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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION REGISTRANT AND STATE OF INCORPORATION IRS EMPLOYE
FILE NO. ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
------------- ------------------------------------- ------------------
333-47647 American States Water Company 95-4676679
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
000-01121 Southern California Water Company 95-1243678
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STATES WATER COMPANY
COMMON SHARES, $2.50 STATED VALUE NEW YORK STOCK EXCHANGE
- -------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether Registrant has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and has been subject to such filing requirements for the
past 90 days.
American States Water Company Yes [x] No [ ]
Southern California Water Company Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the total voting stock held by non-affiliates of
American States Water Company was approximately $263,068,000 on March 20, 2000.
The closing price per Common Share on that date, as quoted in the Western
Edition of The Wall Street Journal, was $29-3/8. Voting Preferred Shares of
American States Water Company, for which there is no established market, were
valued on March 20, 2000 at $1,793,000 based on a yield of 4.80%. As of March
20, 2000, the number of Common Shares of American States Water Company, $2.50
Stated Value, outstanding was 8,957,671. As of that same date, all 100
outstanding Common Shares of Southern California Water Company were owned by
American States Water Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement will be subsequently filed with the Securities
and Exchange Commission as to Part III, Item Nos. 10, 11, 12 and 13, in each
case as specifically referenced herein.
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AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-K
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I
<S> <C>
Item 1: Business 1
Item 2: Properties 2 - 3
Item 3: Legal Proceedings 3 - 5
Item 4: Submission of Matters to a Vote of Security Holders 5
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 5 - 6
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial Conditions and
Results of Operation 7 - 21
Item 7A: Quantitative and Qualitative Disclosures About Market Risk 22
Item 8: Financial Statements and Supplementary Data 23 - 48
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 49
PART III
Item 10: Directors and Executive Officers of Registrant 49
Item 11: Executive Compensation 49
Item 12: Security Ownership of Certain Beneficial Owners and Management 49
Item 13: Certain Relationships and Related Transactions 49
PART IV
Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 49 - 56
Signature(s) 57 - 58
</TABLE>
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ITEM 1. BUSINESS
This annual report on Form 10-K is a combined report being filed by two
separate Registrants: American States Water Company (hereinafter "AWR") and
Southern California Water Company (hereinafter "SCW"). References in this report
to "Registrant" are to AWR and SCW, collectively, unless otherwise specified.
SCW makes no representations as to the information contained in this report
relating to AWR and its subsidiaries, other than SCW.
GENERAL
AWR was incorporated in 1998 in connection with the formation of a
holding company by SCW and became a public company on July 1, 1998. AWR has no
material assets other than the common stock of SCW. SCW is a public utility
company engaged principally in the purchase, production, distribution and sale
of water (SIC No. 4941). SCW also distributes electricity in one customer
service area (SIC No. 4911). SCW is regulated by the California Public Utilities
Commission (CPUC) and was incorporated on December 31, 1929 under the laws of
the State of California. AWR has another subsidiary, American States Utility
Services, Inc. (ASUS) which contracts to lease, operate and maintain
governmentally owned water and wastewater systems and to provide other services
to local governments to assist them in the operation and maintenance of their
water and wastewater systems. Neither AWR nor ASUS are regulated by the CPUC.
SCW is organized into three regions and one electric customer service
area operating within 75 communities in 10 counties in the State of California
and provides water service in 21 customer service areas. Region I incorporates 7
customer service areas in northern and central California; Region II has 4
customer service areas located in Los Angeles; Region III incorporates 10 water
customer service areas. SCW also provides electric service to the City of Big
Bear Lake and surrounding areas in San Bernardino County. All electric energy
sold by SCW to customers in its Bear Valley Electric customer service area was
purchased under an energy brokerage contract with Sempra Energy Corporation from
March 26, 1996 to May 1, 1999, and with Illinova Energy Partners, currently
under the name of Dynegy Energy Services resulting from the merger of Dynegy and
Illinova, since May 1, 1999.
SCW served 244,086 water customers and 21,181 electric customers at
December 31, 1999, or a total of 265,267 customers, compared with 263,499 total
customers at December 31, 1998.
ACQUISITION OF PEERLESS WATER CO.
In December 1999, Registrant agreed to acquire Peerless Water Co., a
privately owned water company in Bellflower, California, subject to satisfaction
of certain conditions, including CPUC approval. The number of Common Shares to
be issued will be determined at the closing, but will in no event be greater
than 131,036 shares nor less than 107,538 shares.
ACQUISITION OF CHAPARRAL CITY WATER COMPANY
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary in
transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
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COMPETITION
The business of SCW is substantially free from direct and indirect
competition with other public utilities, municipalities and other public
agencies. AWR's other subsidiary, ASUS, actively competes with other
investor-owned utilities, other third party providers of water and wastewater
services, and governmental entities on the basis of price and quality of
service.
EMPLOYEE RELATIONS
Registrant had 492 employees as of December 31, 1999 as compared to 470
at December 31, 1998. Seventeen positions in SCW's Bear Valley Electric customer
service area are covered by a collective bargaining union agreement, which
expires in 2002, with the International Brotherhood of Electrical Workers. Sixty
positions in SCW's Metropolitan ratemaking district are covered by a collective
bargaining unit agreement, which expires in 2001, with the Utility Workers of
America. Registrant has no other unionized employees.
ITEM 2 - PROPERTIES
FRANCHISES AND CONDEMNATION OF PROPERTIES
SCW holds franchises from incorporated communities and counties which it
serves. SCW holds certificates of public convenience and necessity granted by
the CPUC in each of the ratemaking districts it serves. SCW's certificates,
franchises and similar rights are subject to alteration, suspension or repeal by
the respective governmental authorities having jurisdiction.
The laws of the State of California provide for the acquisition of
public utility property by governmental agencies through their power of eminent
domain, also known as condemnation. Registrant has not been, within the last
three years, involved in activities related to the condemnation of any of its
water customer service areas or in its Bear Valley Electric customer service
area.
ELECTRIC PROPERTIES
SCW's electric properties are all located in the Big Bear area of San
Bernardino County. As of December 31, 1999, SCW operated 28.7 miles of overhead
34.5 KV transmission lines, 0.6 miles of underground 34.5 KV transmission lines,
173.1 miles of 4.16 KV or 2.4 KV distribution lines, 41.7 miles of underground
cable and 14 sub-stations. There are no generating plants in SCW's system.
OFFICE BUILDINGS
Registrant's general offices are housed in a single-story office
building located in San Dimas, California. The land and the building, which was
completed and occupied in early 1990, are owned by Registrant. The Registrant
also owns and occupies certain facilities housing regional, district and
customer service offices while other such facilities are housed in leased
premises.
WATER PROPERTIES
As of December 31, 1999, SCW's physical properties consisted of water
transmission and distribution systems which included 2,742 miles of pipeline
together with services, meters and fire hydrants and 436 parcels of land,
generally less than 1 acre each, on which are located wells, pumping plants,
reservoirs and other water utility facilities including five surface water
treatment plants.
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As of December 31, 1999, SCW owned 297 wells. Certain wells have been
removed from service due to water quality problems. (See Environmental Matters
to the Management's Discussion and Analysis) All wells are equipped with pumps
with an aggregate capacity of approximately 240 million gallons per day. SCW has
40 connections to the water distribution facilities of the Metropolitan Water
District of Southern California (MWD) and other municipal water agencies. SCW's
storage reservoirs and tanks have an aggregate capacity of approximately 97
million gallons. SCW owns no dams in its customer service areas. The following
table provides, in greater detail, selected water utility plant of SCW for each
of its water ratemaking districts:
<TABLE>
<CAPTION>
Pumps Distribution Facilities Reservoirs
------------------------ ---------------------------------------------------- ------------------------
District Well Booster Mains Meters Services Hydrants Tanks Capacity
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arden Cordova 27 17 476,694 3,392 8,452 1,186 3 4,000
Barstow 24 37 873,447 13,734 10,784 1,013 13 8,025
Bay Point 3 14 161,504 5,295 3,465 341 7 4,046
Calipatria 0 8 139,180 1,200 1,664 84 1 150
Claremont 28 35 721,021 14,139 11,184 1,176 13 16,061
Clearlake 0 13 192,298 2,743 954 75 4 847
Desert 16 20 750,004 7,492 4,570 575 13 1,477
Los Osos 8 10 201,408 3,973 1,466 167 5 1,134
Metro 79 83 4,799,404 171,815 109,478 7,719 41 25,209
Ojai 5 12 234,319 5,168 3,436 348 4 1,490
Orange 33 38 2,202,610 66,503 41,712 4,534 16 11,755
San Dimas 11 38 1,491,515 34,485 8,096 879 16 10,149
San Gabriel 23 8 553,449 11,298 13,073 792 3 1,520
Santa Maria 30 24 961,541 22,367 7,648 775 9 3,173
Simi 2 23 503,632 14,522 10,138 873 8 6,250
Wrightwood 8 5 216,809 5,464 680 76 7 1,546
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 297 385 14,478,835 383,590 236,800 20,613 163 96,832
</TABLE>
Capacity is measured in thousands of gallons
MORTGAGE AND OTHER LIENS
As of December 31, 1999, Registrant had no mortgage debt outstanding,
and its properties were free of any encumbrances or liens securing indebtedness.
ITEM 3 - LEGAL PROCEEDINGS
WATER QUALITY-RELATED LITIGATION
SCW is a defendant in eleven lawsuits involving claims pertaining to
water quality. Nine of the lawsuits involve customer service areas located in
Los Angeles county in the southern portion of the State of California; two of
the lawsuits involve a customer service area located in Sacramento county in
northern California. See the section entitled "Risk Factor Summary" for more
information.
On September 1, 1999, the First District Court of Appeal in San
Francisco, in a published opinion entitled Hartwell Corporation v. The Superior
Court of Ventura County, held that the CPUC had pre-emptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of eleven lawsuits against SCW have been ordered for dismissal by the state
Court of Appeals -- the Adler (Case No. 1), Santamaria (Case No. 2), Anderson
(Case No. 3), Dominguez (Case No. 4), Celi (Case No. 5), Boswell (Case No. 6),
and Demciuc (Case No. 7) Matters. On October 11, 1999, one group of plaintiffs
has
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appealed to the California Supreme Court. The Supreme Court has accepted the
petition. Management can not predict whether the plaintiffs will be successful
in the appeal.
On December 3, 1998, SCW was named as a defendant in a complaint in
multiple counts, styled Abarca, et al. v. City of Pomona, et al. (Case No. 8),
filed in Los Angeles Superior Court which seeks recovery for negligence,
wrongful death, strict liability, permanent trespass, continuing trespass,
continuing nuisance, permanent nuisance, negligence per se, absolute liability
for ultrahazardous activity, fraudulent concealment, conspiracy/fraudulent
concealment, battery and unfair business practices on behalf of 383 plaintiffs
(the Abarca Matter). Plaintiffs seek damages, including general and special
damages according to proof, punitive and exemplary damages, as well as
attorney's fees, costs of suit and other unspecified relief. SCW was served on
June 18, 1999.
SCW was named as a defendant, along with the City of Pomona,
California and Xerox Corporation in the matter styled Adejare, et al. v.
Southern California Water Company, et al. (Case No. 9), filed on July 22, 1999
in Los Angeles Superior Court which seeks recovery for wrongful death, battery
and fraudulent concealment (the Adejare Matter). Plaintiffs seek damages,
including general and special damages according to proof, punitive and
exemplary damages, as well as attorney's fees, costs of suit and other
unspecified relief.
In December 1997 SCW was named a defendant in the matter of Nathaniel
Allen, Jr., et al. v. Aerojet-General Corporation, et al. (Case No. 10), which
was filed in Sacramento Superior Court. The complaint makes claims based on
wrongful death, personal injury, property damage as a result of nuisance and
trespass, medical monitoring, and diminution of property values (the Allen
Matter). Plaintiffs allege that SCW and other defendants have delivered water to
plaintiffs which allegedly is, or has been in the past, contaminated with a
number of chemicals, including TCE, PCE, carbon tetrachloride, perchlorate,
Freon-113, hexavalent chromium and other, unnamed, chemicals. SCW filed
Demurrers and Motion to Strike in this matter on June 5, 1998. On August 31,
1998, the judge assigned to the Allen Matter, acting on the Court's own motion,
issued a stay of all proceedings in the Allen matter pending the outcome of the
CPUC's Order Instituting Investigation (OII) proceeding. The plaintiffs
petitioned the Third District Court of Appeal for a Writ of Mandamus to overrule
the stay. The Court denied the petition. Plaintiff's then petitioned the
California Supreme Court for relief from the Appellate Court's ruling. The
California Supreme Court denied plaintiff's petition. Thus the stay in the Allen
Matter remains in effect.
In March 1998, SCW was named a defendant in the matter of Daphne Adams,
et al. v. Aerojet General, et al. (Case No. 11) which was filed in Sacramento
Superior Court (the Adams Matter). The complaint makes claims based on
negligence, strict liability, trespass, public nuisance, private nuisance,
negligence per se, absolute liability for ultrahazardous activity, fraudulent
concealment, violation of California Business and Professions Code section 17200
et seq., intentional infliction of emotional distress, intentional spoilage of
evidence, negligent destruction of evidence needed for prospective civil
litigation, wrongful death and medical monitoring. Plaintiffs seek damages,
including general, punitive and exemplary damages, as well as attorney's fees,
costs of suit, injunctive and restitutionary relief, disgorged profits and civil
penalties, medical monitoring according to proof and other unspecified relief.
SCW filed its Demurrers and Motion to Strike in this matter on June 5, 1998. On
August 31, 1998, the judge assigned to the Adams Matter, acting on the Court's
own motion, issued a stay of all proceedings in the Adams matter pending the
outcome of the CPUC's OII proceeding. The plaintiff's petitioned the Third
District Court of Appeal for a Writ of Mandamus to overrule the stay. The Court
denied the petition. Plaintiff's then petitioned the California Supreme Court
for relief from the Appellate Court's ruling. The California Supreme Court
denied plaintiff's petition. Thus the stay in the Adams Matter remains in
effect.
In light of the breadth of plaintiffs' claims in these matters, the lack
of factual information regarding plaintiffs' claims and injuries, if any, and
the fact that no discovery has yet been completed, SCW is unable at this time to
determine what, if any, potential liability it may have with respect to these
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claims. Registrant believes there are no merits to these claims and intends to
vigorously defend against them.
ORDER INSTITUTING INVESTIGATION
In March 1998, the CPUC issued an OII to regulated water utilities in
the state of California, including SCW. The purpose of the OII is to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
are being uniformly complied with by those water utilities. The OII delineates
the constitutional and statutory jurisdiction of the CPUC and the California
Department of Health Services (DOHS) in establishing and enforcing adherence to
water quality standards. The CPUC's jurisdiction provides for the establishment
of rates which permit water utilities to furnish water service meeting the
established water quality standards at prices which are both affordable and
allow the utility to earn a reasonable return on its investment. SCW has
provided its response to a series of questions dealing with the adequacy of
current drinking water standards, compliance by water utilities with such
standards, appropriate remedies for failure to comply with safe drinking water
standards and whether increased enforcement and additional drinking water
standards are necessary.
On June 10, 1999, the CPUC issued an interim order which established
that the CPUC has jurisdiction to conduct the investigation regarding matters
related to water quality over those water utilities subject to its authority.
The Administrative Law Judge assigned to the OII has issued a draft decision
finding that water utilities, including SCW, have complied with DOHS regulation
and requirements. SCW is unable to predict whether the draft decision will be
approved in part or in its entirety by the CPUC. SCW anticipates a final
decision by the CPUC on this matter in 2000. See Note 8 to the Notes to
Financial Statements.
OTHER LITIGATION
Registrant is also subject to ordinary routine litigation incidental to
its business. Other than as disclosed above, no legal proceedings are pending,
except such incidental litigation, to which Registrant is a party or of which
any of its properties is the subject which are believed to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION RELATING TO COMMON SHARES -
Common Shares of American States Water Company are traded
on the New York Stock Exchange (NYSE) under the symbol AWR. The
high and low NYSE prices on the Common Shares for each quarter
during the past two years were:
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<TABLE>
<CAPTION>
Stock Prices
-----------------------------------
High Low
-------------- ---------------
<S> <C> <C>
1999
First Quarter $ 30 $ 23 9/16
Second Quarter 29 1/4 22 3/16
Third Quarter 37 1/8 28 3/8
Fourth Quarter 39 3/4 31 3/4
1998
First Quarter $ 26 $ 23 1/16
Second Quarter 27 1/8 21 1/8
Third Quarter 27 23 1/4
Fourth Quarter 29 1/4 24 7/8
</TABLE>
All of the Common Shares of Southern California Water
Company and American States Utility Services are owned by American
States Water Company. Hence, there is no market for the Common
Shares of either entity.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES -
As of March 6, 2000, there were 3,519 holders of record of
Common Shares of American States Water Company. All of the Common
Shares of Southern California Water Company are owned by American
States Water Company.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
For the last three years, Registrant has paid dividends on
its Common Shares on March 1, June 1, September 1 and December 1.
The following table lists the amount of dividends paid on Common
Shares of American States Water Company for the last two years:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
First Quarter $ 0.32 $ 0.315
Second Quarter 0.32 0.315
Third Quarter 0.32 0.315
Fourth Quarter 0.32 0.315
=============== ==============
Total $ 1.28 $ 1.260
=============== ==============
</TABLE>
Registrant is not subject to any contractual restriction on
its ability to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
( in thousand, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION
Total Operating Revenues $173,421 $148,060 $153,755 $151,529 $129,813
Total Operating Expenses 144,907 122,999 130,297 128,100 108,425
Operating Income 28,514 25,061 23,458 23,429 21,388
Other Income 532 769 758 531 336
Interest Charges 12,945 11,207 10,157 10,500 9,559
Net Income 16,101 14,623 14,059 13,460 12,165
Preferred Dividends 88 90 92 94 96
Earnings Available for Common Shareholders 16,013 14,533 13,967 13,366 12,069
Basic Earnings per Common Share $ 1.79 $ 1.62 $ 1.56 $ 1.69 $ 1.54
Dividends Declared per Common Shares $ 1.28 $ 1.26 $ 1.25 $ 1.23 $ 1.21
Average Shares Outstanding 8,958 8,958 8,957 7,891 7,845
BALANCE SHEET INFORMATION
Total Assets $533,181 $484,671 $457,074 $430,922 $406,255
Common Shareholders' Equity 158,846 154,299 151,053 146,766 121,576
Long-Term Debt 167,363 120,809 115,286 107,190 107,455
Preferred Shares-Not subject to Mandatory 1,600 1,600 1,600 1,600 1,600
Preferred Shares-Mandatory Redemption 360 400 440 480 520
Total Capitalization 328,169 $277,108 $268,379 $256,036 $231,151
Book Value per Common Share $ 17.73 $ 17.23 $ 16.86 $ 16.52 $ 15.50
OTHER INFORMATION
Ratio of Earnings to Fixed Charges 3.27% 3.21% 3.35% 3.26% 3.19%
Ratio of Earnings to Total Fixed Charges 3.23% 3.17% 3.30% 3.21% 3.14%
Return on Average Common Equity 10.2% 9.6% 9.5% 10.7% 10.3%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Unless specifically noted, the following discussion and analysis
provides information on AWR's consolidated operations and assets. There are no
material differences between the consolidated operations and assets of AWR and
the operations and assets of SCW.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report (including the documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the "safe harbor" from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as Registrant "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe Registrant's future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital expenditures,
earnings, litigation, rates, water quality and other regulatory matters,
adequacy of water supplies, liquidity and capital resources, opportunities
related to operations of municipally-owned water systems and accounting matters.
Actual results in each case could differ materially from those currently
anticipated in such statements, by reason of factors such as utility
restructuring, including ongoing local, state and federal activities; future
economic conditions, including
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changes in customer demand; future climatic conditions; legislative, regulatory
and other circumstances affecting anticipated revenues and costs.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Basic earnings per Common Share in 1999 increased by 10.5% to $1.79 per
share as compared to $1.62 per share for the comparable period of 1998. The
increase in the recorded results primarily reflects higher revenues at the SCW
unit during 1999 as is more fully discussed below.
Water operating revenues increased by 18.5% in 1999 to $159.7 million
from the $134.8 million reported in 1998. Water sales volumes in 1999 were 9.0%
higher than 1998 due primarily to the much drier and warmer weather conditions
throughout Southern California in 1999 than in 1998. Additional increases in
revenues were due to the general rate increases in six of Registrant's customer
service areas effective January 1, 1999, which were applicable to 65% of SCW's
water customers.
Electric operating revenues of $13.3 million were 1.0% higher in 1999 as
compared to 1998 due to a 2.7% increase in kilowatt-hour sales, primarily by
industrial power users. The sales increase was partially offset by the lower
billing rates of industrial customers relative to residential customers.
Other revenues increased from $65,000 to $390,000 in 1999 due to
increased management fees resulting from new ASUS service contracts established
in the year and increased activities with existing contracts.
Purchased water costs in 1999 increased to $36.1 million as compared to
$30.8 million in 1998 due to a 12.1% increase in volumes purchased. The increase
also reflects reduced reimbursements in 1999 from potentially responsible
parties related to groundwater contamination in SCW's Culver City customer
service area of approximately $570,000, compared with reimbursements of $1.7
million in 1998. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation - Environmental Matters - Matters Relating to
Culver City System.
Costs of power purchased for pumping increased by 5.5% to $7.4 million
in 1999 chiefly as a result of an increase in pumped groundwater in SCW's water
supply mix due to increased sales volumes.
Costs of power purchased for resale in 1999 increased by 42.0% to $7.1
million from the $5.0 million recorded in 1998 due primarily to additional
energy demand charges from the energy supplier serving SCW's Bear Valley
Electric Service unit in 1999. As described below, most of this increase has
been included in the supply balancing account and that Registrant will seek to
recover these in future rate increases.
Groundwater production assessments decreased by 5.3% to $7.2. million in
1999 from $7.6 million in 1998 due to reduced quantity rates in SCW's
Metropolitan and San Dimas customer service areas.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1999, recovery of
previously under-collected supply costs was lower than 1998 due to the
previously discussed increase in energy demand charges, the effect of which was
partially offset by new rates effective January 1999 authorized to implement new
supply costs and to increase collection of previously under-collected costs.
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The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs which are outside of the immediate control of
Registrant. However, the balancing account is not designed to insulate earnings
against changes in the actual supply mix as compared to that mix authorized for
recovery in rates. In 1999, SCW's overall supply mix improved favorably over
that mix authorized in rates resulting in additional income. There is no
assurance that the favorable mix can be sustained in future periods since actual
results are affected by availability and quality of water, both purchased and
produced from SCW's wells. See the section entitled "Water Supply."
Other operating expenses increased by 7.8% from the $14.5 million
recorded in 1998 due to increased costs for water treatment, and higher
uncollectible provisions as a result of increased revenues.
Administrative and general expenses increased by 30.0% to $28.6 million
in 1999 from the $22.0 million recorded in 1998. The increase is due to costs
associated with various acquisition projects, increased employee benefit costs,
and additional amounts reserved for certain legal proceedings.
In 1999, maintenance expense increased to the $9.8 million level
compared to the recorded $7.3 million in 1998 due principally to increased
maintenance on Registrant's water supply sources, and costs incurred on main
replacements. The wet weather conditions during the first part of 1998 also
hampered planned maintenance activities, thereby reducing maintenance expense in
1998.
Depreciation expense in 1999 increased by 8.9% to $13.7 million
reflecting the effects of recording approximately $38.2 million in net plant
additions during 1998, depreciation on which began in 1999.
Taxes on income increased by approximately 31.7% to $13.3 million in
1999 as compared to the $10.1 million in 1998 due to a 24.5% increase in pre-tax
income and a higher effective tax rate in 1999 resulting from the turn-around of
depreciation related temporary differences, the benefits of which were
previously flowed-through for ratemaking purposes.
Property and other taxes increased by 7.2% in 1999 to $6.6 million due
primarily to increased franchise fees resulting from higher revenues, and
increased payroll taxes from higher wages and additional personnel.
Other income decreased by 30.8% in 1999 due primarily to the
flow-through of tax benefits related to refinancing of long-term debt in
December 1998 for which there were no similar benefits in 1999.
Interest expense increased by 15.5% to $12.9 million primarily due to
the issuance of $40 million in long-term debt in January 1999, partially offset
by the retirement of $10 million of 10.10% Notes in December 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Basic earnings per Common Share in 1998 increased by 3.8 % to $1.62 per
share as compared to $1.56 per share in 1997. Although wet weather significantly
impacted revenues in 1998, lower supply costs and modest increases in other
operating expenses partially offset the decline in revenues.
Water operating revenues decreased by 4.3% in 1998 to $134.9 million
from the $141.0 million reported in 1997. Water sales volumes in 1998 were 9.9%
lower than 1997 due to extremely wet weather during the first half of the year.
