. Jensen, Ras and
George. The committee met informally several times during the year.
Other than the Audit Committee, Compensation Committee and the Nomination
Committee, the Company has no committees of its Board of Directors.
EXECUTIVE OFFICER
The following chart sets forth information as of July 27, 1999 concerning the
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Michael P. George 49 President and Chief Executive Officer
Peter L. Jensen 48 Chairman of the Board
Ronald I. Simon 60 Executive Vice President, Chief Financial Officer and Secretary
Zach A. McReynolds 42 Executive Vice President, Chief Marketing Officer
</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. For biographical information regarding Mr. Simon, see
the biography under the heading "Nominees For Election To Term Expiring in 2002"
above.
Zach A. McReynolds was employed as a Vice President of the Company in June
1998. Mr. McReynolds was promoted to Executive Vice President, Chief Marketing
Officer of the Company in April 1999. 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 27, 1999 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 nominees); (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
nominees) of the Company as a group. In addition to the shares listed in the
following table, as of July 27, 1999 there were 10,000 shares of Series D
Preferred Stock outstanding, all of which were owned by Interagua, Servicios
Integrales del Agua, S.A., an affiliate of Agbar. The outstanding shares of
Series D Preferred Stock are convertible into 1,112,347 shares of Common Stock,
representing 12.3% of the Common Stock and 11.5% of the votes of all classes of
capital stock. The address of Interagua, Servicios Integrales del Agua, S.A. is
Principe De Vergara 110 2B002 Madrid, Spain.
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>
Peter L. Jensen 358,734(3) 4.3% 0 0% 3.6%
Michael P. George 232,848(4) 2.9% 0 0% 2.4%
Ronald I. Simon 139,668(5) 1.7% 0 0% 1.4%
Zach A. McReynolds 76,668(6) 1.0% 0 0% *
Scott A. Katzmann 59,427(7) * 0 0% *
David A. Abel 5,100 * 0 0% *
Juan Ras Sirera 0(8) 0% 0 0% 0
Memorial Drive Trust 430,200(9) 5.1% 0 0% 4.3%
125 Cambridge Park Drive
Cambridge, MA 02140
T. Rowe Price Associates, Inc. 1,119,914(10) 13.6% 4,516(12) 44.4% 11.6%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price New Era Fund Inc. 135,856(11) 1.7% 2,258 22.2% 1.4%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price Small-Cap Value 135,856(11) 1.7% 2,258 22.2% 1.4%
Fund, Inc.
100 East Pratt Street
Baltimore, MD 21202
Ashford Capital Partners, L.P. 67,928(11) * 1,129(13) 11.1% *
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Wisconsin Alumni Research 67,928(11) * 1,129 11.1% *
Foundation
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Ashford Capital Management, 183,628(11) 2.3% 3,052(14) 30.0% 1.9%
Inc. as investment advisor for
certain investment accounts
B-107, 3801 Kennett Pike
P.O. Box 4172
Wilmington, DE 19807
Warburg, Pincus Asset 923,550(15) 11.7% 0 0% 9.6%
Management, Inc.
466 Lexington Ave
New York, NY 10017
All directors and executive 872,445(16) 10.2% 0 0% 8.5%
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.
6
<PAGE> 9
(2) Based on 7,932,616 votes entitled to be cast by the holders of the
outstanding Common Stock, 611,593 votes entitled to be cast by the holders
of the 10,165 shares of outstanding Series C Preferred Stock and 1,112,347
votes entitled to be cast by the holder of the 10,000 shares of
outstanding Series D Preferred Stock.
(3) Includes 203,334 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes 216,668 shares of Common Stock issuable upon the exercise of
currently exercisable options.
(5) Includes 114,668 shares of Common Stock issuable upon exercise of
currently exercisable options.
(6) Includes 66,668 shares of Common Stock issuable upon the exercise of
currently exercisable options.
(7) Consists of 39,426 immediately exercisable stock purchase warrants and
20,001 shares of Common Stock issuable upon exercise of currently
exercisable options.
(8) Mr. Ras is a Director General of Agbar, a company that owns a 50% interest
in Interagua, Servicios Integrales del Agua, S.A. Interagua owns all of
the outstanding shares of Series D Preferred Stock, which shares are
convertible into 1,112,347 shares of Common Stock . Mr. Ras disclaims
beneficial ownership of the shares of Series D Preferred Stock owed by
Interagua.
(9) Based on information contained in a statement on Schedule 13G filed by
Memorial Drive Trust with the Securities and Exchange Commission on
February 11, 1999.