The decrease in sales was partially offset by rate increases effective during
1998.
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Electric operating revenues of $13.2 million were 3.4% higher in 1998 as
compared to 1997 due to the impact of a general rate increase effective January
1998, as well as a 2.0% increase in kilowatt-hour sales.
Purchased water costs decreased in 1998 to $30.8 million as compared to
$38.3 million in 1997 due to a 20.8% decrease in volumes purchased and refunds
received from Registrant's wholesale water supplier during 1998 of approximately
$1.4 million. Refunds of $2.0 million were received in 1997.
Costs of power purchased for pumping decreased by 7.2% to $7.0 million
in 1998 chiefly as a result of reduced energy costs from Registrant's suppliers.
Costs of power purchased for resale in 1998 decreased by 3.4% to $5.0
million from the $5.2 million recorded in 1997 due to reduced costs from
Registrant's energy providers offset by the effects of increased kilowatt-hour
sales volumes recorded during the year.
Groundwater production assessments increased by 10.5% to $7.6 million in
1998 from $6.8 million in 1997 due to the increased amounts of pumped water in
Registrant's supply mix as well as additional assessments associated with
increased pumping in Registrant's Metropolitan and Orange County customer
service areas.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1998, recovery of
previously under-collected supply costs was lower than 1997 due to the
expiration, in January 1998, of a surcharge designed to recover those costs. The
new rates, effective January 1999, increased collection of these under-collected
costs. The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs which are outside of the immediate control of
Registrant. However, the balancing account is not designed to insulate earnings
against changes in supply mix, as occurred during the first eight months of
1997.
Other operating expenses increased by 10.6% from the $13.1 million
recorded in 1997 due to employee time charged to this category. Reversals in
1997 of costs associated with recovery of water quality expenditures through the
CPUC's memorandum account mechanism also contributed to the increase. There were
no such reversals of equal magnitude in 1998.
Administrative and general expenses decreased slightly by 0.7% to $22.0
million in 1998 from the $22.1 million recorded in 1997. The decrease is due to
stability in costs associated with health insurance, post-retirement medical
benefits, pension and 401(k) plan costs and to a reduction of time charged by
employees to this category.
In 1998, maintenance expense remained at approximately the $7.3 million
level recorded in 1997 due principally to the wet weather conditions during the
first part of 1998 that hampered planned maintenance activity.
Depreciation expense in 1998 increased by 14.5% to $12.5 million
reflecting the effects of recording approximately $38 million in net plant
additions during 1997, depreciation on which began in 1998. In addition,
amortization of start-up and organizational costs associated with the formation
of AWR is reflected in 1998 and there were no similar amortization costs in
1997.
Taxes on income increased by approximately 3.1% to $10.1 million in 1998
as compared to the $9.8 million in 1997 due to a 5.7% increase in operating
income partially offset by a lower effective tax rate.
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<PAGE> 13
Property and other taxes decreased by 2.5% in 1998 to $6.1 million due
primarily to reduced franchise tax payments directly attributable to reduced
revenues.
Other income increased by 1.5% in 1998 due principally to the
flow-through of tax benefits related to refinancing of long-term debt which was
partially offset by an increase in reserves against costs associated with a
non-regulated joint venture.
Interest expense increased by 10.3% to $11.2 million primarily due to
increased short-term bank borrowing and the issuance of $15 million in long-term
debt in March 1998.
LIQUIDITY AND CAPITAL RESOURCES
AWR funds its operating expenses, dividends on its outstanding Common
and Preferred Shares, and makes its mandatory sinking fund payments, principally
through dividends from SCW. AWR has filed a Registration Statement with the
Securities and Exchange Commission (SEC) for issuance, from time to time, of up
to $60 million in Common Shares, Preferred Shares and/or debt securities. The
proceeds will be used primarily for investment in its subsidiaries. No
securities had been issued under this Registration Statement as of December 31,
1999.
SCW funds the majority of its operating expenses, interest payments on
its debt and dividends on its outstanding Common Shares through internal
sources. SCW continues to rely on external sources, including short-term bank
borrowing, contributions-in-aid-of-construction, advances for construction and
install-and-convey advances, to fund the majority of its construction
expenditures.
Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses. The aggregate short-term borrowing capacity available to SCW under its
three bank lines of credit was $47 million as of December 31, 1999, of which a
total of $21 million was outstanding. SCW routinely employs short-term bank
borrowing as an interim financing source prior to funding capital expenditures
on a long-term basis.
In 1998, SCW filed a Registration Statement with the SEC for issuance,
from time to time, of up to $60 million in long-term debt. In January 1999, SCW
issued $40 million of long-term debt pursuant to this Registration Statement,
leaving $20 million remaining for issuance at a later date. The funds were used
primarily to repay short-term bank borrowings, after which capital expenditures
were funded.
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk.
CONSTRUCTION PROGRAM
A program for water pipeline replacement is on-going throughout the 22
customer service areas, based on priority of leaks detected, fire protection
enhancements and reflection of the underlying replacement schedule. In addition,
general upgrades in SCW's water supply facilities are anticipated to be
on-going. SCW's board of directors has approved anticipated net capital
expenditures of $55.4 million in 2000. Neither AWR nor ASUS have material
capital commitments; however, ASUS actively seeks opportunities to own, lease or
operate municipal water and wastewater systems, which may involve significant
capital commitments.
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<PAGE> 14
REGULATORY MATTERS
SCW is subject to regulation by the CPUC, which has broad powers with
respect to service and facilities, rates, classifications of accounts, valuation
of properties, the purchase, disposition and mortgaging of properties necessary
or useful in rendering public utility service, the issuance of securities, the
granting of certificates of convenience and necessity as to the extension of
services and facilities and various other matters. AWR and ASUS are not
regulated by the CPUC. The CPUC does, however, regulate certain transactions
between SCW and its non-regulated affiliates.
The 22 customer service areas (CSAs) of SCW are grouped into 16 water
districts and 1 electric district for ratemaking purposes. Water rates vary
among the 16 ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts so
that applications for rate changes may be filed, when warranted. Under the
CPUC's practices, rates may be increased by three methods: general rate case
increases (GRC's), offsets for certain expense increases and advice letter
filings related to certain plant additions. GRC's are typically for three-year
periods, which include step increases for the second and third year. Rates are
based on a forecast of expenses and capital costs. GRC's have a typical
regulatory lag of one year. Offset rate increases typically have a two to four
month regulatory lag. The following table lists information on estimated annual
rate changes during 1999, 1998 and 1997.
<TABLE>
<CAPTION>
($ in 000's) Supply Balancing General
Cost Account and Step Advice
Year Offset Amortization Increases Letters Total
- ------------ ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999 $23 $1,349 $15,175 $657 $17,204
1998 $786 ($2,852) $3,590 $713 $2,237
1997 $183 $64 $1,332 ($126) $1,453
</TABLE>
New water rates for six of SCW's customer service areas and recovery of
costs associated with SCW's general office functions were implemented in
January, 1999. Step increases in rates for Arden-Cordova, Bay Point and Los Osos
CSAs were also effective in January, 1999.
Applications to increase water rates were filed for four water
ratemaking districts in SCW's Region III in March 1999. A draft decision has
been issued by the Administrative Law Judge assigned to this matter that
supports the settlement on all issues reached between SCW and the CPUC Staff.
SCW has also filed an application with the CPUC to combine tariff schedules into
regional rates for the customer service areas that make up SCW's Region III. The
Administrative Law Judge assigned to this matter has issued a draft decision
that supports SCW's application. A final decision from the CPUC on both issues
is anticipated in the second quarter of 2000.
GRC step increase for Metropolitan CSA and General Office Allocation
step increases for Arden-Cordova, Bay Point, Simi Valley and Santa Maria CSAs
were effective beginning January, 2000. Attrition increases for Arden-Cordova
and Bay Point CSAs were also in effect beginning January, 2000.
A Notice of Intent to increase water rates by approximately $5.8 million
for ratemaking districts in SCW's Region I as well as to combine those tariff
schedules into regional rates were filed in February 2000. The application will
be submitted by end of March, 2000. The new rates, if authorized in total or in
part by the CPUC, would be effective January 1, 2001.
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<PAGE> 15
An advice letter was filed with the CPUC on March 1, 2000 seeking
recovery of capital expenditures associated with Y2K readiness, not already
included in Registrant's water rates. See Note 13 to the Notes to Financial
Statements.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement. SCW's
investment of approximately $9.5 million in SWP is currently included in Other
Property and Investments. The remaining balance of the related liability of
approximately $7 million is recorded as other long-term debt. SCW intends to
recover its investment in SWP through contributions from developers on a per-lot
or other basis, or the sale of its 500 acre-foot entitlement in SWP. See Note 8
to the Notes to Financial Statements.
ENVIRONMENTAL MATTERS
1996 Amendments to Federal Safe Drinking Water Act
On August 6, 1996, amendments (the 1996 SDWA amendments) to the Safe
Drinking Water Act (the SDWA) were signed into law. The 1996 SDWA revised the
1986 amendments to the SDWA with a new process for selecting and regulating
contaminants. The U. S. Environmental Protection Agency (EPA) can only regulate
contaminants that may have adverse health effects, are known or likely to occur
at levels of public health concern, and the regulation of which will provide "a
meaningful opportunity for health risk reduction." The EPA has published a list
of contaminants for possible regulation and must update that list every five
years. In addition, every five years, the EPA must select at least five
contaminants on that list and determine whether to regulate them. The new law
allows the EPA to bypass the selection process and adopt interim regulations for
contaminants in order to address urgent health threats. Current regulations,
however, remain in place and are not subject to the new standard-setting
provisions. The DOHS, acting on behalf of the EPA, administers the EPA's program
in California.
The 1996 SDWA amendments allow the EPA for the first time to base
primary drinking water regulations on risk assessment and cost/benefit
considerations and on minimizing overall risk. The EPA must base regulations on
best available, peer-reviewed science and data from best available methods. For
proposed regulations that involve the setting of maximum contaminant levels
(MCL's), the EPA must use, and seek public comment on, an analysis of
quantifiable and non-quantifiable risk-reduction benefits and cost for each such
MCL.
SCW currently tests its wells and water systems according to
requirements listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCLs is treated to reduce contaminants to
acceptable levels before it is delivered to customers.
Since the SDWA became effective, SCW has experienced increased operating
costs for testing to determine the levels, if any, of the constituents in SCW's
sources of supply and additional expense to lower the level of any contaminants
in order to meet the MCL standards. Such costs and the costs of controlling any
other contaminants may cause SCW to experience additional capital costs as well
as increased operating costs.
Registrant is currently unable to predict the ultimate impact that the
1996 SDWA amendments might have on its financial position or its results of
operation. The CPUC ratemaking process provides SCW with the opportunity to
recover prudently incurred capital and operating costs associated with water
quality. Management believes that such incurred costs will be authorized for
recovery by the CPUC.
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Proposed Enhanced Surface Water Treatment Rule
On July 29, 1994, the EPA proposed an Enhanced Surface Water Treatment
Rule (ESWTR) which would require increased surface-water treatment to decrease
the risk of microbial contamination. The EPA has proposed several versions of
the ESWTR for promulgation. The version selected for promulgation will be
determined based on data collected by certain water suppliers and forwarded to
the EPA pursuant to EPA's Information Collection Rule, which requires such water
suppliers to monitor microbial and other contaminants in their water supplies
and to conduct certain tests in respect of such contaminants. The EPA has
adopted an Interim ESWTR applicable only to systems serving greater than 10,000
persons. The long-term ESWTR, in any of the forms currently proposed, would
apply to each of SCW's five surface water treatment plants and is expected to be
promulgated by November 2000. However, because it is impossible to predict the
version of the ESWTR that will be promulgated, Registrant is unable to predict
what additional costs, if any, will be incurred to comply with the ESWTR.
Regulation of Disinfection/Disinfection By-Products
Registrant is also subject to the new regulations concerning
disinfection/disinfection by-products (DBP's), Stage I of which regulations were
effective in November, 1998 with full compliance required by 2001. Stage I
requires reduction of tri-halomethane contaminants from 100 micrograms per liter
to 80 micrograms per liter. Two of SCW's systems are immediately impacted by
this rule. SCW implemented modifications to the treatment process in its Bay
Point and Cordova systems. It is anticipated that both systems will be in full
compliance by 2001.
The EPA must adopt Stage II rules pertaining to DBPs, according to a
negotiated schedule by 2000. The EPA is not allowed to use the new cost/benefit
analysis provided for in the 1996 SDWA amendments for establishing the Stage II
rules applicable to DBPs but may utilize the regulatory negotiating process
provided for in the 1996 SDWA amendments to develop the Stage II rule. The final
rule is expected by 2002.
Ground Water Rule
By Spring 2000, the EPA is scheduled to propose regulations requiring
disinfection of certain groundwater systems and provide guidance on determining
which systems must provide disinfection facilities. The EPA may utilize the
cost/benefit analysis provided in the 1996 SDWA amendments to establish such
regulations. It is anticipated that the regulations will apply to several of
SCW's systems using groundwater supplies. While no assurance can be given as to
the nature and cost of any additional compliance measures, if any, Registrant
does not believe that such regulations will impose significant compliance costs,
since SCW already currently engages in disinfection of its groundwater systems.
Regulation of Radon and Arsenic
Registrant expects to be subject to new regulations regarding radon and
arsenic. It is anticipated that the EPA will propose a reduction in the federal
standard on arsenic from 50 parts per billion (ppb) to 5 ppb. This proposed
arsenic rule is expected to be released in March or April of 2000, with a 60-day
comment period. It is anticipated that EPA will propose 5 ppb as the lead
regulatory option, but will take comments on 3 ppb and 10 ppb options as well.
Compliance with an MCL of 5 ppb will require Registrant to implement costly
well-head treatment remedies such as ion exchange or, alternatively, to purchase
additional and more expensive water supplies already in compliance, for blending
with well sources.
The EPA has proposed new radon regulations following a National Academy
of Sciences risk assessment and study of risk-reduction benefits associated with
various mitigation measures. The National Academy of Sciences study is in
agreement with much of EPA's original findings but has
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<PAGE> 17
slightly reduced the ingestion risk initially assumed by EPA. EPA established an
MCL of 300 picoCuries per liter based on the findings and has also established
an alternative MCL of 4000 picoCuries per liter, based upon potential mitigation
measures for overall radon reduction. The final rule will be effective in
August, 2000. The Registrant is currently conducting studies to determine the
best treatment for affected wells.
Voluntary Efforts to Exceed Surface Water Treatment Standards
SCW is a voluntary member of the EPA's "Partnership for Safe Water", a
national program designed to further protect the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
SCW commits to exceed current regulations governing surface water treatment to
ensure that its surface treatment facilities are performing as efficiently as
possible.
Fluoridation of Water Supplies
Registrant is subject to State of California Assembly Bill 733 which
requires fluoridation of water supplies for public water systems serving more
than 10,000 service connections. Although the bill requires affected systems to
install treatment facilities only when public funds have been made available to
cover capital and operating costs, the bill requires the CPUC to authorize cost
recovery through rates should public funds for operation of the facilities, once
installed, become unavailable in future years.
Matters Relating to Arden-Cordova System
In January, 1997, SCW was notified that ammonium perchlorate in amounts
above the state-determined action level had been detected in three of its 27
wells serving its Arden-Cordova system. Aerojet-General Corp. has, in the past,
used ammonium perchlorate in their processing as an oxidizer of rocket fuels.
SCW took the three wells detected with ammonium perchlorate out of service at
that time. Although neither the EPA nor the DOHS has established a drinking
water standard for ammonium perchlorate, DOHS has established an action level of
18 parts per billion (ppb) which required SCW to notify customers in its
Arden-Cordova customer service area of detection of ammonium perchlorate in
amounts in excess of this action level. In April, 1997, SCW found ammonium
perchlorate in three additional wells and, at that time, removed those wells
from service until it was determined that the levels were below the
state-determined action level. Those wells were returned to service. SCW
periodically monitors these wells to determine that levels of perchlorate are
below the action level currently in effect.
In February 1998, SCW was informed that nitrosodimethylamine (NDMA) had
been detected in amounts in excess of the EPA reference dosage for health risks
in four of its wells in its Arden-Cordova system. Each of the wells has been
removed from service. Another well was also been removed from service in end of
September, 1999 due to the contamination. NDMA is an additional by-product from
the production of rocket fuel and it is believed that such contamination is
related to the activities of Aerojet-General Corp. Aerojet-General Corp. has
reimbursed SCW for constructing a pipeline to interconnect with the City of
Folsom water system to provide an alternative source(s) of water supply in SCW's
Arden-Cordova customer service area and has reimbursed SCW for costs associated
with the drilling and equipping of two new wells.
SCW and Aerojet-General Corp. are in negotiations on other matters
related to procedures to address cleanup of the contaminated wells, costs
associated with the cleanup, increased costs of purchased water as compared to
pumped sources and costs associated with developing new sources of groundwater
supply. SCW and Aerojet-General Corp. are attempting to negotiate an agreement
on these matters. As of December 31, 1999, Aerojet-General Corp has reimbursed
Registrant $4.5 million. The remainder of the costs is subject to further
reimbursement, including interest. The reimbursement from Aerojet-General Corp.
reduces SCW's utility plant and costs of purchased water.
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<PAGE> 18
On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is destroying the underground water supply in SCW's
Rancho Cordova customer service area. In a separate case, also filed on October
25, 1999, SCW sued Aerojet General Corp. for causing the contamination.
Registrant is unable to predict what actions, if any, the CRWQCB or Aerojet
General Corp. will take in response to the lawsuits.
Matters Relating to Culver City System
The compound, methyl tertiary butyl ether (MTBE), has been detected in
the Charnock Basin, located in the city of Santa Monica and within SCW's Culver
City customer service area. MTBE is an oxygenate used in reformulated fuels. At
the request of the Regional Water Quality Control Board, the City of Santa
Monica and the California Environmental Protection Agency, SCW removed two of
its wells in the Culver City system from service in October, 1996 to help in
efforts to avoid further spread of the MTBE contamination plume. Neither of
these wells has been found to be contaminated with MTBE. SCW is purchasing water
from the MWD at an increased cost to replace the water supply formerly pumped
from the two wells removed from service.
On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company and
Equilon Enterprises LLC to provide replacement drinking water to both SCW and
the City of Santa Monica due to MTBE contamination of the Charnock Sub-Basin
drinking water. The agencies are continuing to investigate the causes of MTBE
pollution and intend to ensure that all responsible parties contribute to its
clean up. Registrant is unable to predict the outcome of the EPA's enforcement
efforts. Pursuant to an agreement with SCW in December, 1998, two of the
potentially responsible parties (the Participants) have reimbursed SCW's legal
and consulting costs related to this matter and for increased costs incurred by
SCW in purchasing replacement water. However, a notice of termination from the
"Participants" to the settlement agreement and a conditional termination from
one of the responsible parties was received in October, 1999. SCW and such
parties are currently in the process of negotiation. No assurances can be given
that current or future negotiations will result in complete restoration of SCW's
water rights or that continued reimbursement of SCW's costs will be forthcoming.
Bear Valley Electric
SCW has been, in conjunction with the Southern California Edison unit of
Edison International, planning to upgrade transmission facilities to 115kv (the
115kv Project) in order to meet increased energy and demand requirements. The
115kv Project is subject to an environmental impact report (EIR) and delays in
approval of the EIR may impact service in SCW's Bear Valley Electric Service
customer service area. SCW has, however, taken other measures, including some
measures that will be enacted on an emergency basis, to meet load growth and
mitigate delays in approval of the EIR.
WATER SUPPLY
During 1999, Registrant supplied a total of 195,886 acre feet of water.
Of this amount, approximately 58.2% came from pumped sources and 40.2% was
purchased from others, principally the Metropolitan Water District of Southern
California (MWD). The remaining amount was supplied by the Bureau of Reclamation
(the Bureau) under a no-cost contract. During 1998, Registrant supplied 179,927
acre feet of water, 60.7% of which came from pumped sources, 39.0% was purchased
and the remainder was supplied by the Bureau.
The MWD is a water district organized under the laws of the State of
California for the purpose of delivering imported water to areas within its
jurisdiction. Registrant has 52 connections to the water distribution facilities
of MWD and other municipal water agencies. MWD imports water from two
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principal sources: the Colorado River and the State Water Project (SWP).
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of MWD's requirements and MWD's supplies from these
sources are anticipated to remain adequate through 2000. MWD's import of water
from the Colorado River is expected to decrease in future years due to the
requirements of the Central Arizona Project. In response, MWD has taken a number
of steps to secure additional storage capacity and to increase available water
supplies, by effecting transfers of water rights from other sources.
Registrant's water supply and revenues are significantly affected by
changes in meteorological conditions. New research data released in January 2000
show the Pacific Ocean may be undergoing a dramatic climate shift, known as the
Pacific Decadal Oscillation, that could alter global weather patterns and
perhaps lead Southern California into decades of drier than normal weather. The
changes signal that the Pacific is shifting to a "cool phase" could last for
decades, bring far more rain than usual to the Pacific Northwest and less to
Southland.
Water sales volumes have been impacted during the last two years by the
El Nino/La Nina Southern Oscillation phenomena. El Nino brings substantial
rainfall to Southern California and the opposite, La Nina, often means
diminished rainfall. During the '80s and '90s, El Nino increased precipitation
as much as 250% of normal for some Southern California Water Company service
areas, while La Nina conditions decreased rain levels 50% to 30% of normal.
In 1999, after the 1997-1998 El Nino heavy rain season, La Nina moved
rainfall to the North and substantially reduced rainfall in SCW's service areas
with some systems experiencing less than 32% of normal rainfall.
In spite of the anticipated La Nina conditions, the 2000 water year
supply outlook remains adequate. As of January 2000, California reservoirs stood
at 125% of average. This positive outlook is due to the fact that reservoirs
are still holding some of the El Nino surplus and groundwater levels are usually
not diminished by a single year of below normal precipitation. Although overall
groundwater conditions remain at adequate levels, certain of SCW's groundwater
supplies have been affected to varying degrees by various forms of contamination
which, in some cases, have caused increased reliance on purchased water in its
supply mix.
BUSINESS SEGMENTS
AWR currently has two principal business units: water service and
electric distribution utility operations conducted through its SCW subsidiary,
and its non-regulated activities through its ASUS subsidiary. All activities of
Registrant currently are geographically located within the State of California,
except for one contract for providing customer service and billing services to a
utility located in the state of Arizona. SCW is a regulated utility which
operates both water and electric systems. On a stand alone basis, AWR has no
material assets other than its investments in its subsidiaries. See Note 11 to
the Notes to Financial Statements.
ACQUISITION OF CHAPARRAL CITY WATER COMPANY
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary
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in transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
YEAR 2000 ISSUE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no actual or anticipated effects or changes to
Registrant's operating trends or revenue patterns as a result of the transition
from December, 1999 to January, 2000.
SCW formally announced its 100% Y2K Ready status when it filed its
Compliance Report with the CPUC on November 1, 1999. Registrant's general
process for addressing the Y2K issue was (i) to inventory all systems that may
have a potential Y2K impact, (ii) to determine the materiality of these non-Y2K
ready systems, (iii) to replace and test, correct and test, or prepare for the
failure of material items that have been determined to be non-Y2K ready, and
(iv) to prepare contingency plans, which included, among other things, increased
staffing during critical periods, manual back-up for automated systems and the
use of portable generators capable of providing power during a black-out.
Not all Y2K problems were necessarily expected to surface in early 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of third parties to adequately predict the risks posed by them
to Registrant. If the third parties later discover any Y2K problems that are not
remedied, resulting problems could include loss of utility services and
disruption of water supplies.
Costs incurred to address Y2K issues are estimated to be $7.5 million.
Registrant has incurred $4.8 million in costs associated with Y2K readiness at
end of January 2000, $4.0 million of which is in capital investments. On March
1, 2000, Registrant filed an advice letter with the CPUC for recovery of Y2K
related costs. Registrant believes that generally these capital expenditures as
well as the remaining Y2K-related investments will be recovered through rates,
but can give no assurance that the CPUC will authorize recovery of all or some
of these costs. See Note 13 to the Notes to Financial Statements.
RISK FACTOR SUMMARY
This section (written in plain English to comply with certain SEC
Standards) summarizes certain risks of our business that may affect our future
financial results. We also periodically file with the Securities and Exchange
Commission documents that include more information on these risks. It is
important for investors to read these documents.
Litigation
SCW has recently been sued in eleven water-quality related lawsuits:
- a suit filed on April 24, 1997 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a federal
superfund site
- a suit filed on July 29, 1997 alleging personal injury and property
damage as a result of the sale of water; few of our systems are
located in the geographical area covered by this suit
- a suit filed on December 8, 1997 alleging personal injury and
property damage as a result of the delivery of contaminated water in
SCW's Arden-Cordova service area
- a suit filed on February 2, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
18
<PAGE> 21
- a suit filed on February 4, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed in March 2, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water in SCW's
Arden-Cordova service area
- a suit filed on June 29, 1998 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a superfund
site
- two suits filed on July 30, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed on December 3, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed in July 22, 1999 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a superfund
site
On September 1, 1999, the First District Court of Appeal in San
Francisco, held that the CPUC had preemptive jurisdiction over regulated public
utilities and ordered dismissal of a series of lawsuits against water utilities,
including seven of the lawsuits against SCW. On October 11, one group of
plaintiffs appealed the decision to the California Supreme Court which has
accepted the petition. Management can not predict the outcome of the proceeding.
In March 1998, the CPUC issued an order instituting investigation (the
OII) as a result of these types of suits being filed against water utilities in
California. The CPUC is seeking to determine:
- whether existing standards and policies regarding drinking water
quality adequately protect the public health
- whether water utilities are following existing standards
The Administrative Law Judge assigned to the OII has issued a draft
decision finding that water utilities, including SCW, have complied with DOHS
regulation and requirements. SCW is unable to predict whether the draft
decision will be approved in part or in its entirety. The CPUC has authorized a
memorandum account for legal expenses incurred by water utilities, including
SCW, in the water quality lawsuits. Under the memorandum account procedure, SCW
may recover litigation costs from ratepayers to the extent authorized by the
CPUC. The CPUC has not yet authorized SCW to recover any of its litigation
costs. As of December 31, 1999, Registrant had incurred $860,120 in the
OII-related memorandum account.
Environmental Regulation
SCW is subject to increasingly stringent environmental regulations that
will result in increasing capital and operating costs. These regulations
include:
- the 1996 amendments to the Safe Drinking Water Act that require
increased testing and treatment of water to reduce specified
contaminants to minimum containment levels
19
<PAGE> 22
- interim regulations expected to be adopted before the end of 2000
requiring increased surface-water treatment to decrease the risk of
microbial contamination; these regulations will affect SCW's five
surface water treatment plants
- additional regulation of disinfection/disinfection byproducts
expected to be adopted before the end of 2002; these regulations
will potentially affect two of SCW's systems
- additional regulations expected to be adopted before the end of 2000
requiring disinfection of certain groundwater systems; these
regulations will potentially impact several of SCW's systems using
groundwater supplies
- potential regulation of radon and arsenic
- new California requirements to fluoridate public water systems
serving over 10,000 customers
SCW may be able to recover costs incurred to comply with these
regulations through the ratemaking process for our regulated systems. We may
also be able to recover certain of these costs under our contractual
arrangements with municipalities. In certain circumstances, we may recover costs
from parties responsible or potentially responsible for contamination.
Rates and Regulation
SCW is subject to regulation by the CPUC. AWR and ASUS are not directly
subject to CPUC regulation. The CPUC may, however, regulate transactions between
SCW and AWR, including the manner in which overhead costs are allocated between
SCW and AWR and the pricing of services rendered by SCW to AWR.
SCW's revenues depend substantially on the rates that it is permitted to
charge its customers. SCW may increase rates in three ways:
- by filing for a general rate increase
- by filing for recovery of certain expenses
- by filing an "advice letter" for certain plant additions, thereby
increasing rate base
In addition, SCW recovers certain supply costs through a balancing
account mechanism. Supply costs include the cost of purchased water and power
and groundwater production assessments. The balancing account mechanism is
intended to insulate SCW's earnings from changes in supply costs that are beyond
SCW's control. The balancing account is not, however, designed to insulate SCW's
earnings against changes in supply mix. As a result, SCW may not recover
increased costs due to increased use of purchased water through the balancing
account mechanism. In addition, balancing account adjustments, if authorized by
the CPUC, may result in either increases or decreases in revenues attributable
to supply costs incurred in prior periods, depending upon whether there has been
an undercollection or overcollection of supply costs.
There are also a number of matters pending before the CPUC that may
affect our future financial results. These matters include:
- applications filed by SCW to increase rates in 4 of its 16
rate-making jurisdictions; a final decision is not expected until
second quarter of 2000 although a tentative settlement has been
worked out
- an application filed to consolidate the rate-making jurisdictions
located in SCW's Region III area into a single tariff
- the OII
- new guidelines under consideration by the CPUC for the acquisition
and merger of water utilities and for privatization transactions
20
<PAGE> 23
Adequacy of Water Supplies
The adequacy of water supplies varies from year to year depending upon a
variety of factors, including
- rainfall
- the amount of water stored in reservoirs
- the amount used by our customers and others
- water quality, and
- legal limitations on use.
As a result of heavier than normal rainfall in the winter of 1998-1999,
most of California's reservoirs remain at or near capacity and the outlook for
water supply in the near term is generally favorable. Population growth and
increases in the amount of water used have, however, increased limitations on
use to prevent overdrafting of groundwater basins. The import of water from the
Colorado River, one of our important sources of supply, is expected to decrease
in future years due to the requirements of the Central Arizona Project. We also
have in recent years taken wells out of service due to water quality problems.
Water shortages could be caused by the above factors and may affect us
in several ways:
- they adversely affect supply mix by causing Registrant to rely on
more expensive purchased water
- they adversely affect operating costs
- they may result in an increase in capital expenditures for building
pipelines to connect to alternative sources of supplies and
reservoirs and other facilities to conserve or reclaim water
We may be able to recover increased operating and construction costs for
our regulated systems through the ratemaking process. Registrant may also be
able to recover certain of these costs under the terms of our contractual
agreements with municipalities.
In certain circumstances, we may recover these costs from third parties
that may be responsible, or potentially responsible, for groundwater
contamination. We are currently negotiating with Aerojet General Corporation
regarding costs associated with the cleanup of the groundwater supply for our
Arden-Cordova System and for the increased costs of purchasing water and
developing new sources of groundwater supply. We are also negotiating with two
participants on matters relating to the clean-up and purchase of replacement
water in the Charnock Basin located in the cities of Santa Monica and Culver
City. These two potentially responsible parties have previously reimbursed us
for replacement water and certain legal and consulting expenses. The Charnock
Basin is in SCW's service territory.
ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
accounting for derivative and hedging activities, and supersedes and amends a
number of existing standards. Adoption of this statement, with an extended
effective date for fiscal years beginning after December 15, 1999, will not have
a significant impact on financial position or results of operation.
21
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk. The disclosure required is, therefore, not
applicable.
22
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
American States Water Company
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Capitalization - December 31, 1999
and 1998
Consolidated Statements of Income - for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Common Shareholders'
Equity - for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - for the years ended
December 31, 1999, 1998 and 1997
Southern California Water Company
Balance Sheets - December 31, 1999 and 1998
Statements of Capitalization - December 31, 1999 and 1998
Statements of Income - for the years ended December 31, 1999,
1998 and 1997
Statements of Changes in Common Shareholders' Equity - for the
years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows - for the years ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
Report of Independent Public Accountants
23
<PAGE> 26
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST
Water $ 532,007 $ 482,989
Electric 36,349 35,171
--------- ---------
568,356 518,160
Less - Accumulated depreciation (151,733) (138,423)
--------- ---------
416,623 379,737
Construction work in progress 32,972 35,016
--------- ---------
Net utility plant 449,595 414,753
--------- ---------
OTHER PROPERTY AND INVESTMENTS 10,583 1,077
CURRENT ASSETS
Cash and cash equivalents 2,189 620
Accounts receivable-Customers, less reserves of $487 in 1999;
$403 in 1998 10,135 7,626
Other account receivable 4,347 5,301
Unbilled revenue 11,345 9,303
Materials and supplies, at average cost 1,153 994
Supply cost balancing accounts 4,774 4,300
Prepayments 4,851 5,988
Accumulated deferred income taxes - net 5,546 5,156
--------- ---------
Total current assets 44,340 39,288
--------- ---------
DEFERRED CHARGES
Unamortized debt expense and redemption premium 6,811 6,635
Regulatory tax-related assets 19,941 21,506
Other 1,911 1,412
--------- ---------
Total deferred charges 28,663 29,553
--------- ---------
TOTAL ASSETS $ 533,181 $ 484,671
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
24
<PAGE> 27
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $158,846 $154,299
Preferred Shares 1,600 1,600
Preferred Shares - mandatory redemption 360 400
Long-term debt 167,363 120,809
-------- --------
Total capitalization 328,169 277,108
-------- --------
CURRENT LIABILITIES
Notes payable to banks 21,000 38,000
Long-term debt and Preferred Shares - current 340 260
Accounts payable 13,777 10,218
Taxes payable 5,432 5,900
Accrued interest 1,584 1,405
Other 12,832 7,985
-------- --------
Total current liabilities 54,965 63,768
-------- --------
OTHER CREDITS
Advances for construction 57,485 54,743
Contributions in aid of construction 38,895 36,530
Accumulated deferred income taxes - net 48,302 46,902
Unamortized investment tax credits 3,064 3,155
Regulatory tax-related liability 1,861 1,906
Other 440 559
-------- --------
Total other credits 150,047 143,795
======== ========
TOTAL CAPITALIZATION AND LIABILITIES $533,181 $484,671
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
25
<PAGE> 28
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $2.50 stated value--
Authorized 31,071,408 shares
Outstanding 8,957,671 in 1999 and 1998 $ 22,394 $ 22,394
Additional paid-in capital 74,937 74,937
Earnings reinvested in the business 61,515 56,968
--------- ---------
158,846 154,299
--------- ---------
PREFERRED SHARES: $25 PAR VALUE
Authorized 64,000 shares
Outstanding 32,000 shares, 4% Series 800 800
Outstanding 32,000 shares, 4-1/4% Series 800 800
--------- ---------
1,600 1,600
--------- ---------
PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
Requirements: $25 par value
Authorized and outstanding 16,000 shares in 1999 and 17,600
shares in 1998, 5% Series 400 440
Less: Preferred Shares to be redeemed within one year (40) (40)
--------- ---------
360 400
--------- ---------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,798 1,882
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 650 630
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 --
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 7,028 --
Other 587 917
--------- ---------
167,663 121,029
Less: Current maturities (300) (220)
--------- ---------
167,363 120,809
========= =========
TOTAL CAPITALIZATION $ 328,169 $ 277,108
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE> 29
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES
Water $ 159,693 $ 134,794 $ 140,988
Electric 13,338 13,201 12,767
Other 390 65 --
--------- --------- ---------
Total operating revenues 173,421 148,060 153,755
--------- --------- ---------
OPERATING EXPENSES
Water purchased 36,143 30,833 38,318
Power purchased for resale 7,119 5,013 5,188
Power purchased for pumping 7,394 7,009 7,554
Groundwater production assessment 7,170 7,567 6,847
Supply cost balancing accounts (473) 28 2,813
Other operating expenses 15,594 14,459 13,074
Administrative and general expenses 28,600 21,987 22,138
Depreciation 13,650 12,538 10,952
Maintenance 9,799 7,311 7,301
Taxes on income 13,345 10,130 9,830
Property and other taxes 6,566 6,124 6,282
--------- --------- ---------
Total operating expenses 144,907 122,999 130,297
--------- --------- ---------
OPERATING INCOME 28,514 25,061 23,458
--------- --------- ---------
OTHER INCOME
Total other income - net 532 769 758
--------- --------- ---------
Income before interest charges 29,046 25,830 24,216
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 11,294 9,612 8,821
Other interest and amortization of debt expense 1,651 1,595 1,336
--------- --------- ---------
Total interest charges 12,945 11,207 10,157
--------- --------- ---------
NET INCOME 16,101 14,623 14,059
Dividends on Preferred Shares (88) (90) (92)
--------- --------- ---------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 16,013 $ 14,533 $ 13,967
BASIC EARNINGS PER COMMON SHARE $ 1.79 $ 1.62 $ 1.56
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,958 8,958 8,957
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE> 30
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Earnings
-------------------- Additional Reinvested
Number Paid-in in the
of Shares Amount Capital Business
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 8,886 $22,215 $73,645 $50,906
Add:
Net Income 14,059
Issuance of Common Shares for public offering 72 179 1,292
Deduct:
Dividends on Preferred Shares 92
Dividends on Common Shares - $1.245 per share 11,151
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 8,958 $22,394 $74,937 $53,722
Add:
Net Income 14,623
Deduct:
Dividends on Preferred Shares 90
Dividends on Common Shares - $1.26 per share 11,287
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 8,958 $22,394 $74,937 $56,968
Add:
Net Income 16,101
Deduct:
Dividends on Preferred Shares 88
Dividends on Common Shares - $1.28 per share 11,466
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1999 8,958 $22,394 $74,937 $61,515
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE> 31
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,101 $ 14,623 $ 14,059
Adjustments for non-cash items:
Depreciation and amortization 14,364 15,368 11,170
Deferred income taxes and investment tax credits 2,440 5,241 826
Other - net 1,066 1,394 873
Changes in assets and liabilities:
Customer receivables (1,555) 918 (673)
Supply cost balancing accounts (474) (14) 1,987
Accounts payable 3,559 (1,552) (1,095)
Taxes payable (468) (3,215) 3,338
Other - net 3,977 438 341
-------- -------- --------
Net cash provided 39,010 33,201 30,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (57,823) (43,623) (36,799)
-------- -------- --------
Net cash used (57,823) (43,623) (36,799)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- -- 1,472
Issuance of long-term debt and lease obligations 47,028 15,000 8,000
Receipt of advances for and contributions in aid of
construction 5,300 3,381 1,302
Refunds on advances for construction (2,957) (2,651) (2,957)
Retirement or repayments of long-term debt and
redemption of Preferred Shares - net (435) (9,488) (198)
Net change in notes payable to banks (17,000) 12,000 10,000
Common and preferred dividends paid (11,554) (11,386) (11,243)
-------- -------- --------
Net cash provided 20,384 6,856 6,376
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,569 (3,566) 403
Cash and Cash Equivalents, Beginning of Year 620 4,186 3,783
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,189 $ 620 $ 4,186
-------- -------- --------
TAXES AND INTEREST PAID:
Income taxes paid $ 12,137 $ 5,430 $ 6,338
Interest paid 11,834 11,391 9,451
-------- -------- --------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
Company $ 4,096 $ 1,797 $ 2,082
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
29
<PAGE> 32
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST
Water $ 532,007 $ 482,989
Electric 36,349 35,171
--------- ---------
568,356 518,160
Less - Accumulated depreciation (151,733) (138,423)
--------- ---------
416,623 379,737
Construction work in progress 32,972 35,016
--------- ---------
Net utility plant 449,595 414,753
--------- ---------
OTHER PROPERTY AND INVESTMENTS 10,233 763
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 2,020 524
Accounts receivable-Customers, less reserves of $487 in 1999;
$403 in 1998 10,135 7,498
Other 4,275 5,272
Intercompany receivable -- 104
Unbilled revenue 11,345 9,303
Materials and supplies, at average cost 1,153 994
Supply cost balancing accounts 4,774 4,300
Prepayments 4,851 5,988
Accumulated deferred income taxes - net 5,573 5,173
--------- ---------
Total current assets 44,126 39,156
--------- ---------
DEFERRED CHARGES
Regulatory tax-related assets 19,941 21,506
Other 8,599 7,997
--------- ---------
Total deferred charges 28,540 29,503
--------- ---------
TOTAL ASSETS $ 532,494 $ 484,175
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
30
<PAGE> 33
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $160,023 $155,721
Preferred shares -- --
Preferred shares - mandatory redemption -- --
Long-term debt 167,363 120,809
-------- --------
Total capitalization 327,386 276,530
-------- --------
CURRENT LIABILITIES
Notes payable to banks 21,000 38,000
Long-term debt and preferred shares - current 340 260
Accounts payable 13,615 10,054
Intercompany payable 4 --
Taxes payable 5,700 6,147
Accrued interest 1,584 1,405
Other 12,818 7,984
-------- --------
Total current liabilities 55,061 63,850
-------- --------
OTHER CREDITS
Advances for construction 57,485 54,743
Contributions in aid of construction 38,895 36,531
Accumulated deferred income taxes - net 48,302 46,901
Unamortized investment tax credits 3,064 3,155
Regulatory tax-related liability 1,861 1,907
Other 440 558
-------- --------
Total other credits 150,047 143,795
======== ========
TOTAL CAPITALIZATION AND LIABILITIES $532,494 $484,175
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
31
<PAGE> 34
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common shares, no par value
Outstanding 100 in 1998 and 1999 $ 98,391 $ 98,391
Additional paid-in capital -- --
Earnings reinvested in the business 61,632 57,330
--------- ---------
160,023 155,721
--------- ---------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,798 1,882
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 649 630
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 --
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 7,028 --
Other 588 917
--------- ---------
167,663 121,029
Less: Current maturities (300) (220)
--------- ---------
167,363 120,809
========= =========
TOTAL CAPITALIZATION $ 327,386 $ 276,530
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
32
<PAGE> 35
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
($ in thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES
Water $ 159,693 $ 134,794 $ 140,988
Electric 13,338 13,201 12,767
--------- --------- ---------
Total operating revenues 173,031 147,995 153,755
--------- --------- ---------
OPERATING EXPENSES
Water purchased 36,145 30,833 38,318
Power purchased for resale 7,119 5,013 5,188
Power purchased for pumping 7,394 7,009 7,554
Groundwater production assessment 7,170 7,567 6,847
Supply cost balancing accounts (473) 28 2,813
Other operating expenses 15,475 14,434 13,074
Administrative and general expenses 28,077 21,884 22,138
Depreciation 13,516 12,270 10,952
Maintenance 9,794 7,311 7,301
Taxes on income 13,473 10,360 9,830
Property and other taxes 6,563 6,124 6,282
--------- --------- ---------
Total operating expenses 144,253 122,833 130,297
--------- --------- ---------
OPERATING INCOME 28,778 25,162 23,458
--------- --------- ---------
OTHER INCOME
Total other income - net 509 1,231 758
--------- --------- ---------
Income before interest charges 29,287 26,393 24,216
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 11,294 9,612 8,821
Other interest and amortization of debt expense 1,651 1,595 1,336
--------- --------- ---------
Total interest charges 12,945 11,207 10,157
--------- --------- ---------
NET INCOME 16,342 15,186 14,059
Dividends on Preferred Shares -- (46) (92)
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 16,342 $ 15,140 $ 13,967
BASIC EARNINGS PER COMMON SHARE $ 163,420 $ 151,400 $ 139,670
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
100 100 100
</TABLE>
The accompanying notes are an integral part of these financial statements. All
information has been adjusted to reflect formation of holding company in 1998.
33
<PAGE> 36
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Earnings
------------------------ Additional Reinvested
Number Paid-in in the
of Shares Amount Capital Business
--------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 8,886 $22,215 $73,645 $50,906
Add:
Net Income 14,059
Issuance of Common Shares for public offering 72 179 1,292
Deduct:
Dividends on Preferred Shares 92
Dividends on Common Shares - $1.245 per
share 11,151
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 8,958 $22,394 $74,937 $53,722
Add:
Transfer Preferred Shares & Investments $ 1,060
Net Income 15,186
Deduct:
Dividends on Preferred Shares 46
Dividends on Common Shares - $.63 per share
for 8,957,671 shares 5,643
Dividends on Common Shares - $58,890 per share
for 100 shares 5,889
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 100 $22,394 $75,997 $57,330
Add:
Net Income 16,342
Deduct:
Dividends on Preferred Shares --
Dividends on Common Shares - $30,900 per share 3,090
Dividends on Common Shares - $30,500 per share 3,050
Dividends on Common Shares - $29,000 per share 2,900
Dividends on Common Shares - $30,000 per share 3,000
======= ======= ======= =======
BALANCES AT DECEMBER 31, 1999 100 $22,394 $75,997 $61,632
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE> 37
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 16,342 15,185 $ 14,059
Adjustments for non-cash items:
Depreciation and amortization 14,229 15,100 11,170
Deferred income taxes and investment tax credits 2,430 5,224 826
Other - net 1,308 1,077 873
Changes in assets and liabilities:
Customer receivables (1,640) 1,046 (673)
Prepayments (1,137) 660 (743)
Supply cost balancing accounts (474) (14) 1,987
Accounts payable 3,561 (1,716) (1,095)
Taxes payable (447) (2,968) 3,338
Unbilled revenue (2,042) (197) 3,490
Accrued Interest 179 (463) 96
Other - net 7,074 362 (2,502)
-------- -------- --------
Net cash provided 39,383 33,296 30,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (57,823) (43,623) (36,799)
-------- -------- --------
Net cash used (57,823) (43,623) (36,799)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- -- 1,472
Issuance of long-term debt and lease obligations 47,028 15,000 8,000
Receipt of advances for and contributions in aid of
construction 3,883 3,381 1,302
Refunds on advances for construction (1,540) (2,651) (2,957)
Repayments of long-term debt and redemption of
Preferred Shares - net (395) (9,488) (198)
Net change in notes payable to banks (17,000) 12,000 10,000
Common and preferred dividends paid (12,040) (11,577) (11,243)
-------- -------- --------
Net cash provided 19,936 6,665 6,376
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,496 (3,662) 403
Cash and Cash Equivalents, Beginning of Year 524 4,186 3,783
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR 2,020 524 4,186
-------- -------- --------
TAXES AND INTEREST PAID:
Income taxes paid $ 12,241 $ 5,430 $ 6,338
Interest paid 11,834 11,391 9,451
-------- -------- --------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
Company $ 4,096 $ 1,797 $ 2,082
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
35
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
American States Water Company (AWR) is the parent company of Southern
California Water Company (SCW) and American States Utility Services, Inc.
(ASUS). SCW is a public utility engaged principally in the purchase, production,
distribution and sale of water as well as in the distribution of electricity in
several mountain communities. SCW is regulated by the California Public
Utilities Commission (CPUC) as to its water and electric business including
properties, rates, services, facilities and other matters. ASUS performs
non-regulated, water related services and operations on a contract basis. The
consolidated financial statements include the accounts of AWR, SCW and ASUS .
Virtually all of AWR's assets and revenues are those of SCW.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of AWR and
its wholly-owned subsidiaries, SCW and ASUS collectively referred to as
Registrant. Inter-company transactions and balances have been eliminated.
The accounting records for SCW are maintained in accordance with the
Uniform System of Accounts prescribed by the CPUC. The preparation of these
financial statements required the use of certain estimates by management in
determining Registrant's assets, liabilities, revenues and expenses.
Property and Depreciation: Registrant capitalizes, as utility plant, the
cost of additions and replacements of retirement units. Such cost includes
labor, material and certain indirect charges. Depreciation is computed on the
straight-line, remaining-life basis. For the years 1999, 1998 and 1997 the
aggregate provisions for depreciation approximated 2.91%, 2.79%, and 2.77% of
the beginning of the year depreciable plant, respectively.
Interest: Interest is generally not capitalized for financial reporting
purposes as such procedure is usually not followed for rate-making purposes.
Revenues: Revenues include amounts billed to customers and an amount of
unbilled revenue representing amounts to be billed for usage from the last meter
reading date to the end of the accounting period.
Basic Earnings Per Common Share: Basic Earnings per Common Share are
based upon the weighted average number of Common Shares outstanding and net
income after deducting preferred dividend requirements. There are no dilutive
securities. Accordingly, diluted earnings per share is not calculated.
Supply Cost Balancing Accounts: As permitted by the CPUC, Registrant
maintains water and electric supply cost balancing accounts to account for
under-collections and over-collections of revenues designed to recover such
costs. Recoverability of such costs is recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
reversed when such costs are recovered through rate adjustments. Registrant
accrues interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper.
Debt Issue Expense and Redemption Premiums: Original debt issue expenses
are amortized over the lives of the respective issues. Premiums paid on the
early redemption of debt which is reacquired through refunding are deferred and
amortized over the life of the debt issued to finance the refunding. The
redemption premium on debt reacquired without refunding is amortized over the
remaining period the debt would have been outstanding.
36
<PAGE> 39
Other Credits: Advances for construction represent amounts advanced by
developers which are generally refundable at either a rate of 22% of the revenue
received from the installations for which funds were advanced or in equal annual
installments over a 40-year period. Contributions-in-aid of construction are
similar to advances, but require no refunding and are amortized over the useful
lives of the related property.
Cash and Cash Equivalents: For purposes of the Statements of Cash Flows,
cash and cash equivalents include short-term cash investments with an original
maturity of three months or less.
Financial Instrument Risk: Registrant does not carry any financial
instruments with off-balance sheet risk nor does its operations result in
concentrations of credit risk.
Fair Value of Financial Instruments: The table below estimates the fair
value of each represented class of financial instrument. For cash and cash
equivalents, accounts receivable and short-term debt, the carrying amount is
used. Otherwise, rates available to Registrant at December 31, 1999 and 1998 for
debt with similar terms and remaining maturities were used to estimate fair
value for long-term debt. Changes in the assumptions will produce differing
results.