(10) 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 12, 1999. Represents 848,202 shares of Common Stock
beneficially owned by T. Rowe Price Associates, Inc., and 271,712 shares
of Common Stock issuable upon the conversion of the 4,516 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 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. Excludes the 3,052
shares of Series C Preferred Stock (183,628 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
advisor as indicated in footnote(14) below.
(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 advisor 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) The information presented with respect to Warburg, Pincus Asset
Management, Inc. is as reported by Warburg, Pincus Asset Management, Inc.
pursuant to a Schedule 13G/A filed with the Securities and Exchange
Commission on January 15, 1999. As reported, Warburg, Pincus Asset
Management, Inc. serves as investment advisor to many accounts including
various registered investment companies.
(16) Includes 660,765 shares of Common Stock issuable upon exercise of
currently exercisable options and warrants
7
<PAGE> 10
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,
1999, 1998 and 1997 of (i) all persons who served as the Chief Executive Officer
of the Company during the fiscal year ended March 31, 1999 and (ii) each of the
other executive officers of the Company whose total annual salary and bonus
during the fiscal year ended March 31, 1999 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
Annual Compensation ---------------------
------------------------------------ Number Stock
Name and Principal Position Year Salary Bonus Option Shares Granted
- --------------------------- ---- ---------- -------- ---------------------
<S> <C> <C> <C> <C>
Peter L. Jensen 1999 $250,000 $150,000 0
Chairman 1998 $239,350 $100,000 0
1997 $215,460 $ -0- 125,000
Michael Patrick George 1999 $233,986(1) $ -0- 650,000
President and Chief
Executive Officer
Ronald I. Simon 1999 $199,800 $ -0- 20,000
Executive Vice President, 1998 $159,375(2) $ -0- 200,000
Chief Financial Officer
Zach McReynolds 1999 $150,058(3) $ -0- 200,000
Executive Vice President,
Chief Marketing Officer
</TABLE>
- ------------------
(1) Mr. George joined the Company in April 1998.
(2) Mr. Simon joined the Company in May 1997.
(3) Mr. McReynolds joined the Company in June 1998.
8
<PAGE> 11
Option Grants. The following table provides information on stock options
granted in the fiscal year ended March 31, 1999 to the Named Executives.
OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Percentage of Potential Realizable Value at
Total Options Assumed Annual Rates of Stock
Granted to Exercise or Appreciation For Option Term
Options Employees in Base Price Expiration ------------------------------
Name Granted(1) Fiscal Year (per share)(2) Date 5%(3) 10%(3)
- -------------------- ---------- ------------ -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Patrick George 150,000 14.8% $10.875 April 2008 $1,025,884 $2,599,792
250,000 24.6% $15.400 April 2008 $ 578,557 $3,201,737
250,000 24.6% $21.000 April 2008 $ -0- $1,801,737
Ronald I. Simon 20,000 2.0% $12.000 April 2008 $ 114,284 $ 324,139
Zach A. McReynolds 50,000 4.9% $ 9.188 June 2008 $ 288,898 $ 732,125
75,000 7.4% $15.500 June 2008 $ -0- $ 624,751
75,000 7.4% $21.000 June 2008 $ -0- $ 212,251
</TABLE>
- ------------------
(1) One-third of the options are exercisable commencing one year after the
date of grant, one-third are exercisable two years after the date of
grant, and one-third are exercisable three years after the date of grant.
(2) 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.
(3) 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, 1999 by the Named
Executives.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of
Unexercised Options Unexercised Options
Shares at March 31, 1999 At March 31, 1999(2)
Acquired Value --------------------------- ----------------------------
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Jensen -0- $ -0- 203,334 41,666 $-0- $-0-
Michael Patrick George -0- -0- -0- 650,000 -0- -0-
Ronald I. Simon 4,000 $3,500 68,000 148,000 -0- -0-
Zach A. McReynolds -0- -0- -0- 200,000 -0- -0-
</TABLE>
- ----------
9
<PAGE> 12
(1) The value realized represents the excess of the market value of the Common
Stock on the date exercised over the exercise price of the options.
(2) The value of unexercised options represents the excess of the market value
of the Common Stock on March 31, 1999 over the exercise price of the
options. For the purposes of this table, no value is attributed to
unexercised options if the exercise price exceeds the market price.
Director Compensation. Effective April 1, 1999, 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 10,000 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. Such
options are exercisable as to one-third on the first, second and third
anniversary of grant. Messrs. Watt, Katzmann, Abel and Agbar, Mr. Ras' assignee,
were each granted options to purchase 10,000 shares on April 1, 1999, which
options are exercisable at a price of $4.375 per share. In connection with Mr.