<TABLE>
<CAPTION>
1999 1998
------------------------- ----------------------------
CARRYING
AMOUNT FAIR VALUE Carrying amount Fair value
-------- --------- --------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 2,189 $ 2,189 $ 620 $ 620
Accounts receivable 25,827 25,827 22,230 22,230
Financial liabilities:
Short-term debt 21,000 21,000 38,000 38,000
Long-term debt $167,663 $161,843 $120,809 $135,092
-------- -------- -------- --------
</TABLE>
NOTE 2 - CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 1999
are redeemable at the option of Registrant. At December 31, 1999, the redemption
price per share for each series of $25 Preferred Shares was $27.00, $26.50 and
$25.25 for the 4%, 4 1/4% and 5% Series, respectively. To each of the redemption
prices must be added accrued and unpaid dividends to the redemption date.
The $25 Preferred Shares, 5% Series, are subject to mandatory redemption
provisions of 1,600 shares per year. The annual aggregate mandatory redemption
requirements for this Series for the five years subsequent to December 31, 1999
is $40,000 each year.
In 1996, Registrant issued 1,000,000 Common Shares through a secondary
public offering. In January 1997, Registrant issued 71,500 Common Shares through
a secondary public offering. The net proceeds from this sale were used to repay
a portion of short-term debt then outstanding.
For the years ended December 31, 1999, December 31, 1998 and December
31, 1997, all shares issued under Registrant's Common Share Purchase and
Dividend Reinvestment Plan (DRP) and the 401(k) Plan were purchased on the open
market. There are 500,000 and 571,408 Common Shares reserved for issuance under
the DRP and the 401(k) Plan, respectively, at December 31, 1999. Shares reserved
for the 401(k) Plan are in relation to company matching contributions and for
investment purposes by participants.
As of December 31, 1999 there were no retained earnings restricted,
under any of Registrant's debt instruments, as to the payment of cash dividends
on Common Shares.
37
<PAGE> 40
In 1998, the board of directors adopted a Shareholder Rights Plan
(Rights Plan) and authorized a dividend distribution of one right (a Right) to
purchase 1/1000th of Junior Participating Preferred Share for each outstanding
Common Share. The Rights Plan became effective in September 1998 and will expire
in September 2008. The Rights Plan is designed to provide shareholders'
protection and to maximize shareholder value by encouraging a prospective
acquirer to negotiate with the board.
Each Right represents a right to purchase 1/1000th of Junior
Participating Preferred Share at the price of $120, subject to adjustment (the
Purchase Price). Each Junior Participating Preferred Share is entitled to
receive a dividend equal to 1000 times any dividend paid on each Common Share
and 100 votes per share in any shareholder election. The Rights become
exercisable upon occurrence of a Distribution Date. A Distribution Date event
occurs if (i) any person accumulates 15% of the then outstanding Common Shares,
(ii) any person presents a tender offer which caused the person's ownership
level to exceed 15% and the board determines the tender offer not to be fair to
AWR's shareholders, or (iii) the board determines that a shareholder maintaining
a 15% interest in the Common shares could have an adverse impact on AWR or could
attempt to pressure AWR to repurchase the holder's shares at a premium.
Until the occurrence of a Distribution Date, each Right trades with the
Common Share and is not separately transferable. When a Distribution Date
occurs, AWR would distribute separately Rights Certificates to Common
Shareholders and the Rights would subsequently trade separate from the Common
Shares and each holder of a Right, other than the acquiring person whose Rights
will thereafter be void, will have the right to receive upon exercise at its
then current Purchase Price that number of Common Shares having a market value
of two times the Purchase Price of the Right. If AWR merges into the acquiring
person or enters into any transaction that unfairly favors the acquiring person
or disfavors AWR's other shareholders, the Right becomes a right to purchase
Common Shares of the acquiring person having market value of two times the
Purchase Price.
The board of directors may determine that in certain circumstances a
proposal which would cause a Distribution Date is in the best interest of AWR's
shareholders. Therefore, the board of directors may, at its option, redeem the
Rights at a redemption price of $0.01 per Right.
NOTE 3 - COMPENSATING BALANCES AND BANK DEBT
At December 31, 1999, SCW maintained $47 million in aggregate borrowing
capacity with three commercial banks with no compensating balances required. Of
this amount, $21 million was outstanding at year-end. Loans can be obtained at
the option of SCW and bear interest at rates based on floating prime borrowing
rates or at money market rates.
Short-term borrowing activities for the last three years were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
(in thousands, except percent)
<S> <C> <C> <C>
Balance Outstanding at December 31, $21,000 $38,000 $26,000
Interest Rate at December 31, 7.35% 5.86% 6.39%
Average Amount Outstanding 8,775 19,309 $15,678
Weighted Average Annual Interest Rate 5.11% 6.78% 6.27%
Maximum Amount Outstanding $21,000 $39,000 $32,000
------- ------- -------
</TABLE>
38
<PAGE> 41
NOTE 4 - LONG TERM DEBT
In March 1998, SCW sold the remaining $15 million under its Series B
Medium Term Note Program and in December 1998, SCW redeemed all of its
outstanding 10.10% Notes. In January 1999, $40 million of Series C Medium Term
Notes were sold. The funds were used initially to repay short-term bank
borrowings and, after that, to fund construction expenditures. Registrant has no
mortgage debt, and leases and other similar financial arrangements are not
material.
SCW has posted an Irrevocable Letter of Credit, which expires July 31,
2000, in the amount of $646,631 as security for its self-insured workers'
compensation plan. SCW has also provided an Irrevocable Letter of Credit, which
expires November 14, 2000, in the amount of $6,296,000 to a trustee with respect
to the variable rate obligation issued by the Three Valleys Municipal Water
District.
Annual maturities of all long-term debt, including capitalized leases,
amount to $303,356, $231,559, $246,528, $262,036 and $278,644 for the five years
ending December 31, 2000 through 2004, respectively.
NOTE 5 - TAXES ON INCOME
Registrant provides deferred income taxes for temporary differences
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), for certain transactions which are recognized for
income tax purposes in a period different from that in which they are reported
in the financial statements. The most significant items are the tax effects of
accelerated depreciation, the supply cost balancing accounts and advances for
and contributions-in-aid-of-construction. SFAS No. 109 also requires that
rate-regulated enterprises record deferred income taxes for temporary
differences accorded flow-through treatment at the direction of a regulatory
commission. The resulting deferred tax assets and liabilities are recorded at
the expected cash flow to be reflected in future rates. Since the CPUC has
consistently permitted the recovery of previously flowed-through tax effects,
SCW has established regulatory liabilities and assets offsetting such deferred
tax assets and liabilities.
Deferred investment tax credits are being amortized to other income
ratably over the lives of the property giving rise to the credits.
The significant components of deferred tax assets and deferred tax
liabilities, as reflected in the balance sheets, and the accumulated net
deferred income tax liabilities at December 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
(dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Balancing accounts $ (175) $ 33
State tax effect 5,721 5,123
-------- --------
5,546 5,156
-------- --------
Deferred tax liabilities
Depreciation (44,939) (43,442)
Advances and contributions 15,862 16,694
Other property related (10,007) (11,488)
Other non-property related (9,218) (8,666)
-------- --------
(48,302) (46,902)
-------- --------
Accumulated deferred income taxes - net $(42,756) $(41,746)
-------- --------
</TABLE>
39
<PAGE> 42
The current and deferred components of income tax expense are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ 9,360 $ 5,219 $ 7,205
State 2,799 1,727 2,287
-------- -------- --------
Total current tax expense 12,159 6,946 9,492
-------- -------- --------
Deferred - Federal and State:
Accelerated depreciation 3,405 3,319 2,996
Balancing accounts (207) 6 (871)
Advances and contributions -- -- (210)
California privilege year franchise tax (970) (544) (617)
Other (664) (398) (566)
-------- -------- --------
Total deferred tax expense 1,564 2,383 732
-------- -------- --------
Total income tax expense 13,723 9,329 10,224
-------- -------- --------
Income taxes included in operating expenses 13,345 10,130 9,830
Income taxes included in other income and expenses - net 378 (801) 394
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
</TABLE>
Additional information regarding taxes on income is set forth in the
following table:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands, except percent)
<S> <C> <C> <C>
Federal taxes on pre-tax income at statutory rates $ 10,438 $ 8,470 $ 8,451
Increase (decrease) in taxes resulting from:
State income tax expense 2,605 1,654 1,864
Depreciation 1,184 944 853
Federal benefit of state taxes (912) (579) (652)
Adjustments to prior years' provisions 433 (97) (143)
Payment of premium on redemption 66 (813) --
Other - net (91) (250) (149)
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
Pre-tax income $ 29,824 $ 23,952 $ 24,145
-------- -------- --------
Effective income tax rate 46.0% 38.9% 42.3%
-------- -------- --------
</TABLE>
NOTE 6 - EMPLOYEE BENEFIT PLANS
Registrant maintains a pension plan (the Plan) which provides eligible
employees (those age 21 and older, with one year of service) monthly benefits
upon retirement based on average salaries and length of service. The normal
retirement benefit is equal to 2% of the five highest consecutive years average
earnings multiplied by the number of years of credited service, up to a maximum
of 40 years, reduced by a percentage of primary social security benefits. There
is also an early retirement option. Annual contributions are made to the Plan
which comply with the funding requirements of the Employee Retirement Income
Security Act (ERISA). At December 31, 1999, Registrant had 713 participants in
the Plan, 54 of these are employees covered by collective bargaining agreements,
the earliest of which expires in 2001.
Registrant also provides all active employees medical, dental and vision
care benefits through a medical insurance plan. Eligible employees who retired
prior to age 65, and/or their spouses, were able to retain the benefits under
the active plan until reaching age 65. Eligible employees upon reaching age 65,
40
<PAGE> 43
and those employees retiring at or after age 65, and/or their spouses, receive
coverage through a Medicare supplement insurance policy paid for by Registrant
subject to an annual cap limit.
The CPUC has issued a decision which provides for the recovery in rates
of tax-deductible contributions made to a separately trusteed fund. In
accordance with that decision, SCW established two separate trusts in 1995, one
for those retirees who were subject to a collective bargaining agreement and
another for all other retirees. Registrant's funding policy is to contribute
annually an amount at least equal to the revenues authorized to be collected
through rates for post-retirement benefit costs. Post-retirement benefit costs
for 1993, 1994 and 1995 were estimated at a total of $1.6 million and have been
recorded as a regulatory asset for recovery over a 20 year period. The
unamortized balance at December 31, 1999 was approximately $610,000.
The following table sets forth the Plan's funded status and amounts
recognized in Registrant's balance sheets and the components of net pension cost
and accrued post-retirement liability at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
1999 1998 1999 1998
-------- -------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit Obligation at beginning of year $ 38,572 $ 33,410 $ 4,363 $ 4,503
Service Cost 1,963 1,597 125 112
Interest Cost 2,538 2,278 305 283
Actuarial Loss/(Gain) (6,255) 2,514 (171) (368)
Benefits Paid (1,305) (1,227) (191) (167)
-------- -------- ------- -------
Benefit Obligation at end of year $ 35,513 $ 38,572 $ 4,431 $ 4,363
CHANGES IN PLAN ASSETS:
Fair Value of Plan Assets at beginning
of year $ 39,541 $ 33,433 $ 1,442 $ 1,104
Actual Return of Plan Assets 8,277 6,051 25 44
Employer Contributions 1,264 1,284 484 461
Benefits Paid (1,305) (1,227) (191) (167)
-------- -------- ------- -------
Fair Value of Plan Assets at end of year $ 47,777 $ 39,541 $ 1,760 $ 1,442
RECONCILIATION OF FUNDED STATUS:
Funded Status $ 12,263 $ 969 $(2,671) $(2,921)
Unrecognized Transition Obligation 57 114 6,288 6,707
Unrecognized Net Loss/(Gain) (10,683) 677 (1,869) (1,860)
Unrecognized Prior Service Cost 355 400 (3,228) (3,427)
-------- -------- ------- -------
Prepaid/(Accrued) Pension Cost $ 1,992 $ 2,160 $(1,480) $(1,501)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount Rate 7.75% 6.50% 7.75% 6.50%
Long-term Rate of Return 8.00% 8.00% 8.00% 8.00%
Salary Assumption 4.00% 4.00% -- --
</TABLE>
A sliding scale for assumed health care cost increases was used for both
periods, starting at 8% in 1999 and then remaining at 6% thereafter.
The components of net periodic post-retirement benefits cost for 1999
and 1998 are as follows:
41
<PAGE> 44
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- --------------------
(dollars in thousands) 1999 1998 1999 1998
------- ------- ----- -----
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFITS COST
Service Cost $ 1,963 $ 1,597 $ 125 $ 112
Interest Cost 2,538 2,278 305 283
Actual Return on Plan Assets (8,277) (6,051) (25) (44)
Net Amortization 5,207 3,476 58 67
------- ------- ----- -----
Net Periodic Pension Cost $ 1,431 $ 1,300 $ 463 $ 418
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage-Point 1-Percentage-Point
(dollars in thousands) Increase Decrease
-------- --------
<S> <C> <C>
Effect on Total of Service and Interest Cost
Components $ 13 $ (12)
Effect on Postretirement Benefit Obligation 177 (156)
</TABLE>
Registrant has a 401(k) Investment Incentive Program under which
employees may invest a percentage of their pay, up to a maximum investment
prescribed by law, in an investment program managed by an outside investment
manager. Company contributions to the 401(k) are based upon a percentage of
individual employee contributions and, for 1999, 1998 and 1997, totaled
$920,340, $874,113, and $785,687, respectively.
NOTE 7 - BUSINESS RISKS AND CONCENTRATION OF SALES
Registrant's utility operations are engaged in supplying water and
electric service to the public. SCW is required to provide service and grant
credit to customers within its defined service areas. Although Registrant has a
diversified base of residential, industrial and other customers, revenues
derived from commercial and residential water customers accounted for
approximately 90% of total water revenues in 1999 and 91% in 1998. Registrant
faces additional risks associated with weather conditions, adequacy and quality
of water supplies, regulatory decisions, pronouncements and laws, water-related
litigation, general business conditions and condemnation
Approximately 40% of the SCW's water supply is purchased from
wholesalers of imported water, with the remainder produced from company wells.
The long-term availability of imported water supplies is dependent upon, among
other things, drought conditions throughout the state, increases in population,
water quality standards and legislation that may potentially reduce water
supplies. SCW does not anticipate any constraints on its imported water supplies
in 2000.
NOTE 8 - CONTINGENCIES
In 1998, ASUS was formed to pursue non-regulated opportunities such as
long-term leases, and operation and maintenance contracts of
governmentally-owned water and wastewater systems. In 1999, Registrant
terminated its Golden State Water Company joint venture. Registrant expensed
approximately $336,000 against future losses and capital account adjustments in
1998. There was no significant financial impact in 1999 associated with the
termination.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement with a
42
<PAGE> 45
value of approximately $9.5 million. SCW's investment in SWP is currently
included in Other Property and Investments. The remaining balance of the related
liability of approximately $7 million is recorded as other long-term debt. SCW
intends to recover its investment in SWP through contributions from developers
on a per-lot or other basis, and, failing that, sale of its 500 acre-foot
entitlement in SWP. SCW believes that its full investment and on-going costs
associated with its ownership will be fully recovered.
SCW has been named as a defendant in eleven lawsuits which allege that
SCW delivered contaminated water to its customers. Plaintiffs in these actions
seek damages, including general, special, and punitive damages, according to
proof of trial, as well as attorney's fees on certain causes of action, costs of
suit, and other unspecified relief. Nine of the lawsuits involve customer
service areas located in Los Angeles county in the southern portion of
California; two of the lawsuits involve a customer service area located in
Sacramento county in northern California. On September 1, 1999, the Court of
Appeal in San Francisco held that the CPUC had preemptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of eleven lawsuits against SCW had been ordered for dismissal by the state
Court of Appeals. On October 11, 1999, one group of plaintiffs appealed the
decision to the California Supreme Court which has accepted the case. Management
is unable to predict the outcome of this proceeding but, in any event, does not
anticipate a decision prior to 2001.
In light of the breadth of plaintiff's claims, the lack of factual
information regarding plaintiff's claims and injuries, if any, the fact that no
discovery has yet been completed, SCW is unable to determine at this time what,
if any, potential liability it may have with respect to these claims. SCW
intends to vigorously defend itself against these allegations. Management can
not predict the outcome of these proceedings and if SCW is found liable, SCW
would pursue recovery through its insurance coverage providers.
In response to those lawsuits and similar actions, in March 1998 the
CPUC issued an Order Instituting Investigation (OII) directed to all Class A and
B water utilities in California, including SCW, into whether existing standards
and policies regarding drinking water quality adequately protect the public
health and whether those standards and policies are being uniformly complied
with by those water utilities. The OII notes the constitutional and statutory
jurisdiction of the CPUC and the DOHS to establish and enforce adherence to
water quality standards for water delivered by utilities to their customers and,
in the case of the CPUC, to establish rates which permit water utilities to
furnish water that meets the established water quality standards at prices which
are both affordable and that allow the utility to earn a reasonable return on
its investment. SCW has made its filing in this proceeding on a series of
questions dealing with the current drinking water standards, compliance by water
utilities with such standards, appropriate remedies for failure to comply with
drinking standards and whether stricter or additional drinking water standards
are required. The Water Division of the CPUC has issued its report based on
these filings by the utilities. A final decision in the OII is anticipated in
2000. The OII leaves open the possibility of evidentiary hearings and further
action by the CPUC. The Administrative Law Judge assigned to the OII has issued
a draft decision finding that water utilities, including SCW, have complied with
DOHS regulation and requirements. SCW is unable to predict whether the draft
decision will be approved in part or in its entirety by the CPUC.
Management believes that proper insurance coverage and reserves are in
place to insure against anticipated property, general liability and workers'
compensation claims.
43
<PAGE> 46
NOTE 9 - CONSTRUCTION PROGRAM
SCW's 2000 construction budget provides for gross expenditures of
approximately $59 million, $3.6 million of which is anticipated to be obtained
from developers and others. Neither AWR nor ASUS have material capital
commitments; however, ASUS actively seeks opportunities to own, lease or operate
municipal water and wastewater systems, which may involve significant capital
commitments.
NOTE 10 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The table below presents SCW's provision for doubtful accounts charged
to expense and accounts written off, net of recoveries for the last three years.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
----- ----- -----
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 403 $ 466 $ 387
Provision charged to expense 852 631 707
Accounts written off, net of recoveries (768) (694) (628)
----- ----- -----
Balance at end of year $ 487 $ 403 $ 466
----- ----- -----
</TABLE>
Neither AWR nor ASUS have established any provision for doubtful accounts.
NOTE 11 - BUSINESS SEGMENTS
Registrant has two principal business units: a water and electric
distribution unit, through its SCW subsidiary, and a non-regulated activity unit
through the ASUS subsidiary. All activities currently are geographically located
within California, except for one contract providing customer service and
billing services to a utility located in Arizona. SCW is a regulated utility
which operates both water and electric systems. AWR has no material operations
other than its SCW subsidiary. On a stand alone basis, AWR has no material
assets other than its investments in its subsidiaries. The tables below set
forth information relating to SCW's operating segments. SCW manages its
operations on a regional basis using the five categories below as broad-level
measures of profitability. Region I incorporates service areas in northern and
central California; Region II contains service areas throughout Los Angeles;
Region III encompasses water operations in eastern Los Angles County, Orange
County, San Bernardino County and Imperial County. SCW also provides electric
service to the City of Big Bear Lake and surrounding areas. Included in the
amounts set forth, certain assets, revenues and expenses have been allocated.
The identifiable assets are net of respective accumulated provisions for
depreciation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------
WATER
----------------------------------------
REGION I REGION II REGION III ELECTRIC TOTAL
-------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 27,221 $ 70,770 $ 61,692 $13,348 $173,031
Operating income before income taxes 6,567 15,841 16,022 3,821 42,251
Identifiable assets 108,675 140,175 177,457 25,725 452,032
Depreciation expense 2,736 4,041 5,395 1,344 13,516
Capital additions $ 12,966 $ 21,926 $ 14,513 $ 2,173 $ 51,578
-------- -------- -------- ------- --------
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric Total
-------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $24,927 $ 57,273 $ 52,584 $13,211 $147,995
Operating income before income taxes 6,799 11,732 13,144 3,847 35,522
Identifiable assets 97,463 123,044 169,264 24,981 414,752
Depreciation expense 2,551 3,378 4,701 1,640 12,270
Capital additions $13,302 $ 14,452 $ 15,795 $ 1,720 $ 45,239
------- -------- -------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric Total
-------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $24,340 61,085 55,551 $12,779 $153,755
Operating income before income taxes 5,897 9,593 13,709 4,089 33,288
Identifiable assets 87,039 112,556 158,934 25,095 383,624
Depreciation expense 2,306 3,042 4,603 1,001 10,952
Capital additions $10,007 15,431 11,671 $ 2,116 $ 39,225
------- -------- -------- ------- --------
</TABLE>
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The
business of Registrant is of a seasonal nature and it is management's opinion
that comparisons of earnings for the quarter periods do not reflect overall
trends and changes in Registrant's operations.
<TABLE>
<CAPTION>
Operating Revenues Operating Income Net Income Earnings per Share
------------------------ ---------------------- ---------------------- ------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- ------- ------- ----- -----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 36,132 $ 29,955 $ 5,854 $ 4,382 $ 2,977 $ 1,843 $0.33 $0.20
Second Quarter 42,116 35,001 7,251 5,586 4,406 2,767 0.49 0.31
Third Quarter 51,597 47,002 10,266 9,432 6,690 6,374 0.74 0.71
Fourth Quarter 43,576 36,102 5,143 5,661 2,028 3,639 0.23 0.40
-------- -------- ------- ------- ------- ------- ----- -----
Year $173,421 $148,060 $28,514 $25,061 $16,101 $14,623 $1.79 $1.62
-------- -------- ------- ------- ------- ------- ----- -----
</TABLE>
NOTE 13 - YEAR 2000 READINESS UPDATE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no effects or changes to Registrant's
operating trends or revenue patterns as a result of the millennium turnover.
SCW formally announced its 100% Y2K Ready status when it filed its
Compliance Report with the CPUC on November 1, 1999. SCW will be submitting the
last CPUC report on this issue by March 1, 2000.
Registrant's general process for addressing the Y2K issue was (i) to
inventory all systems that may have a potential Y2K impact, (ii) to determine
the materiality of these non-Y2K ready systems, (iii) to replace and test,
correct and test, or prepare for the failure of material items that have been
determined to be non-Y2K ready, and (iv) to prepare contingency plans.
Registrant is significantly dependent on third party suppliers, such as
energy and telecommunication companies and wholesale water suppliers. In order
to conduct its business, Registrant initiated due diligence with certain of its
major service providers to address their Y2K readiness. In the event that such
suppliers might be adversely affected by Y2K, Registrant prepared its
contingency plan which included, among other things, increased staffing during
critical periods, manual back-up for
45
<PAGE> 48
automated systems and the use of portable generators capable of providing power
during a black-out. Several "dry runs" were exercised in 1999, which simulated
Y2K situations that implemented Registrant's contingency plan. The dry runs
proved to be effective exercises that identified areas of strength and weakness,
and provided real-life experience from which to make informed decisions about
Y2K preparation and contingency plan.
Not all Y2K problems were necessarily expected to surface in early 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of these third parties to adequately predict the risks posed by
them to Registrant. If the third parties later discover any Y2K problems that
are not remedied, resulting problems could include loss of utility services and
disruption of water supplies.
On September 2, 1999, the CPUC issued an order denying regulated water
utilities the authority to create memorandum accounts for Y2K expenses. The
order, however, provides that, after January 1, 2000, regulated water utilities
may file for recovery of capital investment, not otherwise included in current
rates, associated with Y2K mitigation efforts. Y2K final expenditures have been
estimated at approximately $7.5 million. Registrant has spent $4.8 million at
January, 2000, $4.0 million of which is in capital investments. On March 1,
2000, Registrant filed an advice letter with the CPUC for recovery of Y2K
related costs. Registrant believes that these capital expenditures as well as
the remaining Y2K-related investments will be recovered through rates, but can
give no assurance that the CPUC will authorize recovery of all or some of these
costs.
NOTE 14 - SUBSEQUENT EVENT
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary in
transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
46
<PAGE> 49
REPORT OF MANAGEMENT
The consolidated financial statements contained in the annual report
were prepared by the management of American States Water Company, which is
responsible for their integrity and objectivity. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and include, where necessary, amounts based upon management's best
estimates and judgments. All other financial information in the annual report is
consistent with the consolidated financial statements and is also the
responsibility of management.
Registrant maintains systems of internal control which are designed to
help safeguard the assets of Registrant and provide reasonable assurance that
accounting and financial records can be relied upon to generate accurate
financial statements. These systems include the hiring and training of qualified
personnel, appropriate segregation of duties, delegation of authority and an
internal audit function which has reporting responsibility to the Audit
Committee of the board of directors.
The Audit Committee, composed of three outside directors, exercises
oversight of management's discharge of its responsibilities regarding the
systems of internal control and financial reporting. The committee periodically
meets with management, the internal auditor and the independent accountants to
review the work and findings of each. The committee also reviews the
qualifications of, and recommends to the board of directors, a firm of
independent accountants.
The independent accountants, Arthur Andersen LLP, have performed an
audit of the consolidated financial statements in accordance with generally
accepted auditing standards. Their audit gave consideration to Registrant's
system of internal accounting control as a basis for establishing the nature,
timing and scope of their work. The result of their work is expressed in their
Report of Independent Public Accountants.
/s/ Floyd E. Wicks /s/ McClellan Harris III
- ----------------------------------- -----------------------------------
President, Chief Executive Officer Chief Financial Officer,
Vice President - Finance,
Treasurer and Corporate Secretary
February 10, 2000
47
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of American States Water Company:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of American States Water Company and its
subsidiary, Southern California Water Company (California corporations), as of
December 31, 1999 and 1998 and the related consolidated statements of income,
changes in common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Registrant's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
States Water Company and its subsidiary, Southern California Water Company, as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Los Angeles, California
February 10, 2000, except for
Note 14, as to which the date
is March 10, 2000
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information responsive to Part III, Item 10 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to Part III, Item 11 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and "Performance
Graph" and is incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responsive to Part III, Item 12 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to Part III, Item 13 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and is
incorporated herein by reference pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Reference is made to the Financial Statements incorporated
herein by reference to Part II, Item 8 hereof.
2. All required schedules may be found in the Financial Statements
and Notes to Financial Statements incorporated herein by
reference to Part II, Item 8 hereof or at the conclusion of this
Item. Schedules III, IV, and V are omitted as they are not
applicable.
(b) Exhibits -
3.1 By-Laws of American States Water Company incorporated herein
by reference to Registrant's Form 8-K, dated November 2, 1998.
Commission File No. 333- 47647.
49
<PAGE> 52
3.2 By-laws of Southern California Water Company incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
3.3 Amended and Restated Articles of Incorporation of American
States Water Company incorporated herein by reference to
Registrant's Form 8-K, dated November 2, 1998. Commission File
No. 333-47647.
3.3.1 Certificate of Amendment of Amended and Restated Articles of
Incorporation, dated August 25, 1998, of American States Water
Company incorporated by reference to Registrant's Form 10-K
for the year ended December 31, 1998. Commission File
No. 001-14431.
3.3.2 Certificate of Amendment of Amended and Restated Articles of
Incorporation of American States Water Company, dated
August 25, 1999.(1)
3.3 Restated Articles of Incorporation of Southern California
Water Company incorporated herein by reference to Registrant's
Form 8-K, dated January 20, 1999. Commission File
No. 000-01121.
4.1 Amended and Restated Rights Agreement, dated January 25, 1999,
by and between American States Water Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
4.2 Indenture, dated September 1, 1993 between Southern California
Water Company and Chemical Trust Company of California
incorporated herein by reference to Registrant's Form 8-K.
Registration No. 33-62832.
10.1 Agreement of Merger dated as of June 25, 1998 by and among
Southern California Water Company, SCW Acquisition Corp. and
American States Water Company incorporated herein by reference
to Registrant's Form 8-K, dated July 1, 1998. Commission File
No. 333-47647.
10.2 Deferred Compensation Plan for Directors and Executives
incorporated herein by reference to Registrant's Registration
Statement on Form S-2. Registration No. 33-5151.(2)
10.3 Reimbursement Agreement, dated October 3, 1997, between
Southern California Water Company and The Bank of Nova Scotia
incorporated herein by reference to Registrant's Form 10-K
with respect to the year ended December 31, 1997. Commission
File No. 000-01121.
10.4 Second Sublease dated October 5, 1984 between Southern
California Water Company and Three Valleys Municipal Water
District incorporated herein by reference to Registrant's
Registration Statement on Form S-2. Registration No. 33-5151.
50
<PAGE> 53
10.5 Note Agreement dated as of May 15, 1991 between Southern
California Water Company and Transamerica Occidental Life
Insurance Company incorporated herein by reference to
Registrant's Form 10-Q with respect to the quarter ended June
30, 1991. Commission File No. 000-01121.
10.6 Schedule of omitted Note Agreements, dated May 15, 1991,
between Southern California Water Company and Transamerica
Annuity Life Insurance Company, and Southern California Water
Company and First Colony Life Insurance Company incorporated
herein by reference to Registrant's Form 10-Q with respect to
the quarter ended June 30, 1991. Commission File
No. 000-01121.
10.7 Loan Agreement between California Pollution Control Financing
Authority and Southern California Water Company, dated as of
December 1, 1996 incorporated by reference to Registrant's
Form 10-K for the year ended December 31, 1998. Commission
File No. 001-14431.
10.8 Agreement for Financing Capital Improvement dated as of June
2, 1992 between Southern California Water Company and Three
Valleys Municipal Water District incorporated herein by
reference to Registrant's Form 10-K with respect to the year
ended December 31, 1992. Commission File No. 000-01121.
10.9 Water Supply Agreement dated as of June 1, 1994 between
Southern California Water Company and Central Coast Water
Authority incorporated herein by reference to Registrant's
Form 10-K with respect to the year ended December 31, 1994.
Commission File No. 000-01121.
10.10 Amended and Restated Retirement Plan for Non-Employee
Directors of American States Water Company, dated as of
October 25, 1999.(1)(2)
10.11 Dividend Reinvestment and Common Share Purchase Plan
incorporated herein by reference to American States Water
Company Rule 424 (b) (3) filing dated October 27, 1999.
Commission File No. 333-88979.
10.12 Key Executive Long-Term Incentive Plan incorporated herein by
reference to Registrant's 1995 Proxy Statement, Commission
File No. 00 0-01121.(2)
10.13 Energy Management Services Agreement between Southern
California Water Company and Illinova Energy Partners, Inc.(1)
10.14 Amended and Restated Change in Control Agreements, dated as of
October 25, 1999, between American States Water Company,
Southern California Water Company and certain
executives.(1)(2)
10.15 Amended and Restated Change in Control Agreements, dated as of
October 25, 1999, between Southern California Water Company
and certain executives.(1)(2)
10.16 Southern California Water Company Pension Restoration
Plan.(1)(2)
10.17 American States Water Company Annual Incentive Plan.(1)(2)
13. 1999 Annual Report to Shareholders.(1)
51
<PAGE> 54
21. Subsidiaries of Registrant incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended December
31, 1998. Commission File No. 001-14431.
23. Consent of Independent Public Accountants.(1)
27. Schedule UT.(1)
(d) None.
---------------------
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement
52
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To American States Water Company:
We have audited in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated February 10, 2000. Our
audits of the consolidated financial statements were made for the purpose of
forming an opinion on those basic consolidated financial statements taken as a
whole. The supplemental schedule listed in Part IV of this Form 10-K, which is
the responsibility of American States Water Company's management, is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations, and is not part of the basic consolidated financial statements.
This supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Los Angeles, California
February 10, 2000
53
<PAGE> 56
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
Cash and equivalents $ 169 $ 96
Other current assets 4,003 139
--------- ---------
Total current assets 4,172 235
Investments in subsidiaries 160,370 156,035
Other deferred debits 123 50
========= =========
Total assets $ 164,665 $ 156,320
========= =========
LIABILITIES AND CAPITALIZATION
Accounts payable $ 4,116 $ 164
Other current liabilities (257) (143)
--------- ---------
Total current liabilities 3,859 21
Common shareholders' equity 158,846 154,299
Preferred shares 1,960 2,000
--------- ---------
Total capitalization 160,806 156,299
Total liabilities and capitalization $ 164,665 $ 156,320
========= =========
</TABLE>
54
<PAGE> 57
CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1999, and the Six Months Ended December
31, 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands except
per share amount)
<S> <C> <C>
Operating Revenue And Other Income $ 413 $ (397)
Operating Expenses 654 166
-------- --------
Loss Before Equity in Earnings of Subsidiaries (241) (563)
Equity in Earnings of Subsidiaries 16,342 15,140
-------- --------
Net Income 16,101 14,577
Dividends on Preferred Shares (88) (44)
-------- --------
Earnings Available For Common Shareholders $ 16,013 $ 14,533
-------- --------
Weighted Average Number of Common Shares Outstanding 8,958 8,958
-------- --------
Basic Earnings Per Common Share $ 1.79 $ 1.62
-------- --------
</TABLE>
55
<PAGE> 58
CONDENSED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999, and the Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities $ 11,666 $ 5,793
-------- -------
Cash Flows Used in Financing Activities (11,593) (5,697)
-------- -------
Increase (Decrease) in Cash and Equivalents 73 96
Cash and Equivalents at Beginning of Period 96 --
-------- -------
Cash and Equivalents at the End of Period $ 169 $ 96
-------- -------
Cash dividends received from Southern California Water Company $ 12,040 $ 5,889
</TABLE>
56
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN STATES WATER COMPANY
and its subsidiary
SOUTHERN CALIFORNIA WATER COMPANY
By: /s/ McCLELLAN HARRIS III .
--------------------------------
McClellan Harris III
Vice President - Finance, Treasurer,
Chief Financial Officer and Secretary
Date: March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
/s/ LLOYD E. ROSS . Date: March 15, 2000
- -----------------------------------
Lloyd E. Ross
Chairman of the Board and Director
/s/ FLOYD E. WICKS . March 15, 2000
- -----------------------------------
Floyd E. Wicks
Principal Executive Officer;
President, CEO and Director
/s/ McCLELLAN HARRIS III . March 15, 2000
- -----------------------------------
Clellan Harris III
Principal Financial and Accounting Officer;
CFO, VP - Finance, Treasurer and Secretary
/s/ LINDA J. MATLICK . March 15, 2000
- -----------------------------------
Linda J. Matlick
Controller - Southern California Water Company
/s/ JAMES L. ANDERSON . March 15, 2000
- -----------------------------------
James L. Anderson, Director
57
<PAGE> 60
/s/ JEAN E. AUER . March 15, 2000
- -----------------------------------
Jean E. Auer, Director
/s/ N. P. DODGE, JR. . March 15, 2000
- -----------------------------------
N. P. Dodge, Jr., Director
/s/ ANNE M. HOLLOWAY . March 15, 2000
- -----------------------------------
Anne M. Holloway, Director
/s/ ROBERT F. KATHOL . March 15, 2000
- -----------------------------------
Robert F. Kathol, Director
58
<PAGE> 1
EXHIBIT 3.3.2
CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF AMERICAN STATES WATER COMPANY,
DATED AUGUST 25, 1999
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN STATES WATER COMPANY
(A CALIFORNIA CORPORATION)
Floyd E. Wicks and McClellan Harris III certify that:
1. They are the duly elected and acting President and Secretary,
respectively of American States Water Company (the "Corporation").
2. The Amended and Restated Articles of Incorporation of the
Corporation shall be amended by striking in its entirety the first full
paragraph of Article IV of the Amended and Restated Articles of Incorporation
which now reads:
"This Corporation is authorized to issue three
classes of stock to be designated, respectively,
"New Preferred Shares", "Preferred Shares", and
"Common Shares". The total number of shares
which this Corporation is authorized to issue is
30,231,600; 150,000 shares are to be New
Preferred Shares with no par value and a stated
value of $100 per share and an aggregate stated
value of $15,000,000; 81,600 shares are to be
Preferred Shares with a par value of $25 per
share and an aggregate par value of $2,040,000;
and 30,000,000 shares are to be Common Shares
with no par value and a stated value of $2.50
per share and an aggregate par value of
$75,000,000."
<PAGE> 3
and substituting therefore the following paragraph to read in full as follows:
"This Corporation is authorized to issue three
classes of stock to be designated, respectively,
"New Preferred Shares", "Preferred Shares", and
"Common Shares". The total number of shares
which this Corporation is authorized to issue is
30,230,000; 150,000 shares are to be New
Preferred Shares with no par value and a stated
value of $100 per share and an aggregate stated
value of $15,000,000; 80,000 shares are to be
Preferred Shares with a par value of $25 per
share and an aggregate par value of $2,000,000;
and 30,000,000 shares are to be Common Shares
with no par value and a stated value of $2.50
per share and an aggregate par value of
$75,000,000."
3. The Restated Articles of Incorporation of the Corporation shall be
further amended by striking in its entirety paragraph (ii) of Paragraph 15 of
Article IV of the Amended and Restated Articles of Incorporation which now
reads:
"(ii) Number of Shares. The authorized number of
shares constituting said Preferred Shares, 5%
Series, shall be 17,600."
and substituting therefore the following paragraph to read in full as follows:
"(ii) Number of Shares. The authorized number of
shares constituting said Preferred Shares, 5%
Series, shall be 16,000."
<PAGE> 4
4. The foregoing amendments set forth in paragraphs 2 and 3 of this
Certificate are each amendments that may be adopted by the Board of Directors
alone (and which were so adopted) because the amendments are required by Section
510 of the California General Corporation Law to reflect the reacquisition of a
portion of the Corporation's Preferred Shares, 5% Series, $25 par value, in
accordance with the sinking fund provisions thereof. Such reacquired Preferred
Shares cannot be reissued.
5. The foregoing amendments have been duly approved by the Board of
Directors as required by Section 905(b) of the California General Corporation
Law.
We further declare, under penalty of perjury under the laws of the State
of California, that the matters set forth in this Certificate of Amendment are
true and correct.
IN WITNESS WHEREOF, the undersigned have executed this Certificate in San
Dimas, California on this 11th day of August, 1999.
-------------------------------------
FLOYD E. WICKS, President
-------------------------------------
McCLELLAN HARRIS III, Secretary
<PAGE> 5
August 10, 1999
Office of the Secretary of State
State of California
Attn: Certification Unit
1500 - 11th Street
Sacramento, CA 95814
Ladies and Gentlemen:
RE: American States Water Company
Corporate No. 137226
Please find enclosed herewith for filing two (2) originals of a Certificate of
Amendment of Restated Articles of Incorporation of American States Water
Company, a California Corporation. One original should be filed with your office
and the other is to be date stamped and returned to me in the enclosed
self-addressed, prepaid envelope.
In addition, please find the Corporation's check for $30.00, which represents
the filing fee.
Any questions regarding this matter should be directed to the undersigned person
at (909) 394-3600, extension 705.
Sincerely,
McClellan Harris III
Chief Financial Officer, Vice President - Finance,
Treasurer and Corporate Secretary
Enclosure(s)
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED RETIREMENT PLAN
FOR NON-EMPLOYEE DIRECTORS OF AMERICAN STATES WATER COMPANY
DATED AS OF OCTOBER 25, 1999
<PAGE> 2
AMENDED AND RESTATED RETIREMENT PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
AMERICAN STATES WATER COMPANY
<PAGE> 3
AMENDED AND RESTATED RETIREMENT PLAN
FOR
NON-EMPLOYEE DIRECTORS
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION I Definitions................................................................. 1
SECTION II Participation............................................................... 2
SECTION III Retirement of Directors..................................................... 2
SECTION IV Retirement Benefit.......................................................... 2
SECTION V Participant's Rights Unsecured.............................................. 3
SECTION VI Termination of Plan......................................................... 3
SECTION VII Amendment of Plan........................................................... 3
SECTION VIII Change in Control........................................................... 3
</TABLE>
<PAGE> 4
This Amended and Restated Retirement Plan for Non-Employee Directors of
American States Water Company is dated as of October 25, 1999, and restates in
its entirety the Retirement Plan for Non-Employee Directors dated as of January
25, 1995.
SECTION I. DEFINITIONS
When the following terms are used in this Plan, with the first letter
capitalized, they mean:
"AWR" - American States Water Company, a California corporation.
"Change in Control" - any of the following events:
(a) the dissolution or liquidation of either the Corporation or
AWR, unless its business is continued by another entity in which holders
of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
(b) Any sales, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of
either the Corporation or AWR, unless its business is continued by
another entity in which holders of AWR's voting securities immediately
before the event own, either directly or indirectly, more than 50% of
the continuing entity's voting securities immediately after the event;
(c) any reorganization or merger of the Corporation or AWR,
unless the holders of AWR's voting securities immediately before the
event own, wither directly or indirectly, more than 50% of the
continuing surviving entity's voting securities immediately after the
event;
(d) an acquisition by any person, entity or group in concert of
more than 50% of the voting securities of the Corporation or AWR, unless
the holders of AWR's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the acquirer's voting
securities immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Corporation or AWR within a twelve-month period, unless
the election or nomination for election by shareholders or new directors
within such period constituting a majority of the applicable Board was
approved by the vote of at least two-thirds of the directors then still
in office who were in office at the beginning of the twelve-month
period.
"Compensation" - the annual amount payable to a Director for serving as
a director (assuming all regular meetings are attended and no special meetings
are held) or, if an annual retainer is provided, the amount of the annual
retainer, in each case as on effect at the Retirement Date of the Director. If
such Compensation of any Director who is a participant is at a rate higher than
the rate applicable to Participants generally (e.g.; because of service in an
additional
1
<PAGE> 5
capacity such as Chairman of the Board, service on a committee of the Board or
otherwise) the Compensation of that Director shall, for purposes of this Plan,
be at the same rate as that of Participants generally.
"Corporation" - Southern California Water Company, a California
corporation.
"Director" - a member of the Board of Directors.
"Participant" - a Director who is not a full-time employee of the
Corporation and who enters into the agreement set forth in Sections 2 and 3
applicable to that Director.
"Retirement Benefit" - the date when a Participant ceases to be a
Director, other than by removal for cause.
SECTION II. PARTICIPATION
This Plan shall cover each Participant; provided, that each Director who
desires to become a Participant must agree to accept nomination as a Director if
requested by the Board of Directors and, if so nominated and elected, to serve
as a Director for at least ten years after his or her original election as a
Director.
SECTION III. RETIREMENT OF DIRECTORS
Each Participant agrees to retire as a Director and not to seek
reelection or election to the Board of Directors at, or to remain as a Director
after, the annual meeting of Shareholders of the Corporation occurring on or
next following the date when that Participant attains the age of 72.
SECTION IV. RETIREMENT BENEFIT
If the Retirement Date of a Participant occurs before he or she is 62
years old, he or she shall be entitled to receive a monthly Retirement Benefit
in an amount equal to one-twelfth of his or her Compensation, payable commencing
on the first day of the month after he or she attains or would have attained age
62, unless the Participant ceases to be a Director because of health reasons,
evidence of which is accepted as satisfactory by the Board of Directors, or
death in either of which events Retirement Benefits in accordance with this Plan
shall be payable commencing immediately after the Retirement Date or such later
date as the Participant may have specified in writing to the Corporation.
If the Retirement Date of a Participant occurs on or after she becomes
62 years old, he or she shall be entitled to receive a monthly Retirement
Benefit in an amount equal to one-twelfth of his or her Compensation, payable in
monthly installments, with the first payment to be made the first day of the
month following the Participants' Retirement Date.
Payment of a Retirement Benefit shall continue for a period equal to the
shortest of (a) the life of the Participant following his or her Retirement Date
or, if the Participant is married at his or here Retirement Date, the combined
lives of the Participant and spouse, (b) the same number of months as the
Participant was a Director and not also a full-time employee of the
2
<PAGE> 6
Company or (c) ten (10) years. If a participant is married at his or her
Retirement Date and dies before the end of the period for which payments are to
be made and is survived by the spouse, the spouse shall be entitled to receive
payment of the Retirement Benefit for the balance of the payment period.
SECTION V. PARTICIPANT'S RIGHTS UNSECURED
The right of any participant to receive a Retirement Benefit shall be an
unsecured claim against the general assets of the Corporation. There shall be no
funding of any Retirement Benefits which may become payable hereunder. No trust
shall be created in connection with or by the execution or adoption of this
Plan.
SECTION VI. TERMINATION OF PLAN
Subject to Section VIII, The Board of Directors of the Corporation may
terminate the Plan at any time. A Participant receiving, or who has retired from
the Board and is entitled at the time of termination to receive, a Retirement
Benefit under the terms of the Plan, however, shall continue, after the Plan
terminated, to receive or be entitled to receive, that Retirement Benefit
pursuant to the terms of the Plan as in effect at the time of its termination.
SECTION VII. AMENDMENT OF PLAN
Subject to Section VIII, The Board of Directors of the Corporation may
amend the Plan at any time; provided, however, that no such amendment shall
retroactively affect the payments made under the Plan or reduce the payables
receivable by any Director who is then receiving or who has retired from the
Board and is entitled to receive, a Retirement Benefit under the Plan.
SECTION VIII. CHANGE IN CONTROL
This Section shall supersede any conflicting provision of the Plan.
In the event of a Change in Control, in lieu of all other benefits
provided hereunder, the Participant shall be entitled to receive a lump sum
payment equal to the present value, assuming an interest rate of 6% per annum,
of a stream of annual payments for ten (10) years, each such annual payment to
be equal to his or her Compensation immediately prior to the Change in Control.
This Section may not be amended after either a Change in Control or the
approval of a plan or agreement for a Change in Control by the Board of
Directors of either AWR or the Corporation, unless such plan or agreement is
terminated
3
<PAGE> 1
EXHIBIT 10.13
ENERGY MANAGEMENT SERVICE AGREEMENT
WITH ILLINOVA ENERGY PARTNERS, INC.
<PAGE> 2
[LETTERHEAD OF ILLINOVA]
April 5, 1999
Mr. Joel Dickson
Vice President of Customer Service and Operations Support
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
Dear Mr. Dickson:
This letter constitutes an Agreement ("Agreement") between ILLINOVA ENERGY
PARTNERS, INC. ("IEPI"), a Delaware corporation, and the Southern California
Water Company (SCWC) and its Bear Valley Electric Division (BEAR VALLEY). IEPI
and SCWC are each sometimes referred to herein as "Party" and are collectively
referred to as "Parties." The purpose of this Agreement is to enable a Party to
purchase, sell or exchange capacity, energy, and/or other services (a
"Transaction") from, to, or with the other Party in accordance with the terms
and conditions provided herein. This Agreement is not intended to obligate
either Party to purchase, sell or exchange any amount of such capacity, energy,
and/or other services from, to or with the other Party except as provided
herein.
Term and Conditions
1. Term of Agreement
This Agreement shall become effective upon execution by both Parties and
commence on May 1, 1999, and shall remain in effect until April 30, 2002;
provided, however, that this Agreement shall remain in effect as to any
Transaction agreed upon by the Parties prior to termination until the
completion of and final payment for such Transaction.
2. Availability for Purchase, Sale or Exchange of Capacity, Energy and/or
Other Services
a. IEPI shall provide services under this section pursuant to the terms
and conditions of the Scheduling Coordination and Real-Time Services
Agreement between IEPI and SCWC, dated April 5, 1999.
<PAGE> 3
Mr. Joel Dickson
April 5, 1999
Page 2
3. Compensation for Capacity, Energy and/or Other Services
The compensation to be paid with respect to a Transaction hereunder shall
be as specified in the agreement entered into pursuant to Section 2(b) or
Section(c); provided, however, that the compensation for a sale of
capacity, energy and/or other services by IEPI shall be pursuant to IEPI's
then current FERC Electric Rate Schedule. IEPI's current schedule, Schedule
No. 1, is attached hereto as Exhibit A and made a part hereof. Such
Schedule may be amended from time to time.
4. Reliability
Both IEPI and SCWC shall comply with the operation and scheduling
guidelines specified by the North American Electric Reliability Council and
the Western Systems Coordinating Council.
5. Billing and Payment
a. All power Transactions hereunder shall be accounted for on the basis
of scheduled hourly quantities. Each Party shall maintain records of
hourly schedules for accounting and operating purposes. The billing
period for Transactions hereunder shall be one (1) calendar month.
b. A bill shall be submitted within approximately ten (10) days following
the last day of each month covering Transactions during that month.
Payment shall be due within twenty (20) days of the date the bill was
received. Payment shall be made by electronic wire transfer to the
address set forth in this Section 5.
c. Amounts not paid on or before the due date shall accrue interest at
one and one half percent (1 1/2%) per month or the maximum rate
permitted by law, whichever is less, from the due date until payment
is made.
d. In the event any portion of a bill is in dispute, the disputed amount
shall be paid under protest when due. The dispute shall be discussed
and resolved by the Authorized Representatives, who shall use their
best efforts to amicably and promptly resolve the dispute. Upon
determination of the correct billing amount, the proper adjustment
shall be paid or refunded promptly with interest accrued in accordance
with Section 5(c) and computed from the date payment was received to
the date the adjustment is made.
<PAGE> 4
Mr. Joel Dickson
April 5, 1999
Page 3
e. All billings to SCWC shall be sent to:
Mr. Raymond P. Juels
Manager of Energy Resources
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
or to such address as SCWC may specify by written notice given as
provided herein.
f. All payments to IEPI greater than $50,000 shall be by wire transfer
to:
American National Bank
2000 South Naperville Road
Wheaton, IL 60187
ABA#: 071000770
Account#: 1818-0752
For Illinova Energy Partners
All payments to IEPI less than $50,000 may be made by check to:
Illinova Power Marketing, Inc.