Abel's appointment as director on November 11, 1998, Mr. Abel received options
to purchase 20,000 shares and are exercisable at a price of $5.25 per share. In
addition, options to purchase 20,000 shares were granted effective March 15,
1999 to Agbar, Mr. Ras' assignee, which options are exercisable at $5.75
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. Mr. Simon was promoted to Executive Vice President
and Chief Financial Officer in April 1999. 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 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.
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. On May 13, 1999, the employment agreement was amended to extend
the term of Mr. Jensen's employment agreement to April 19, 2000.
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.
10
<PAGE> 13
Effective July 1, 1998, Mr. McReynold's annual salary was adjusted to $210,000.
In April 1999, Mr. McReynolds was promoted to Executive Vice President, Chief
Marketing Officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No members of the Compensation Committee are, or since April 1, 1998 have
been, officers of the Company, nor have such members had any material business
relationship with the Company. However, Mr. Ras, one of the members of the
Compensation Committee, is the Director General of Agbar. In October 1998, the
Company entered into a Strategic Relationship Agreement with Agbar, pursuant to
which one of Agbar's subsidiaries purchased 10,000 shares of the Series D
Preferred Stock for $10,000,000 and appointed Mr. Ras to the Company's Board of
Directors.
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.
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
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
11
<PAGE> 14
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 10,000 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. The 1997 Stock Option Plan provides for the grant
of 1,200,000 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.
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.
12
<PAGE> 15
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 650,000 shares of
Common Stock may be granted to any one employee in any twelve month period.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTION PLANS
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. 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 Company's stock option plans 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 stock
option plans 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 stock option plans 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 its option plan
in accordance with the terms of the plans regardless of any final determination
as to the applicability of Section 162(m) of the Code to these grants.
13
<PAGE> 16
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.
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 16 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
comprised of Messrs. Katzmann, Abel and Ras.
The Compensation Committee establishes and periodically reviews and
revises the compensation of the Chief Executive Officer, the Chairman of the
Board, and the Executive Vice Presidents of the Company. 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.
The Company has established a written performance compensation plan that
is to be used by the Compensation Committee to compensate all of the Company's
employees other than employees that are subject to written agreements. The
written plan, which is in effect for the fiscal year ending March 31, 2000,
provides for the establishment of written, specific, attainable, and measurable
performance objectives and for the compensation of employees upon the
achievement of the enumerated objectives. The purpose of the plan is to
encourage employees to increase the operating profitability of the Company and
appreciation of the value of the Common Stock by providing incentive
compensation to employees who meet the Compensation Committee's performance
criteria.
Compensation of Chief Executive Officer
During the fiscal year ended March 31, 1999, the Company paid the Chief
Executive Officer only the compensation specified in the employment agreement it
entered into with him in April 1998. The terms of the employment agreement are
summarized under the caption "Executive Compensation-Employment Agreements" in
this Proxy Statement. Consistent with the Company's overall compensation program
described above, the compensation of Mr. George, the Chief Executive Officer,
consists of a base salary and a long-term incentive component consisting of
stock options. Since the purpose of the long-term compensation component is to
align the interests of the Chief Executive Officer with those of the
stockholders, the options granted to Mr. George are exercisable in part at the
market price on the date of grant, in part at a price equal to 142% of the
market price on the date of grant, and in part at a price equal to 193% of the
market price on the date of grant.
14
<PAGE> 17
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, 1999 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 2000 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 1999
was, a former officer or employee of the Company or of its subsidiary.
Compensation Committee: Scott A. Katzmann, David A. Abel and
Juan Ras Sirera.
15
<PAGE> 18
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, 1994 and ending March 31, 1999. 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, 1994 and assumes that dividends were
reinvested.
The stockholder return shown on the following graph is not necessarily
indicative of future performance.
[GRAPH]
<TABLE>
<CAPTION>
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Company's Common Stock 100.00 132.08 191.20 143.40 95.60 50.31
Nasdaq Broad Market Index 100.00 111.24 151.02 168.03 254.80 342.15
Nasdaq Non-Financial Stock Index 100.00 109.57 147.80 159.64 240.15 332.67
</TABLE>
16
<PAGE> 19
PROPOSAL TO AUTHORIZE POSSIBLE ISSUANCE OF COMMON STOCK
On October 13, 1998, the Company entered into a Strategic Relationship
Agreement (the "Agreement") with Sociedad General de Aguas de Barcelona, a
Spanish corporation ("Agbar") to sell to Agbar, or to a subsidiary of Agbar,
10,000 shares of Series D Preferred Stock at a cash purchase price of $1,000 per
share. As permitted by the Agreement, Agbar assigned its right to purchase the
shares to Interagua, Servicios Integrales del Agua, S.A., a Spanish corporation,
50% of whose outstanding equity securities are owned by Agbar. On October 27,
1998, pursuant to the Agreement, Interagua, Servicios Integrales del Agua, S.A.
purchased 10,000 shares of the Series D Preferred Stock for an aggregate cash
purchase price of $10,000,000. These 10,000 shares are convertible into shares
of Common Stock at a conversion price of $8.99 per share. The closing price of
the Common Stock on the date of the issuance of the Series D Preferred Stock was
$5.81.