Attention: Jennifer Hughey, Controller
6955 Union Park Center, Suite 300
Midvale, Utah 84047
or to such other address as IEPI may specify by written notice given
as provided herein.
6. Authorized Representatives
Within thirty (30) days after execution of this Agreement, each Party
shall designate in writing its Authorized Representative(s) for
purposes of this Agreement. Either Party may, by written notice to the
other given as provided herein, change its Authorized
Representative(s).
<PAGE> 5
Mr. Joel Dickson
April 5, 1999
Page 4
7. Tax Liability
All transactions are subject to any applicable sales, use, franchise,
excise, ad valorem or other similar tax. Receipt of satisfactory
evidence of exemption is required to avoid any applicable taxation.
8. Notices
All written notices under this Agreement (except bills given pursuant
to Section 5) shall be deemed effective upon receipt if delivered in
person or sent by facsimile, express courier, or registered or
certified mail, postage prepaid, to the address specified below:
If to IEPI:
Illinova Power Marketing, Inc.
Attention: Jennifer Hughey, Controller
6955 Union Park Center, Suite 300
Midvale, Utah 84047
Fax No.: (801) 568-2104
If to SCWC:
Mr. Raymond P. Juels
Manager of Energy Resources
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
A Party may, by notice given as provided in this Section, change the
address to which notice is to be given.
9. Necessary Authorization
Each Party represents that it has the necessary corporate and/or
legal authority to enter into this Agreement and to perform each and
every duty and obligation imposed herein, and that this Agreement
constitutes a valid, binding and enforceable obligation of such
Party. Each individual affixing a signature to this Agreement
represents and warrants that he or she has been duly authorized to
execute this Agreement on behalf of the Party he or she represents.
<PAGE> 6
Mr. Joel Dickson
April 5, 1999
Page 5
10. indemnification
Each party agrees to protect, indemnify and hold harmless the other Party,
its directors, officers, employees and agents, against and from any and all
losses, claims, actions, suits and proceedings (including attorneys fees
and costs) for or on account of injury to or death of persons or damage to
property resulting from or arising out of the indemnifying Party's actions
or facilities, excepting only such injury, death, or damage as may be
caused by the fault or negligence of the other Party, its directors,
officers, employees, or agents. This Section 10 is not intended to impose
on a Party an obligation to protect, indemnify and defend the other Party
with respect to injury or death of persons or damage to property, resulting
from or arising out of the fault or negligence of entities or persons other
than a Party, its directors, officers, employees or agents.
11. Uncontrollable Forces
Neither Party shall be considered to be in default in the performance of
any obligations under this Agreement (other than obligations to pay bills)
when and to the extent such failure of performance shall be due to any
uncontrollable force. The term "uncontrollable force" shall mean any cause
beyond the control of the Party affected, including but not restricted to,
failure or threat of failure of facilities, flood, earthquake, geohydraulic
subsidence, tornado, storm, fire, or other catastrophe, civil disobedience,
labor dispute, or sabotage, restraint by court order or public authority
(whether valid or invalid), and action or non-action by or inability to
obtain or maintain the necessary authorizations or approvals from any
governmental agency or authority. An "uncontrollable force" must be a
cause which by exercise of due diligence the affected Party could not
reasonably have been expected to avoid and which by exercise of due
diligence it shall not be able to overcome. The failure to perform for any
reason of any supplier of capacity, energy or other services to IEPI shall
constitute an uncontrollable force affecting IEPI and entitling IEPI to
relief under this Section 11. No Party shall, however, be relieved of
liability for failure of performance if such failure is due to causes
arising out of its own negligence or due to removable or remediable causes
which it fails to remove or remedy within a reasonable time period. Nothing
contained herein shall be construed so as to require a Party to settle any
strike or labor dispute in which it may be involved. A Party rendered
unable to fulfill any of its obligations under this Agreement by reason of
uncontrollable force shall give prompt written notice of such fact to the
other Party and shall exercise due diligence to remove such inability with
all reasonable dispatch.
<PAGE> 7
Mr. Joel Dickson
April 5, 1999
Page 6
12. Audit Rights
Upon prior notice, SCWC shall have the right to designate its own employee
representative(s) or its contracted representative(s) with a certified
public accounting firm who shall have the right to examine those accounts,
books, records, or supporting documentation to verify the accuracy of any
statement, charge, computation or demand made under or pursuant to any
agreement and related capacity, energy, transmission or other electric
services agreements. Any such audit(s) shall be at the auditing Party's
expense and undertaken at responsible times and in conformance with
generally accepted auditing standards. The IEPI agrees to fully cooperate
with any such audit(s).
The right to audit shall extend during the length of any agreement and for
a period of not more than one (1) year following the month in which
services were performed. The Parties shall retain all necessary records and
documentation for the entire length of this audit period.
13. Control and Payment of Subordinates
SCWC retains IEPI on an independent contractor basis and not as an
employee. The personnel performing the services contemplated by this
agreement on behalf of SCWC shall at all times be under IEPI's exclusive
direction and control and are not employees of SCWC. IEPI shall pay all
wages, salaries, and other amounts due such personnel in connection with
their performance of services under any agreement and as required by law.
IEPI shall be responsible for all reports and obligations regarding such
personnel including, but not limited to: social security taxes, income tax
withholding, unemployment insurance, and worker's compensation insurance.
14. Fair Employment
Parties agree not to unlawfully discriminate in its employment practices
against any employee, applicant for employment, or group of people on the
basis of race, religion, color, sex, age, physical condition or national
origin.
15. Assignment
No transfer or assignment of all or any part of this Agreement or of any
rights, benefits, or duties hereunder by any Party shall be effective
without the prior written consent of the other Party, which consent shall
not be unreasonably withheld; provided, that this Section 15 shall not
apply to interests which arise by reason of security agreements
<PAGE> 8
Mr. Joel Dickson
April 5, 1999
Page 7
heretofore granted or executed by a Party, or to an assignment to the
successor of a Party by merger or corporate reorganization.
16. No Dedication of Facilities
Any undertaking by one Party under any provisions of this Agreement shall
not constitute the dedication of the system or any portion thereof of such
Party to the public or to the other Party or any other person or entity,
and it is understood and agreed that any such undertaking by either Party
shall cease upon the termination of such Party's obligations under this
Agreement.
17. Choice of Laws
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, except to the extent preempted by the
Federal Power Act and the rules and regulations of the FERC.
18. Binding Effect
The terms and provisions of this Agreement, and the respective rights and
obligations hereunder of each Party, shall be binding upon, and inure to
the benefits of, its successors and permitted assigns.
19. Non-Waiver of Defaults
No waiver by either Party of any default of the other Party under this
Agreement shall operate as a waiver of a future default, whether of a like
or different character.
20. Written Amendments
No modification of the terms and provisions of this Agreement shall be or
become effective except by written amendment executed by the Parties.
21. Severability
Should any provision of this Agreement for any reason be declared invalid
or unenforceable by final and applicable order of any court or regulatory
body having jurisdiction, such decision shall not affect the validity of
the remaining portions, and the remaining portions shall remain in force
and effect as if this Agreement had been executed without the invalid
<PAGE> 9
Mr. Joel Dickson
April 5, 1999
Page 8
portion. This Agreement is subject to review by the California Public
Utilities Commission "CPUC". The Agreement may be terminated if
disapproved by the CPUC: however, SCWC shall be liable for any economic
damages to IEPI with respect to any power transactions made under this
Agreement with IEPI.
22. Survival
Any provisions(s) of this Agreement that expressly or by implication comes
into or remains in force following the termination or expiration of this
Agreement shall survive the termination or expiration of this Agreement.
If the foregoing terms are acceptable to SCWC, please sign and return one
copy of this Agreement. The remaining copy is for your files.
Sincerely,
/s/ MARK V. ALLEN
-----------------------
Mark V. Allen
Director, Regional Marketing
Illinova Energy Partners, Inc.
Accepted as of this 5 day of April, 1999 for:
The Southern California Water Company
/s/ JOEL A. DICKSON
------------------------
Joel A. Dickson
By: Mr. Joel Dickson
Title: Vice President of Customer Service and Operations Support
<PAGE> 10
EXHIBIT A
ILLINOVA ENERGY PARTNERS, INC.
FERC TARIFF NO. 1
1. Availability: Illinova Energy Partners, Inc. ("IEPI") makes electric energy
and capacity available for resale under this Rate Schedule to any
purchaser.
2. Applicability: This schedule is applicable to all sales of energy or
capacity by IEPI not otherwise subject to a particular rate schedule of
IEPI.
3. Rates: All sales shall be made at rates established by agreement between
the purchaser and IEPI.
4. Other Terms and Conditions: All other terms and conditions shall be
established by agreement between the purchaser and IEPI.
5. Affiliate Sales and Purchases Prohibited: No sale or purchase may be made
pursuant to this Rate Schedule to or from any IEPI affiliate.
6. Effective Date: This Rate Schedule is effective on and after May 20, 1995.
<PAGE> 11
[ILLINOVA LETTERHEAD]
Mr. Raymond P. Juels
Manager of Energy Resources
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
RE: Illinova Energy Partners, Inc. (IEP) Agreements with Southern California
Water Company (SCWC) for Electric Power Management Services
Dear Ray:
IEP hereby submits its originals of our three-year Daily Purchasing Agreement.
Please execute both originals for each agreement, keep one for your records and
forward one executed original back to IEP per my attention. I look forward to
our transition meeting at 2:00 p.m. in IEP's Irvine offices on Friday, April 23,
1999.
If you have any questions, please call myself at (801) 568-2126. Thank you again
for your business, and Illinova looks forward to commencing service for you.
Sincerely,
/s/ MARK V. ALLEN
Mark V. Allen
Director, Regional Marketing
<PAGE> 12
[ILLINOVA LETTERHEAD]
VIA FACSIMILE
April 5, 1999 IEP REF# S- S-BEAR VALLEY - SCWC-001
Mr. Joel Dickson
Vice President of Customer Service and Operations Support
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
This letter agreement outlines the terms and conditions of a transaction between
the Southern California Water Company, its Bear Valley Electric Division and
Illinova Energy Partners, Inc. (IEP).
BUYER: Southern California Water Company
SELLER: Illinova Energy Partners, Inc.
PRODUCT: Firm Energy
TERM: May 1, 1999 through April 30, 2000.
HOURS: Monday through Sunday, Hour Ending (HE) 0100 through Hour
Ending (HE) 2400, Pacific Prevailing Time (PPT), including
NERC Holidays.
AMOUNT: MW PER HOUR DAYS HOURS PER DAY TOTAL MWh
----------- ---- ------------- ---------
12 365 24 105,120
PRICE: US DOLLARS $28.00/MWh
POINT OF DELIVERY: Delivered at California PX location take-out points,
including Victorville-Lugo midpoint and Vista Substation.
SCHEDULING: IEP will schedule energy based upon the amounts above. IEP's
telephone numbers for real-time coverage of this agreement
are (801) 568-2151 and 1-800-500-3260.
CURTAILMENTS: Curtailments are only permitted for system emergencies due
to UNCONTROLLABLE FORCES (unanticipated events that prevent
a Party from performing it's obligations at the Delivery
Point to deliver or receive energy, which is not within the
reasonable control and which by the exercise of all
commercial efforts such Party has been unable to overcome or
obtain or cause to be obtained substitute performance
therefore). Curtailments shall not be made for economic
reasons.
DAMAGES: If SELLER fails to deliver the Amount, where such failure
was not excused by uncontrollable forces (as defined under
Curtailments) or by Buyer, Seller shall be liable to Buyer
for all such energy. The liability shall be calculated as
the difference between
<PAGE> 13
April 5, 1999
1) Buyer's reasonably incurred cost of replacing the comparable
energy Seller failed to deliver (per megawatt-hour) and 2) the
PRICE times the total Contract energy not delivered, to the
extent that the calculation resulted in a positive number.
If BUYER fails to accept delivery of the Amount, where such
failure was not excused by uncontrollable forces (as defined
under Curtailments) or by Seller, Buyer shall be liable to
Seller for all such energy. The liability shall be calculated as
the difference between 1) the PRICE and 2) the revenue (per
megawatt-hour) that Seller receives in selling the capacity and
energy Buyer failed to accept times the total Contract energy not
accepted, to the extent that the calculation resulted in a
positive number. Neither party shall be liable to the other for
any consequential, incidental, punitive, or special damages for
failure to take or receive energy in accordance with the
conditions stated above.
IEP CONTACTS: Primary Contact Secondary Contact
Gaston Mejia Layne Brown
Short Term Trader Director Power Operations
Phone: (801) 568-2129 Phone: (801) 568-2150
GENERAL TERMS: This confirmation letter is provided pursuant to and in
accordance with The Illinova-Southern California Water Company
Enabling Agreement and constitutes part of and is subject to all
of the terms and provisions of such Agreement. Terms used but
not defied herein shall have the meanings ascribed to them in
the Agreement.
BILLING: Billings and payment shall be in accordance with the terms
specified in Section 9 of the WSPP Agreement. Information for
SCWC and IEP are provided below.
Billings shall be mailed to:
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
Attention: Mr. Raymond P. Juels
Payments shall be mailed to: Payments over $50,000 shall
be wired to:
Illinova Energy Partners, Inc. American National Bank
6955 Union Park Center, Suite 300 2000 South Naperville Road
Midvale, UT 84047 Wheaton, IL 60187
Attn: Jennifer Hughey ABA #: 071000770
Account #: 1818-0752
For Illinova Energy Partners
ARTICLE II: DEFAULT AND FINANCIAL RESPONSIBILITY
Should a party have a reasonable basis to believe that the
creditworthiness or financial responsibility of the other Party
has become unsatisfactory at any time during which this
Agreement is in effect, satisfactory security may be required
before further deliveries are made. In the event either Party
shall (i) Make an assignment or any general arrangement for the
benefit of creditors; (ii) file a petition or otherwise
commence, authorize, or
<PAGE> 14
April 5, 1999
acquiesce in the commencement of a proceeding or cause under any
bankruptcy or similar law for the protection of creditors or
have such petition filed or proceeding commenced against it;
(iii) otherwise become bankrupt or insolvent (however
evidenced); (iv) be unable to pay its debts as they fall due; or
(v) default in its payment or performance of any obligation to
the other Party under this Agreement and fail to give adequate
security, or assurance of, its ability to perform its further
obligation under this Agreement within forty-eight (48) hours of
a reasonable request by the other Party, then the other party
shall have the right, without prior notice, to withhold payment
or suspend deliveries or terminate this Agreement, in addition
to any and all other remedies available hereunder or pursuant to
the law.
If the terms and conditions shown above accurately reflect your understanding
of our agreement, please indicate by signing and returning a facsimile copy of
this Agreement to IEP at (801) 568-2103.
Sincerely,
Illinova Energy Partners Southern California Water Company
/s/ MARK V. ALLEN /s/ JOEL DICKSON
- ---------------------------------- ---------------------------------------
Mark V. Allen Mr. Joel Dickson
Director, Regional Marketing Vice President of Customer & Operations
Support
<PAGE> 15
[ILLINOVA LETTERHEAD]
VIA FACSIMILE
APRIL 7, 1999 IEP REF# S-BEAR VALLEY - SCWC-DAILY PURCHASING AGREEMENT
Mr. Joel Dickson
Vice President of Customer Service and Operations Support
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
This letter agreement outlines the terms and conditions of a transaction
between the Southern California Water Company, its Bear Valley Electric
Division and Illinova Energy Partners, Inc. (IEP).
BUYER: Southern California Water Company (SCWC)
SELLER: Illinova Energy Partners, Inc.
PRODUCT: Daily Energy Purchasing: the total amount of energy
required to satisfy SCWC load for Bear Valley Electric
during the term of this agreement on a daily, to monthly
forward, basis, less any forward purchase made under
separate confirmation by SCWC with IEP.
TERM: May 1, 1999 through April 30, 2002.
HOURS: Monday through Sunday, Hour Ending (HE) 0100 through Hour
Ending (HE) 2400, Pacific Prevailing Time (PPT), including
NERC Holidays.
AMOUNT:
<TABLE>
<S> <C> <C> <C>
VARIES 1096 24 VARIES
</TABLE>
PRICE: The price for the Product supplied to SCWC will be on a
total pass through basis to purchase from various power
sources including the California Power Exchange. All fees,
charges, including but not limited to ISO ancillary
services, PX fees and losses shall be included in the price.
PERFORMANCE: IEP will be paid monthly based on a Performance Benchmark
Incentive Payment, for energy purchased under this
agreement, on a daily basis as follows: 40% of the daily
savings for taking the positive resultant between [the
product total of {the Power Exchange Clearing Price "Day
Ahead Zonal Price Constrained "LA 4" (as listed on the
calpx.com website), plus the daily purchasing
administrative charge for the California Power Exchange,
plus the applicable ISO Wheeling Access Charges, plus Grid
Management Charges, plus Spin and Non-Spin Charges}
multiplied by hourly load during the period in excess of
any firm energy purchased from IEP under a separate
agreement for the same period] minus IEP's Delivered Cost
at the Victorville-Lugo Midpoint. Such calculations of
performance shall identify all applicable line items when
billed.
<PAGE> 16
April 9, 1999
POINT OF DELIVERY: Delivered at California PX location take-out points,
including Victorville-Lugo midpoint and Vista Substation.
SCHEDULING: Unless otherwise instructed by SCWC, IEP will schedule
energy based upon historical energy usage for the previous
year's monthly load adjusted daily for current year
representation of common weekend and week day loads. IEP's
telephone numbers for real-time coverage of this agreement
are (801) 568-2151 and 1-800-500-3260.
CURTAILMENTS: Curtailments are only permitted for system emergencies due
to UNCONTROLLABLE FORCES (unanticipated events that prevent
a Party from performing it's obligations at the Delivery
Point to deliver or receive energy, which is not within the
reasonable control and which by the exercise of all
commercial efforts such Party has been unable to overcome or
obtain or cause to be obtained substitute performance
therefore). Curtailments shall not be made for economic
reasons.
DAMAGES: If SELLER fails to deliver the Amount, where such failure
was not excused by uncontrollable forces (as defined under
Curtailments) or by Buyer, Seller shall be liable to Buyer
for all such energy. The liability shall be calculated as
the difference between 1) Buyer's reasonably incurred cost
of replacing the comparable energy Seller failed to deliver
(per megawatt-hour) and 2) the PRICE times the total
Contract energy not delivered, to the extent that the
calculation resulted in a positive number.
If BUYER fails to accept delivery of the Amount, where such
failure was not excused by uncontrollable forces (as
defined under Curtailments) or by Seller, Buyer shall be
liable to Seller for all such energy. The liability shall
be calculated as the difference between 1) the PRICE and 2)
the revenue (per megawatt-hour) that Seller receives in
selling the capacity and energy Buyer failed to accept
times the total Contract energy not accepted, to the extent
that the calculation resulted in a positive number. Neither
party shall be liable to the other for any consequential,
incidental, punitive, or special damages for failure to
take or receive energy in accordance with the conditions
stated above.
IEP CONTACTS: Primary Contact Secondary Contact
Gaston Mejia Layne Brown
Short Term Trader Director Power Operations
Phone: (801) 568-2129 Phone: (801) 568-2150
GENERAL TERMS: This confirmation letter is provided pursuant to and in
accordance with The Illinova-Southern California Water
Company Enabling Agreement and constitutes part of and is
subject to all of the terms and provisions of such
Agreement. Terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
<PAGE> 17
April 9, 1999
BILLING: Billings and payment shall be in accordance with the terms specified
in The Illinova-Southern California Water Company Enabling
Agreement. Information for SCWC and IEP are provided below.
Billings shall be mailed to:
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91733
Attention: Mr. Raymond P. Juels
Payments shall be mailed to: Payments over $50,000 shall be
wired to:
Illinova Energy Partners, Inc. American National Bank
6955 Union Park Center, Suite 300 2000 South Naperville Road
Midvale, UT 84047 Wheaton, IL 60187
Attn: Jennifer Hughey ABA#: 071000770
Account#: 1818-752
For Illinova Energy Partners
ARTICLE II: DEFAULT AND FINANCIAL RESPONSIBILITY
Should a party have a reasonable basis to believe that the
creditworthiness or financial responsibility of the other Party has
become unsatisfactory at any time during which this Agreement is in
effect, satisfactory security may be required before further
deliveries are made. In the event either Party shall (i) Make an
assignment or any general arrangement for the benefit of creditors;
(ii) file a petition or otherwise commence, authorize, or acquiesce
in the commencement of a proceeding or cause under any bankruptcy or
similar law for the protection of creditors or have such petition
filed or proceeding commenced against it; (ii) otherwise become
bankrupt or insolvent (however evidenced); (iv) be unable to pay its
debts as they fall due; or (v) default in its payment or performance
of any obligation to the other Party under this agreement and fail
to give adequate security for or assurance of its ability to perform
its further obligation under this agreement within forty-eight (48)
hours of a reasonable request by the other Party, then the other
Party shall have the right, without prior notice, to withhold or
suspend deliveries to Party, then the other Party shall have the
right, without prior notice, to withhold or suspend deliveries or
terminate this Agreement, in addition to any and all other remedies
available the hereunder or pursuant to the law.
If the term and conditions shown above accurately reflect your understanding of
our agreement, please indicate by signing and returning a facsimile copy of this
Agreement to IEP at (801) 568-2103.
Sincerely,
Illinova Energy Partners Southern California Water Company
/s/ MARK V. ALLEN /s/ JOEL DICKSON
- ---------------------------------- ----------------------------------
Mark V. Allen Mr. Joel Dickson
Director, Regional Marketing Vice President of Customer &
Operations Support
<PAGE> 18
[ILLINOVA LETTERHEAD]
Mr. Joel Dickson
Vice President of Customer Service and Operations Support
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
RE: SCHEDULING COORDINATION & REAL-TIME SERVICES AGREEMENT -- METERING &
COMMUNICATIONS
Dear Mr. Dickson:
This represents an amendment to the Scheduling Coordination & Real-Time Services
(Agreement) between Illinova Energy Partners, Inc. (IEP) and the Southern
California Water Company for its Division Bear Valley Electric Services
(Customer) dated April 7, 1999.
Pursuant to Section 8 Metering and Communications of the subject agreement, IEP
is to provide Customer with the proposed costs for metering and communications
prior to billing for such services. Accordingly, IEP has had a few visits to
Bear Valley with one of its Meter Service Providers and designed a metering
interrogation scheme that I believe is better than the prior configuration by
our predecessor. In addition, this considers a permanent installation owned by
Customer. The Exhibit A attached provides you with the detail of such
installation, and the total cost for this service is a one-time charge of
$7,200 (billable in the first month in which the equipment was installed. IEP's
monthly charge for metering interrogation is hereby quoted as $35.00 per month.
If the above pricing meets with your approval, please so indicate by signing
this Agreement in the space provided below and return a faxed copy to my
attention at (801) 568-2103.
Sincerely,
/s/ MARK V. ALLEN
- -----------------------
Mark V. Allen
Director, Regional Marketing
California & Desert Southwest
Accepted as of this 13th day of May, 1999, for Southern California Water Company
/s/ JOEL A. DICKSON
- -----------------------
Mr. Joel Dickson
Vice President of Customer & Support Services
<PAGE> 19
[ILLINOVA LETTERHEAD]
EXHIBIT A
BEAR VALLEY ELECTRIC SERVICE - METERING
CONVERSION PROPOSAL
DESCRIPTION QTY
DATA STAR, TYPE D-102,32K, 4-CHANNEL, SOLID STATE PULSE RECORDER - WITH 2
TELEPHONE MODEM
PULSE SPLITTING RELAY - MERCURY WETTED WITH 3 RELAYS INSTALLED - 1 IN, 4
2 OUT
FUSE BLOCKS WITH DIRECT MOUNTING BASE AND TUBULAR SCREWS, SIMILAR OR 2
EQUAL TO BUCHANAN CAT. #342 - INCLUDES TYPE 'KTK' OR 'KLM' FUSES
FASTENERS - CONNECTORS - TERMINALS - COUPLINGS 1
PROVIDE ALL LABOR NECESSARY TO INSTALL A COMPLETED METERING INSTALLATION 32
VEHICLE MILES TO AND FROM PROJECT 400
TECHNICIANS TRAVEL TIME FROM THEIR BASE TO THE JOB SITE AND RETURN 8
COSTS INCURRED FOR PERFORMING A SITE INSPECTION TO DETERMINE COMPONENTS 4
NECESSARY TO COMPLETE PROJECT
PROJECT ENGINEERING AND COMPONENT ACQUISITION 3
TOTAL $7,200.00
<PAGE> 20
[DIAGRAM OF SUB-METERING SPECIFICATION FOR "GOLDHILL" SUBSTATION]
<PAGE> 21
[DIAGRAM OF SUB-METERING SPECIFICATION FOR "HARNISH" SUBSTATION]
<PAGE> 22
[ILLINOVA LETTERHEAD]
Mr. Joel Dickson
Vice President of Customer Service and Operations Support
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
RE: SCHEDULING COORDINATION & REAL-TIME SERVICES AGREEMENT
Dear Mr. Dickson:
This agreement for Scheduling Coordination & Real-Time Services (Agreement)
sets forth the rates, terms, and conditions under which Illinova Energy
Partners, Inc. (Illinova) agrees to provide twenty four (24) hour real-time
services and Schedule Coordination to Southern California Water Company for its
Division Bear Valley Electric Services (Customer). Illinova and Customer are
hereinafter collectively referred to as "Parties" or individually as "Party",
and hereby agree as follows:
1. TERM AND EFFECTIVE DATE
This Agreement shall become effective on Hour Ending 0100 (Pacific Prevailing
Time) May 1, 1999, and shall remain in force and effect until April 30, 2002.
2. SERVICES TO BE PROVIDED BY ILLINOVA
Illinova will provide the following hourly services for Customer:
Illinova shall act as Scheduling Coordinator, in accordance with the
requirements of the California Independent System Operator ("ISO") tariff,
for Customer's loads at associated take-out points.
Develop Customer's pre-schedules based on load forecasts or load profiles
provided by Customer, or Illinova under a separate Daily Purchasing
Agreement dated April 7, 1999, or any applicable Utility Distribution
Company ("UDC").
Coordinate pre-schedules with any applicable UDC, Independent System
Operator ("ISO"), Power Exchange ("PX") and/or other suppliers.
Maintain Customer's schedules every hour. Each transaction will describe
the delivery of power from a supplying party's control area (the
generator), through all intermediate Purchase Sale Entities, to a
receiving party's control area (load). A full path must be included
detailing all entities that take title to the energy and all transmission
paths.
<PAGE> 23
CONFIDENTIAL
Monitor schedules in effect during the term of the Agreement twenty-four
(24) hours per day.
Confirm scheduled transactions as required. It is anticipated that
schedules will be confirmed on a pre-scheduled basis within twenty-four
(24) hours prior to the transaction. Illinova shall confirm schedule
start and stop times with each entity Customer is purchasing from and
delivering to.
If conditions require a modification to a pre-scheduled transaction,
Illinova will, as directed, make sales and purchase decisions for
Customer on a best effort basis to minimize losses, scheduling
inconsistencies, and imbalances. In the event that such a service is
requested Illinova will not be held liable for any losses that may be
incurred due to its marketing transactions.
Provide Customer an hourly accounting of each day's transactions,
including any changes to pre-scheduled transactions.
Use reasonable efforts to resolve any discrepancies with other parties.
3. SERVICES PROVIDED BY CUSTOMER.
Customer shall furnish Illinova, in a timely manner, with all
information necessary for Illinova to carry out its responsibilities as
Scheduling Coordinator in accordance with the ISO tariff, and shall
carry out all directives from Illinova in performance of its role as
Scheduling Coordinator in accordance with the ISO tariff.
If required by Illinova, Customer shall acquire and maintain, throughout
the term of this agreement, a form and amount of credit protection
acceptable to Illinova, not to exceed $3,000,000, for the performance of
this Agreement. This will include any additional charges by Illinova to
maintain credit for Customer schedules with the ISO.
By 3:00 PM (Pacific Time) on every normal work day observed by both
parties, Customer, or Illinova as Customer representative under separate
Daily Energy Purchasing Agreement dated April 7, 1999, shall provide
Illinova with an hourly listing of all changes to standard pre-scheduled
transactions for the following day or days.
Provide Illinova with a twenty-four (24) hour emergency contact and
pager number.
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
4. CHARGES
The charge for the services described above will be billed according to the
following:
4.1 Illinova Charges
1. Initial setup charge (one time): $7,000.00
Due and payable upon execution of this Agreement
2. Monthly Base Fee: $2,500.00
3. Customer shall pay a Monthly Variable Fee equal to.
Monthly Variable Fee: $0.35/MWH
4. Monthly Administration and Billing Charge: $500.00
5. Illinova Re-marketing fee: $0.15/MWH
4.2 Imbalance Fees, Penalties, and Re-marketing
If Customer's actual energy usage exceeds the forecasted amount, Customer
shall receive the ex-post price for this excess energy, and if such
situation is expected to exist for any length of time, and Illinova can
re-market this excess energy to other Scheduling Coordinators or
counter-parties, Illinova will inform Customer of such an opportunity, and
upon Customer concurrence, Illinova will re-market said excess. Customer
will pay Illinova, the Energy Re-Marketing Fee listed above, for energy
re-marketed. Customer shall also be responsible for any additional
penalties or imbalance charges imposed by the ISO for imbalances due to
Customer's energy usage deviating from the actual monthly energy amount
defined by the forecast.
4.3 Pass-Through Costs
Unless specified under a separate power transaction between Customer and
IEP, Customer shall be responsible for, and shall pay Illinova or any other
provider of the service as applicable, for all charges imposed by the ISO,
Automated Power Exchange (APX) and the California Power Exchange ("PX") in
connection with the service provided under this Agreement, including but
not limited to, charges for transmission (including Grid Management
Charges, Grid Operations Charges, Ancillary Services Charges, Imbalance
Energy Charges, Usage Charges, Wheeling Access Charges, Voltage Support and
Black Start Charges, and Reliability Must-Run Charges, Losses, or Taxes
imposed by the ISO), distribution, ancillary services (including costs for
ancillary services purchased by Illinova from third parties for purpose of
this Agreement), access charges, PX administration charges, whether such
charges are billed directly to Customer or are billed to Illinova;
provided, that Illinova shall be responsible for payment to the ISO of any
imbalance charges as imposed by the ISO as a result of Illinova's failure
to deliver energy to the ISO provided to Illinova by Customer. Any such
imbalance charge for which Illinova is responsible shall be based on the
difference between (i) the total energy scheduled by
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
Illinova to, and received by, the ISO and (ii) Illinova's total customer
load within the Zone or Take-Out Points, as defined in the ISO tariff,
where such imbalances occur. Where charges are billed to Illinova by the
ISO, or PX in respect of service provided to Customer under this Agreement
and to other scheduling clients, Illinova shall make appropriate
allocations of such billed amounts to all scheduling clients inclusive of
Customer.
4.4 Losses
Illinova shall bill Customer for energy losses provided in accordance with
delivery of Customer energy under this Agreement based on the hourly
registrations of energy on the meters installed at the Customer Direct
Access Account interconnection points, increased by the corresponding
percentage points to account for losses between the interconnection point
or points at which Illinova delivers or schedules Customer supplied energy
deliveries to the ISO Controlled Grid and the Customer interconnection
points. If the amount of energy scheduled or delivered by Illinova to the
interconnection point or points on the ISO Controlled Grid does not equal
the amount of energy registered on the meters at the Customer
interconnection points plus the appropriate loss factor in an hour, the
variance shall be reconciled and billed in accordance with Section 7 of
this Agreement.
7. PAYMENT
Illinova will submit its invoices to Customer on a monthly basis. All billings
to Customer will be sent to:
Mr. Raymond P. Juels
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
or to such address as Customer may specify by written notice given as provided
herein.
IEP and SCWC will develop an acceptable invoicing format and include quarterly
fuel mix for supply, as can be determined with suppliers. Invoices should
include line items to clearly identify charges herein.
Invoices submitted by Illinova to Customer shall be due and payable 20 days
after the date of the invoice. Customer agrees to pay interest at the rate of
1.5% per month, or the maximum rate as permitted by law, on any invoiced
amounts which are not paid on or before the due date, until the date of payment.
Payments to Illinova shall be Payments over $50,00 shall be
mailed to: wired to:
Illinova Energy Partners, Inc. American National Bank
6955 Union Park Center, Suite 300 2000 South Naperville Road
Midvale, UT 84047 Wheaton, IL 60187
Attn: Jennifer Hughey ABA #: 071000770
Account #: 1818-0752
For Illinova Energy Partners account
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
Illinova hereby represents that its bills will be based upon some estimated
amounts. For example, ISO charges will be billed to Scheduling Coordinators,
such as Illinova, on a quarterly basis. Accordingly, Illinova shall bill, or
credit, for any adjustments to past billings for estimated amounts being
reconciled with actual amounts.
All correspondence with regard to payment shall be made to the same address.
8. METERING & COMMUNICATION
Customer shall be responsible for the cost of establishing and maintaining
communication equipment necessary to conduct the scheduling coordination
services for energy management pursuant to this agreement. Such costs shall
include meters, monthly communication & maintenance costs and other necessary
equipment. Such costs shall be discussed and agreed to before they are actually
incurred.
9. AUDIT
Either Party, at its own expense, shall have the right, at all reasonable
times, to review and audit the books, records, documents of the other Party,
directly pertaining to the billing and power delivery data required to
administer this Agreement. The foregoing shall not be construed to permit
either Party to conduct a general audit of the other Party's records.
Information obtained by either Party's representatives in examining the other
Party's applicable records to verify such billings and power delivery data
shall not be disclosed to third parties without prior written consent of the
audited Party, or unless in response to compulsory judicial or regulatory
processes and after giving the other Party as much advance written notice as
possible, with such time not to be less than (15) days. The right to audit
shall extend for a period of one (1) year following the date of each payment.
It will be incumbent upon the Parties to retain all necessary records and
documentation during this audit period.
10. FORCE MAJEURE
Neither Party shall be liable for any delay or failure in performance of any
part of this Agreement (other than obligations to pay money) from any cause
beyond its reasonable control, including but not limited to flood, fire,
lightning, epidemic, quarantine restriction, war, sabotage, act of a public
enemy whether foreign or domestic, earthquake, insurrection, riot, civil
disturbance, strike, work stoppage caused by jurisdictional or similar
disputes, restraint by court order or public authority, action or non-action
by or inability to obtain necessary authorization or approval from any
governmental authority, or failure or inability of the ISO or the UDC to accept
energy from Illinova or to deliver energy to Customer in amounts received from
Illinova, or any combination of these causes, whether affecting the Party or
the Party's suppliers, which by the exercise of due diligence and foresight
such Party could not reasonably have been expected to avoid and which by the
exercise of due diligence the Party has been unable to overcome. The Party
claiming a force majeure condition shall give the other Party such notice of
the condition as is reasonable under the circumstances. Upon notice of the
force majeure condition being provided, the obligations of the Party invoking
the force majeure, to the extent they are affected by the force majeure
condition, shall be suspended during the continuation of such condition and
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
shall, so far as is possible, be remedied with all reasonable dispatch.
11. INDEMNIFICATION
11.1 To the fullest extent permitted by law, and subject to the limitations
set forth in Section 21, "Limitation of Liability to Amount of
Direct Damages", of this Agreement, each Party (the "Indemnifying Party") shall
indemnify and hold harmless the other Party, its parent company or companies
and affiliates, and their shareholders, officers, directors, employees, agents,
servants, and assigns (collectively, the "Indemnified Party"), and at the
Indemnified Party's option, the Indemnifying Party shall defend the Indemnified
Party from and against any and all claims and liabilities for losses, expenses,
damage to property, injury to or death of any person, including, but not
limited to, the Indemnified Party's employees and its parent company's and
affiliates' employees, subcontractors and subcontractors' employees, or any
other liability incurred by the Indemnified Party, which shall include
reasonable attorney fees, caused wholly or in part by any negligent, grossly
negligent or willful act or omission by the Indemnifying Party, its officers,
directors, employees, agents or assigns arising out of this Agreement, except
to the extent such claim, liability, loss, expense, damage to property, injury
or death is caused by any negligent, grossly negligent or willful act or
omission of the Indemnified Party.
11.2 If any claim covered by Section 11.1 is brought against the Indemnified
Party, then the Indemnifying Party shall be entitled to participate in, and
unless in the opinion of counsel for the Indemnified Party a conflict of
interest between the Parties may exist with respect to such claim, assume the
defense of such claim, with counsel reasonably acceptable to the Indemnified
Party. Even if the Indemnifying Party assumes the defense of the Indemnified
Party pursuant to this subsection b, the Indemnified Party, at its sole option,
may participate in the defense, at its own expense, with counsel of its own
choice without relieving the Indemnifying Party of any of its obligations
hereunder.
11.3 The Indemnifying Party's obligation to indemnify under this Section 10
shall survive termination of this Agreement, and shall not be limited in any
way by any limitation on the amount or type of damages, compensation or
benefits payable by or for the Indemnifying Party under any statutory scheme,
including, without limitation, under any worker's compensation acts, disability
benefit acts or other employee benefit acts.
12. GOVERNING LAW
This Agreement shall be governed by, and interpreted and construed in
accordance with, the laws of the State of California, and shall exclude any
choice of law rules that direct the application of the laws of another
jurisdiction, irrespective of the place or places of execution or of the order
in which signatures of the parties are affixed or of the place or places of
performance; provided, that any provision of this Agreement that is subject to
the jurisdiction of the Federal Energy Regulatory Commission ("FERC") shall be
governed by, and interpreted and construed in
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
accordance with, the regulations of the FERC and such other laws of the United
States as are applicable to that provision.
13. AMENDMENT
This Agreement may be modified only upon mutual written agreement of the
Parties.
14. WAIVER
Any waiver at any time by either Party with respect to any of its rights under
this Agreement or the failure of a Party to insist on the performance by the
other Party of an obligation under this Agreement shall not be deemed an
amendment or modification of this Agreement and shall not be deemed a waiver of
such right, or acquiescence to non-performance of such obligation, during the
remainder of the term of this Agreement.
15. PROPRIETARY INFORMATION
Illinova considers pricing information contained in this Agreement to be
proprietary and confidential. Disclosure of any pricing information contained
in this Agreement shall require the prior written consent of Illinova. Customer
considers all information provided to Illinova under Section 3 of this
Agreement and all information that Illinova obtains in carrying out the services
described in Section 2 of this Agreement to be proprietary and confidential.
Disclosure or use of any of the aforementioned information contained in this
Agreement other than to carry out the services outlined in Section 2 of this
Agreement shall require the prior written consent of Customer.
16. ASSIGNMENT AND DELEGATION
16.1 Neither Party shall assign any of its rights or obligations under
this Agreement except with the prior written consent of the other
Party, which consent shall not be unreasonably withheld or delayed.
No assignment of any right or obligation under this Agreement shall
relieve the assigning Party of any of its obligations under this
Agreement until such obligations have been assumed in writing by the
assignee. When duly assigned in accordance with the preceding two
sentences, any obligation so assigned shall be binding upon the
assignees, and the assignor shall be relieved of its rights and
obligations that have been duly assigned. Any assignment in violation
of this Section 16.1 shall be void.
16.2 Notwithstanding the provisions of subsection 16.1, either Party may
delegate any of its duties under this Agreement to an agent or
subcontractor, provided that the delegating Party shall remain fully
responsible for performance of any delegated duties, shall serve as
the point of contact between the delegatee and the other Party, and
shall provide the other Party with 30 days prior written notice of
any such delegation, which notice shall contain such information
about the delegatee as the other Party shall reasonably require.
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
17. AUTHORITY TO EXECUTE AGREEMENT
Each Party acknowledges that it has read this Agreement and that the Party
fully understands its rights and obligations under this Agreement. Each Party
further acknowledges that it has had an opportunity to consult with an attorney
of its own choosing to explain the terms of this Agreement and the consequences
of signing it.
Each Party represents and warrants (i) that it has the full power and authority
to execute and deliver this Agreement and to perform its terms, (ii) that
execution, delivery and performance of this Agreement have been duly authorized
by all necessary corporate or other action by such Party, and do not conflict
with the Party's articles of incorporation or by-laws, or cause a default under
any contract or other agreement to which such Party is subject, and (iii) that
this Agreement constitutes such Party's legal, valid and binding obligation and
is enforceable against such Party in accordance with its terms. Each person
executing this Agreement for a Party represents and warrants that he or she has
the authority to bind the Party on whose behalf he or she is executing this
Agreement.
18. CONSTRUCTION SHALL NOT BE FOR OR AGAINST DRAFTER
No provision of this Agreement shall be construed or interpreted for or against
any Party because that Party drafted or caused its legal representative to
draft the provision.
19. DISPUTE RESOLUTION PROCEDURES
Any dispute between the Parties concerning the provisions, interpretation or
implementation of this Agreement which remains unresolved for a period of six
months shall, upon written notice given by one Party to the other Party, be
forwarded to Customer's Chief Financial Officer and to Illinova's Vice
President of the Western Region ("Executive" or "Executives"), who shall meet
within 30 days following the date of the notice, or at such other time as
agreed upon by the Executives, to discuss and attempt to resolve the dispute.
Any resolution agreed upon by the Executives shall be binding upon the Parties.
A resolution reached by the Executives shall not be effective until set forth
in a writing signed by both Executives. If the Executives cannot resolve the
dispute within 30 days following their initial meeting either Party may pursue
any remedy available to the Party at law, in equity or under this Agreement to
resolve the dispute. If the title of either Executive position referred to in
this Section 19 is eliminated or changed, or if this Agreement is assigned
pursuant to Section 16, the Party subject to the change, or the assignee of
such Party, shall substitute a comparable executive for the purpose of this
Section 19 and shall promptly notify the other Party in writing.
Each Party shall bear its own attorney fees and other costs incurred in
connection with any dispute, except as otherwise (i) agreed by the Parties in
the resolution of the dispute, (ii) ordered
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SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
by a court or administrative agency of competent jurisdiction, or (iii)
determined by the arbitrator or other neutral in any alternative dispute
resolution process used by the Parties, in accordance with the rules and
procedures adopted and agreed to by the Parties for purposes of that process.
20. ENTIRE AGREEMENT
This Agreement, including all attachments hereto and agreements contemplated
herein, constitutes the entire agreement and understanding between the Parties
as to the subject matter of this Agreement, and merges and supersedes all prior
oral or written agreements, understandings, commitments, representations and
discussions between the Parties. The Agreement may be amended, modified or
supplemented only in accordance with Section 13 or Section 16 of this Agreement.
21. LIMITATION OF LIABILITY TO AMOUNT OF DIRECT DAMAGES
Each Party's liability to the other Party for any loss, cost, claim, injury,
liability or expense, including any reasonable attorney fees to which the other
Party is entitled, relating to or arising from an act or omission in the Party's
performance of this Agreement, shall be limited to the amount of direct damage
actually incurred. In no event shall either Party be liable to the other Party
for any indirect, special, consequential or punitive damages of any kind
whatsoever, whether in contract, tort or strict liability.
22. LIMITATION ON TIME TO MAKE CLAIMS
With the exception of claims for indemnity under Section 11, "Indemnification",
of this Agreement, no claims may be made under this Agreement, or submitted to
dispute resolution pursuant to Section 19, "Dispute Resolution Procedures", of
this Agreement, more than three years after the date the claim accrued. The
Parties agree that failure to make any claim falling within the scope of this
Section 22 within three years shall bar any cause of action. Provided, however,
that claims for indemnity under Section 11, "Indemnification", of this Agreement
shall not be limited by the three year limitation of this Section, but shall be
governed by the applicable statute of limitations.
23. NOTICES AND DEMANDS
Unless another means of notice is expressly provided for in another Section of
this Agreement, all notices and demands given or made by a Party under this
Agreement shall be sent by the sending Party by facsimile with a copy sent, by
United States Mail, to the designated recipient of the receiving Party at the
addresses set forth below.
to SCWC:
Southern California Water Company
630 E. Foothill Blvd.
San Dimas, CA 91773
<PAGE> 31
SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
Attention: Mr. Raymond P. Juels
If to Illinova:
Illinova Power Marketing, Inc.
Attention: Jennifer Hughey, Controller
Union Park Center, Suite 300
Midvale, Utah 84047
Fax No.: (801) 568-2104
A Party may, by notice to the other Party provided in accordance with this
Section, change the name of designated recipient, address, and facsimile number
to which notices and demands shall thereafter be sent. Any notice provided
pursuant to this Section shall be effective upon confirmation of receipt of the
sending party's facsimile, if between the hours of 8:00 A.M. and 4:00 P.M.
Pacific Time, and at 8:00 A.M. Pacific Time on the next business day if at any
other time.
24. REMEDIES CUMULATIVE
Except as expressly provided otherwise in this Agreement, all remedies in this
Agreement, including the right of termination, are cumulative, and use of any
remedy shall not preclude any other remedy in this Agreement.
25. SECTION HEADINGS
The headings placed at the start of each Section of this Agreement are solely
for the convenience of reference of the Parties, are not and shall not be deemed
to be a part of this Agreement, shall in no way define, modify, or restrict any
of the terms or provisions of this Agreement, and shall not be used in any
manner in the interpretation or construction of this Agreement.
26. TAXES
Unless expressly provided otherwise in the Section or Sections of this Agreement
establishing charges, the charge or charges specified in this Agreement for
services and products provided hereunder do not include any amounts in respect
of any State or local taxes that are assessed, imposed or owing as a function of
the revenues, billings, purchase price, deliveries or usage under this
Agreement. Illinova shall add the amount of any such taxes that are applicable
to services or products for which Illinova is rendering an invoice to Customer
to the amount of the billing stated on such invoice, with such amount to be
calculated at the applicable rate or rates of tax. Customer shall be responsible
for payment of any such taxes, and for the filing of returns, with respect to
any tax not added to Customer's invoice by Illinova. Customer shall also be
responsible to pay any penalties, interest or other charges resulting from
Customer's failure to timely pay any such tax, or resulting from Illinova's
failure to timely pay any such tax due to Customer's failure to timely provide
Illinova with information necessary to determine or compute such tax or file a
return.
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<PAGE> 32
SCWC/Illinova Scheduling Coordination Contract CONFIDENTIAL
27. THIRD-PARTY BENEFICIARIES
The provisions of this Agreement are for the benefit of the Parties and not for
any other person or third party beneficiary. The provisions of this Agreement
shall not impart rights enforceable by any person, firm or organization other
than a Party, or a successor or assignee of a Party, to this Agreement.
28. SEVERABILITY
Should any provision of this Agreement for any reason be declared invalid or
unenforceable by final and applicable order of any court or regulatory body
having jurisdiction, such decision shall not affect the validity of the
remaining portions, and the remaining portions shall remain in force and effect
as if this Agreement had been executed without the invalid portion. This
Agreement is subject to review by the California Public Utilities Commission
"CPUC". The Agreement may be terminated if disapproved by the CPUC: however,
SCWC shall be liable for any economic damages to IEP with respect to any power
transactions made or service cost incurred under this Agreement with IEP.
29. TIME OF ESSENCE
The Parties agree that time is of the essence for all portions of this
Agreement.
If the above accurately reflects your understanding of the agreement reached by
representatives of Illinova and Customer, please so indicate by signing both
originals of this Agreement in the space provided below and return one fully
executed original to me.
Sincerely,
/s/ MARK V. ALLEN
- -----------------------
Mark V. Allen
Director, Regional Marketing
California & Desert Southwest
Accepted as of this 16th day of April, 1999, for Southern California Water
Company
/s/ JOEL DICKSON
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Mr. Joel Dickson
Vice President of Customer & Support Services
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<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENTS
BETWEEN AMERICAN STATES WATER COMPANY,
SOUTHERN CALIFORNIA WATER COMPANY AND CERTAIN EXECUTIVES,
DATED AS OF OCTOBER 25, 1999
<PAGE> 2
AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the "Agreement") is
dated as of October 25, 1999, is entered into by and among McClellan Harris III
(the "Executive"), American States Water Company (the "Company") and its wholly
owned subsidiary, Southern California Water Company, a California corporation
("SCW"), and amends and restates in its entirety the Change-in-Control Agreement
dated as of October 27, 1998 among the Executive, the Company and SCW.
RECITALS
The Company considers it essential to the best interest of the Company and
its shareholders that the Executive be encouraged to remain with the Company and
SCW and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company and
SCW, and for other good and valuable consideration, the Board of Directors of
the Company and SCW has, at the recommendation of the Company's Compensation
Committee, caused the Company and SCW to enter into this Agreement.
<PAGE> 3
TERMS AND CONDITIONS
The Executive, the Company and SCW hereby agree to the following terms and
conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or before
the expiration date of this Agreement and while the Executive is still an
employee of the Company or SCW, then this Agreement will continue in effect for
two years from the date of such Change in Control and, if the Executive's
employment with the Company or SCW is terminated within such two-year period,
this Agreement shall thereafter continue in effect until all of the obligations
of the Company and SCW under this Agreement shall have been fulfilled. If no
Change in Control occurs on or before December 31, 2000, this Agreement shall
expire; provided, however that this Agreement shall be automatically extended
for an additional two years to December 31, 2002 if (i) a plan or agreement for
a Change in Control has been approved by the Board of Directors of the Company
or SCW on or before the expiration date, or (ii) the Company and SCW have not
delivered to you or you shall have not delivered to the Company and SCW written
notice at least 60 days prior to the expiration date that such expiration date
shall not be so extended. This Agreement shall continue to be automatically
extended for an additional two-year period and each succeeding two-year period
if a plan or agreement for a Change in Control has been approved by the Board of
Directors of the Company or SCW or the Company, SCW or you have failed to give
notice by the time and in the manner described in this Section 1.