Under the terms of the Agreement, Agbar has also agreed to purchase from
the Company, during the two-year period ending October 31, 2000, up to an
additional 15,000 shares of Series D Preferred Stock at a cash purchase price of
$1,000 per share, subject to satisfaction of the conditions set forth in the
Agreement. The conversion price for these additional 15,000 shares will be equal
to 119% of the weighted average trading price of the Common Stock for the 60
consecutive trading days prior to the date such shares are issued.
NASDAQ STOCKHOLDER APPROVAL REQUIREMENTS
The Common Stock is currently traded on the Nasdaq National Market. The
rules of The Nasdaq Stock Market governing companies traded on the Nasdaq
National Market require that the Company obtain prior stockholder approval for
the sale of securities in a private placement if (i) such securities are
convertible into Common Stock at less than market value on the date of the
issuance of such securities, and (ii) the total maximum number of shares of
Common Stock issuable upon the conversion equals or exceeds 20% of the number of
shares of Common Stock outstanding (or 20% or more of the voting power
outstanding) before the issuance.
Depending on the market price of the Common Stock at the time of the
issuance of additional shares of Series D Preferred Stock, the issuance of the
additional shares may violate the foregoing 20% limit. For example, based on the
number of securities outstanding on July 27, 1999, if the Company in the future
sells all 15,000 shares of Series D Preferred Stock to Agbar, the issuance will
exceed the foregoing 20% limit if the conversion price for the Series D
Preferred Stock is $7.77 or less. (The weighted average trading price of the
Common Stock for the 60 consecutive trading days prior to July 27, 1999 was
$3.32.)
If the issuance of additional shares of Series D Preferred Stock exceeds
the 20% limit, the issuance will violate the rules of The Nasdaq Stock Market if
the conversion price at the time of the issuance is less than the market value
of the Common Stock at the time of the issuance. Although the conversion price
for the additional 15,000 shares of Series D Preferred Stock will be 119% of the
weighted average trading price for the prior 60 consecutive trading days, 119%
of the weighted average price may be less than the market value of the Common
Stock on the date of the issuance of the additional shares of the Series D
Preferred Stock.
Under the circumstances described in the prior two paragraphs, it is
possible that the issuance of the additional shares of Series D Preferred Stock
will violate the rules of The Nasdaq Stock Market unless stockholder approval is
obtained prior to the issuance of the additional shares of Series D Preferred
Stock. In order to assure compliance with the rules of The Nasdaq Stock Market,
the Company is requesting that the stockholders authorize the Company to issue
and deliver both the 15,000 additional shares of Series D Preferred Stock and
the shares of Common Stock upon the conversion of such shares of Series D
Preferred Stock, if and when the Company is obligated to do so under the
Agreement. Should the stockholders not approve the future potential issuance,
and if the future issuance violates the above described rules, The Nasdaq
17
<PAGE> 20
Stock Market may terminate the trading of the Common Stock on the Nasdaq
National Market and/or the Nasdaq SmallCap Market.
The Agreement does not obligate Agbar to purchase the additional 15,000
shares of Series D Preferred Stock, and the issuance is subject to a number of
conditions, including the identification of one or more water projects to be
funded from the purchase price of the additional shares of Series D Preferred
Stock. Furthermore, it is not certain that any future issuance will violate the
above mentioned rule of The Nasdaq Stock Market. However, should the Company
sell additional shares of Series D Preferred Stock under circumstances that
would violate the rules of The Nasdaq Stock Market absent stockholder approval,
the Board of Directors of the Company believes that it would be in the best
interests of the Company and the stockholders that such issuance not cause the
delisting of the Common Stock from the Nasdaq trading markets. Accordingly, the
Board of Directors recommends a vote FOR approval of this proposal.
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, 1999 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 LLP as the Company's
independent auditors for the year ending March 31, 2000. A representative of
KPMG LLP 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.
Stockholder ratification of the selection of KPMG LLP 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 KPMG LLP 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 16, 2000 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.
18
<PAGE> 21
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 16, 1999
19