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<PAGE> 4
2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company or SCW is terminated after approval by
the Board of Directors of the Company or SCW of a plan or agreement for a Change
in Control but prior to the date on which the Change in Control occurs, the
"Change in Control Date" shall mean the date immediately preceding the date of
such termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or SCW,
unless its business is continued by another entity in which holders of the
Company's voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or SCW, unless its business is continued by another entity in which
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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<PAGE> 5
(c) any reorganization or merger of the Company or SCW, unless the
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing or surviving
entity's voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or SCW, unless
the holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or SCW within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
or SCW may give the Executive written notice of their intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company or SCW shall terminate effective on the 30th day after receipt of
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such notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of his or her duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from his or her duties with
the Company or SCW on a full-time basis for 180 consecutive business days as a
result of a physical or mental condition which prevents the Executive from
performing the Executive's normal duties of employment and which is (i)
determined to be total and permanent by a physician selected by the Company or
SCW or their insurers and acceptable to the Executive or the Executive's legal
representative and/or (ii) entitles the Executive to the payment of long-term
disability benefits from the Company's or SCW's long-term disability plan
commencing no later than the Disability Effective Date.
(b) Cause: The Company or SCW may terminate the Executive's
employment other than for Cause or Disability during the Effective Period as
provided in Section 6(a). The Company or SCW may also terminate the Executive's
employment during the Effective Period for Cause. For purposes of this
Agreement, "Cause" shall be limited to the following:
(i) the Executive's failure to render services to the
Company or SCW where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company, or
(iii) the Executive's conviction of a felony or other crime
involving moral turpitude.
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<PAGE> 7
(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as in effect on the Change in Control
Date, or any other action by the Company or SCW which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company or SCW, as the case may be, promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company or SCW to reappoint the
Executive to a position held by the Executive on the Change in
Control Date, except as a result of the termination of the
Executive's employment by the Company or SCW for Cause or
Disability, the death of the Executive, or the termination of the
Executive's employment by the Executive other than for Good Reason;
(iii) reduction by the Company or SCW in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company or SCW
(including the elimination of benefit plans without providing
substitutes therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value of
the Executive's incentive awards and other fringe
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<PAGE> 8
benefits including the executive benefits and perquisites from the
levels in effect prior to the Change in Control Date;
(v) the Company's or SCW's requiring the Executive to be
based at any office or location which increases the distance from
the Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company or SCW to comply with and
satisfy Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company or SCW shall terminate the Executive's employment other than for Cause
or Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company and SCW
agrees, subject to Section 8, to make the payments and provide the benefits
described below:
(i) The Company and/or SCW shall pay to the Executive in a
cash lump sum within 10 days from the date of the Executive's
termination of employment an amount equal to the product of (A) and
(B), where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the sum of (A) the Executive's base salary through
the date of termination, plus (B) any
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<PAGE> 9
compensation previously deferred by the Executive (together with any
accrued earnings or interest thereon), plus (C) any accrued vacation
pay, in each case to the extent not theretofore paid (the amounts
referred to in this paragraph (ii) are hereinafter referred to as
the "Accrued Obligations").
(iii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the Executive's
accrued benefits under the terms of the Southern California Water
Company Pension Plan (or any successor thereto), including any
supplemental retirement plan providing additional pension benefits,
(hereinafter together referred to as the "Pension Plan") at the time
of the Executive's termination of employment, without regard to
whether such benefits are "vested" thereunder, if the Executive were
credited with an additional two years of continuous service after
the termination of Executive's employment with the Company or SCW at
the Executive's highest annual rate of compensation covered by such
Pension Plan within the three years preceding the date of the
termination of the Executive's employment with the Company or SCW
and (B) is equal to the single sum actuarial equivalent of the
Executive's accrued benefits under the Pension Plan at the time of
the Executive's termination of employment. The payment under this
paragraph (iii) shall not extinguish any rights the Executive has to
benefits under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the
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<PAGE> 10
Pension Plan for determining the actuarial equivalence of different
annuity forms of benefits. In no event shall the additional two
years of continuous service referred to above cause the Executive to
be deemed to be older than the Executive's actual age for any
purpose under this Agreement.
(iv) For two years after the Executive's date of termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company and SCW
shall continue to provide welfare benefits and fringe benefits and
other perquisites to the Executive and/or the Executive's family at
least equal to those which would have been provided to them if the
Executive's employment had not been terminated (in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliates applicable generally to other peer
executives and their families immediately preceding the date of the
Executive's termination of employment); provided, however, that if
the Executive becomes employed by another employer and is eligible
to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for any retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until two
years after the date of termination of employment and to have
retired on the last day of such period. Following the
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period of continued benefits referred to in this subsection, the
Executive and the Executive's family shall be given the right
provided in Section 4980B of the Internal Revenue Code of 1986 (the
"Code") to elect to continue benefits in all group medical plans. In
the event that the Executive's participation in any of the plans,
programs, practices or policies of the Company or SCW referred to in
this subsection is barred by the terms of such plans, programs,
practices or policies, the Company and/or SCW shall provide the
Executive with benefits substantially similar to those which the
Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company or
SCW and relating specifically to the Executive.
(v) The Company and/or SCW shall enable the Executive to
purchase, at the end of the Effective Period, the automobile, if
any, provided by the Company and/or SCW for the Executive's use at
the time of the Executive's termination of employment at the
wholesale value of such automobile at such time, as shown in the
current addition of the National Auto Research Publication Blue
Book. At the Executive's election, the Executive may retain any
existing club memberships of the Executive purchased by the Company
or SCW upon reimbursement to the Company or SCW, as the case may be,
of any membership costs paid by the Company or SCW.
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<PAGE> 12
(vi) To the extent not theretofore paid or provided, the
Company and/or SCW shall timely pay or provide the Executive any
other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company and its
affiliates (such other amounts and benefits being hereinafter
referred to as "Other Benefits") in accordance with the terms of
such plan, program, policy, practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section 6(a)
at the applicable Federal Rate provided for in Section 7872(f)(2)(A)
of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
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<PAGE> 13
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates employment during the Effective Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for Accrued Obligations and any
benefits payable to Executive under a plan, policy, practice, etc., referred to
in Section 7 below. Accrued Obligations shall be paid to the Executive in a cash
lump sum within 60 days of the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if any
payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company, SCW or another
entity or person, would not be deductible
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<PAGE> 14
by the Company or SCW due to limitations imposed by Section 162(m) of the Code,
then such payments or benefits shall be deferred to the extent necessary until
such time as such payments would be deductible under Section 162(m) of the Code.
Either the Company, SCW or the Executive may request a determination as to
whether any payments would be subject to limitations on deductibility under
Section 162(m) of the Code and, of so requested, such determination shall be
made by independent legal counsel selected by the Company or SCW and approved by
the Executive. Payment may be delayed pending any such determination, provided
that the Executive shall be entitled to interest on any delayed payment at the
applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code. The
Executive shall also be entitled to interest on any payments deferred as a
result of the limitations on deductibility under Section 162(m) of the Code at
the applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company or SCW to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments under this Section 9(a)) (a "Payment") is determined to be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company and SCW shall pay to the
Executive an additional payment (a "Gross-Up Payment") in
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<PAGE> 15
an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon such Payments.
(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company and SCW
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and SCW and to Executive within 15 business days after such
determinations are requested by Executive, the Company or SCW. All fees and
expenses of the Accounting Form shall be borne solely by the Company and SCW.
The Company and SCW shall be jointly and severally obligated to pay any Gross-Up
Payment, as determined pursuant to this Section 9(b), to Executive within five
days after the receipt by the Company and/or SCW of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be final and
binding on the Company, SCW and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company and/or SCW should have
been made (an "Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company and SCW exhausts its remedies
pursuant to Section 9(c) and Executive thereafter is required to make a payment
of
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any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and the Company and SCW shall be jointly and
severally obligated to pay any such Underpayment promptly to or for the benefit
of Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company and SCW in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company and/or SCW of a Gross-Up
Payment. Executive shall give such notice as soon as practicable but no later
than ten business days after Executive is informed in writing of such claim and
shall apprise the Company and SCW of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company and SCW (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company or SCW notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
(i) Give the Company and SCW any information reasonably
requested by either of them relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company or SCW shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company or SCW,
(iii) Cooperate with the Company and SCW in good faith in
order to contest such claim effectively, and
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(iv) Permit the Company and SCW to participate in any
proceedings relating to such claim;
provided, however, that the Company and SCW shall be jointly and severally
obligated to bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 9(c), the Company
and SCW shall control all proceedings taken in connection with such contests
and, at their sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at their sole option, either direct Executive to
pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company and SCW shall determine; provided, however
that if the Company or SCW directs Executive to pay such claim and sue for a
refund, the Company or SCW, as the case may be, shall advance the amount of such
payment to Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount.
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Furthermore, the control by the Company and/or SCW of the contest shall be
limited to issues with respect to which the Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company and/or SCW pursuant to Section 9(c), Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to compliance by the Company and SCW with the requirements of Section
9(c)) promptly pay to the Company and SCW the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company and/or SCW
pursuant to Section 9(c), a determination is made that Executive shall not be
entitled to any refund with respect to such claim and the Company or SCW does
not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT
The obligation of the Company and SCW to make the payments provided
for in this Agreement and otherwise to perform their obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company or SCW may have against the Executive
or others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to
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the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(iv), such amounts shall not be reduced whether or not
Executive obtains other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company, SCW and their successors and assigns.
(c) The Company and SCW will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of their business and/or assets to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that the Company or SCW would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall
mean the Company as defined and any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise, and "SCW" shall mean SCW as defined and any successor
to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. ARBITRATION
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(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company or SCW regarding the interpretation of this
Agreement and the claim is finally denied by the Company or SCW in whole or in
part, such claim may be filed in writing with an arbitrator of the Executive's
choice who is selected by the method described in the next three sentences. The
first step of the selection shall consist of the Executive submitting a list of
five potential arbitrators to the Company and SCW. Each of the five arbitrators
must be either (1) a member of the National Academy of Arbitrators located in
the State of California or (2) a retired California Superior Court or Appellate
Court judge. Within two weeks after receipt of the list, the Company and SCW
shall select one of the five arbitrators as the arbitrator for the dispute in
question. If the Company and SCW fail to select an arbitrator in a timely
manner, the Executive shall then designate one of the five arbitrators as the
arbitrator for the dispute in question.
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(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company or SCW has breached this
Agreement, he or she shall order the Company or SCW, as the case may be, to
immediately take the necessary steps to remedy the breach. The award of the
arbitrator shall be final and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible after it is rendered. If
an action is brought to confirm the award, the Company, SCW and the Executive
agree that no appeal shall be taken by either party from any decision rendered
in such action.
(e) The Company and SCW will be considered the prevailing party in
a dispute if the arbitrator determines that neither the Company nor SCW has
breached this Agreement. Otherwise, the Executive will be considered the
prevailing party. In the event that the Company and SCW are the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(excluding any attorneys' fees incurred by the Company or SCW) including
stenographic reporter, if employed, shall be paid by the Executive. In the event
that Executive is the prevailing party, the fee of the arbitrator and all
necessary expenses of the hearing (including all
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attorneys' fees incurred by the Executive), including the fees of a stenographic
reporter if employed, shall be paid by the Company and SCW.
13. GOVERNING LAW
The laws of California shall govern the validity and interpretation
of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement shall
be in writing and shall be hand delivered to the other party or sent by prepaid
registered or certified mail, return receipt requested, addressed as follows:
If to the Executive:
-------------------------------------
-------------------------------------
-------------------------------------
If to the Company: American States Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
If to SCW: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
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Attn: Secretary
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company and SCW may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's, the Company's or SCW's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive, the Company or SCW may have under this Agreement,
including, without limitation, the right of the Executive to terminate
employment for Good Reason, shall not be deemed to be a waiver of such provision
or right or any other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive, the Company and SCW acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive,
the Company and SCW, the employment of the Executive by the Company and SCW
prior to the Change in Control Date is "at will" and, prior to the Change in
Control Date, the Executive's employment may be terminated by either the
Executive or the Company or SCW, as the case may be, at any
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time, in which case the Executive shall have no further rights under this
Agreement. From and after the Change in Control Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which shall together
constitute one and the same Agreement.
21. JOINT AND SEVERAL LIABILITY
The obligation of the Company and SCW to make payments hereunder shall be
joint and several.
22. ALLOCATION OF PAYMENTS
As between the Company and SCW, any payments to be made by the Company
and/SCW hereunder shall be allocated between the Company and SCW on the same
basis as the payment of salary and benefits of the Executive were allocated
between the Company and SCW immediately prior to the Change in Control Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in Los
Angeles, California.
AMERICAN STATES WATER COMPANY
By /s/ Floyd E. Wicks
-----------------------------------
Title President and C.E.O.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
-----------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ McClellan Harris III
-------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the "Agreement") is
dated as of October 25, 1999, is entered into by and among Joel A. Dickson (the
"Executive"), American States Water Company (the "Company") and its wholly owned
subsidiary, Southern California Water Company, a California corporation ("SCW"),
and amends and restates in its entirety the Change-in-Control Agreement dated as
of October 27, 1998 among the Executive, the Company and SCW.
RECITALS
The Company considers it essential to the best interest of the Company and
its shareholders that the Executive be encouraged to remain with the Company and
SCW and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company and
SCW, and for other good and valuable consideration, the Board of Directors of
the Company and SCW has, at the recommendation of the Company's Compensation
Committee, caused the Company and SCW to enter into this Agreement.
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TERMS AND CONDITIONS
The Executive, the Company and SCW hereby agree to the following terms and
conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or before
the expiration date of this Agreement and while the Executive is still an
employee of the Company or SCW, then this Agreement will continue in effect for
two years from the date of such Change in Control and, if the Executive's
employment with the Company or SCW is terminated within such two-year period,
this Agreement shall thereafter continue in effect until all of the obligations
of the Company and SCW under this Agreement shall have been fulfilled. If no
Change in Control occurs on or before December 31, 2000, this Agreement shall
expire; provided, however that this Agreement shall be automatically extended
for an additional two years to December 31, 2002 if (i) a plan or agreement for
a Change in Control has been approved by the Board of Directors of the Company
or SCW on or before the expiration date, or (ii) the Company and SCW have not
delivered to you or you shall have not delivered to the Company and SCW written
notice at least 60 days prior to the expiration date that such expiration date
shall not be so extended. This Agreement shall continue to be automatically
extended for an additional two-year period and each succeeding two-year period
if a plan or agreement for a Change in Control has been approved by the Board of
Directors of the Company or SCW or the Company, SCW or you have failed to give
notice by the time and in the manner described in this Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company or SCW is terminated after approval by
the Board of Directors of the Company or SCW of a plan or agreement for a Change
in Control but prior to the date on which the Change in Control occurs, the
"Change in Control Date" shall mean the date immediately preceding the date of
such termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or SCW,
unless its business is continued by another entity in which holders of the
Company's voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or SCW, unless its business is continued by another entity in which
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or SCW, unless the
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing or surviving
entity's voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or SCW, unless
the holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or SCW within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall terminate
automatically upon the Executive's death. If the Disability (as defined below)
of the Executive occurs during the Effective Period, the Company or SCW may give
the Executive written notice of their intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company or SCW
shall terminate effective on the 30th day after receipt of
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such notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of his or her duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from his or her duties with
the Company or SCW on a full-time basis for 180 consecutive business days as a
result of a physical or mental condition which prevents the Executive from
performing the Executive's normal duties of employment and which is (i)
determined to be total and permanent by a physician selected by the Company or
SCW or their insurers and acceptable to the Executive or the Executive's legal
representative and/or (ii) entitles the Executive to the payment of long-term
disability benefits from the Company's or SCW's long-term disability plan
commencing no later than the Disability Effective Date.
(b) Cause: The Company or SCW may terminate the Executive's
employment other than for Cause or Disability during the Effective Period as
provided in Section 6(a). The Company or SCW may also terminate the Executive's
employment during the Effective Period for Cause. For purposes of this
Agreement, "Cause" shall be limited to the following:
(i) the Executive's failure to render services to the
Company or SCW where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company, or
(iii) the Executive's conviction of a felony or other crime
involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as in effect on the Change in Control
Date, or any other action by the Company or SCW which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company or SCW, as the case may be, promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company or SCW to reappoint the
Executive to a position held by the Executive on the Change in
Control Date, except as a result of the termination of the
Executive's employment by the Company or SCW for Cause or
Disability, the death of the Executive, or the termination of the
Executive's employment by the Executive other than for Good Reason;
(iii) reduction by the Company or SCW in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company or SCW
(including the elimination of benefit plans without providing
substitutes therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value of
the Executive's incentive awards and other fringe
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benefits including the executive benefits and perquisites from the
levels in effect prior to the Change in Control Date;
(v) the Company's or SCW's requiring the Executive to be
based at any office or location which increases the distance from
the Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company or SCW to comply with and
satisfy Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company or SCW shall terminate the Executive's employment other than for Cause
or Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company and SCW
agrees, subject to Section 8, to make the payments and provide the benefits
described below:
(i) The Company and/or SCW shall pay to the Executive in a
cash lump sum within 10 days from the date of the Executive's
termination of employment an amount equal to the product of (A) and
(B), where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the sum of (A) the Executive's base salary through
the date of termination, plus (B) any
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compensation previously deferred by the Executive (together with any
accrued earnings or interest thereon), plus (C) any accrued vacation
pay, in each case to the extent not theretofore paid (the amounts
referred to in this paragraph (ii) are hereinafter referred to as
the "Accrued Obligations").
(iii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the Executive's
accrued benefits under the terms of the Southern California Water
Company Pension Plan (or any successor thereto), including any
supplemental retirement plan providing additional pension benefits,
(hereinafter together referred to as the "Pension Plan") at the time
of the Executive's termination of employment, without regard to
whether such benefits are "vested" thereunder, if the Executive were
credited with an additional two years of continuous service after
the termination of Executive's employment with the Company or SCW at
the Executive's highest annual rate of compensation covered by such
Pension Plan within the three years preceding the date of the
termination of the Executive's employment with the Company or SCW
and (B) is equal to the single sum actuarial equivalent of the
Executive's accrued benefits under the Pension Plan at the time of
the Executive's termination of employment. The payment under this
paragraph (iii) shall not extinguish any rights the Executive has to
benefits under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the
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Pension Plan for determining the actuarial equivalence of different
annuity forms of benefits. In no event shall the additional two
years of continuous service referred to above cause the Executive to
be deemed to be older than the Executive's actual age for any
purpose under this Agreement.
(iv) For two years after the Executive's date of termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company and SCW
shall continue to provide welfare benefits and fringe benefits and
other perquisites to the Executive and/or the Executive's family at
least equal to those which would have been provided to them if the
Executive's employment had not been terminated (in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliates applicable generally to other peer
executives and their families immediately preceding the date of the
Executive's termination of employment); provided, however, that if
the Executive becomes employed by another employer and is eligible
to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for any retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until two
years after the date of termination of employment and to have
retired on the last day of such period. Following the
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period of continued benefits referred to in this subsection, the
Executive and the Executive's family shall be given the right
provided in Section 4980B of the Internal Revenue Code of 1986 (the
"Code") to elect to continue benefits in all group medical plans. In
the event that the Executive's participation in any of the plans,
programs, practices or policies of the Company or SCW referred to in
this subsection is barred by the terms of such plans, programs,
practices or policies, the Company and/or SCW shall provide the
Executive with benefits substantially similar to those which the
Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company or
SCW and relating specifically to the Executive.
(v) The Company and/or SCW shall enable the Executive to
purchase, at the end of the Effective Period, the automobile, if
any, provided by the Company and/or SCW for the Executive's use at
the time of the Executive's termination of employment at the
wholesale value of such automobile at such time, as shown in the
current addition of the National Auto Research Publication Blue
Book. At the Executive's election, the Executive may retain any
existing club memberships of the Executive purchased by the Company
or SCW upon reimbursement to the Company or SCW, as the case may be,
of any membership costs paid by the Company or SCW.
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(vi) To the extent not theretofore paid or provided, the
Company and/or SCW shall timely pay or provide the Executive any
other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company and its
affiliates (such other amounts and benefits being hereinafter
referred to as "Other Benefits") in accordance with the terms of
such plan, program, policy, practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section 6(a)
at the applicable Federal Rate provided for in Section 7872(f)(2)(A)
of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
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(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates employment during the Effective Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for Accrued Obligations and any
benefits payable to Executive under a plan, policy, practice, etc., referred to
in Section 7 below. Accrued Obligations shall be paid to the Executive in a cash
lump sum within 60 days of the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if any
payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company, SCW or another
entity or person, would not be deductible
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by the Company or SCW due to limitations imposed by Section 162(m) of the Code,
then such payments or benefits shall be deferred to the extent necessary until
such time as such payments would be deductible under Section 162(m) of the Code.
Either the Company, SCW or the Executive may request a determination as to
whether any payments would be subject to limitations on deductibility under
Section 162(m) of the Code and, of so requested, such determination shall be
made by independent legal counsel selected by the Company or SCW and approved by
the Executive. Payment may be delayed pending any such determination, provided
that the Executive shall be entitled to interest on any delayed payment at the
applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code. The
Executive shall also be entitled to interest on any payments deferred as a
result of the limitations on deductibility under Section 162(m) of the Code at
the applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company or SCW to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments under this Section 9(a)) (a "Payment") is determined to be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company and SCW shall pay to the
Executive an additional payment (a "Gross-Up Payment") in
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an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon such Payments.
(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company and SCW
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and SCW and to Executive within 15 business days after such
determinations are requested by Executive, the Company or SCW. All fees and
expenses of the Accounting Form shall be borne solely by the Company and SCW.
The Company and SCW shall be jointly and severally obligated to pay any Gross-Up
Payment, as determined pursuant to this Section 9(b), to Executive within five
days after the receipt by the Company and/or SCW of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be final and
binding on the Company, SCW and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company and/or SCW should have
been made (an "Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company and SCW exhausts its remedies
pursuant to Section 9(c) and Executive thereafter is required to make a payment
of
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any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and the Company and SCW shall be jointly and
severally obligated to pay any such Underpayment promptly to or for the benefit
of Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company and SCW in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company and/or SCW of a Gross-Up
Payment. Executive shall give such notice as soon as practicable but no later
than ten business days after Executive is informed in writing of such claim and
shall apprise the Company and SCW of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company and SCW (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company or SCW notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
(i) Give the Company and SCW any information reasonably
requested by either of them relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company or SCW shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company or SCW,
(iii) Cooperate with the Company and SCW in good faith in
order to contest such claim effectively, and
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(iv) Permit the Company and SCW to participate in any
proceedings relating to such claim;
provided, however, that the Company and SCW shall be jointly and severally
obligated to bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 9(c), the Company
and SCW shall control all proceedings taken in connection with such contests
and, at their sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at their sole option, either direct Executive to
pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company and SCW shall determine; provided, however
that if the Company or SCW directs Executive to pay such claim and sue for a
refund, the Company or SCW, as the case may be, shall advance the amount of such
payment to Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount.
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Furthermore, the control by the Company and/or SCW of the contest shall be
limited to issues with respect to which the Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company and/or SCW pursuant to Section 9(c), Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to compliance by the Company and SCW with the requirements of Section
9(c)) promptly pay to the Company and SCW the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company and/or SCW
pursuant to Section 9(c), a determination is made that Executive shall not be
entitled to any refund with respect to such claim and the Company or SCW does
not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT
The obligation of the Company and SCW to make the payments provided
for in this Agreement and otherwise to perform their obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company or SCW may have against the Executive
or others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to
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the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(iv), such amounts shall not be reduced whether or not
Executive obtains other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company, SCW and their successors and assigns.
(c) The Company and SCW will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of their business and/or assets to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company or SCW would be required to perform it if no such succession had taken
place. As used in this Agreement, the "Company" shall mean the Company as
defined and any successor to its business and/or assets which assumes and agrees
to perform this Agreement by operation of law, or otherwise, and "SCW" shall
mean SCW as defined and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and
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the Executive may decide whether or not to arbitrate in his or her discretion.
The "right to select arbitration" is not mandatory on the Executive, and the
Executive may choose in lieu thereof to bring an action in an appropriate civil
court. Once an arbitration is commenced, however, it may not be discontinued
without the mutual consent of both parties to the arbitration. During the
lifetime of the Executive only he or she can use the arbitration procedure set
forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company or SCW regarding the interpretation of this
Agreement and the claim is finally denied by the Company or SCW in whole or in
part, such claim may be filed in writing with an arbitrator of the Executive's
choice who is selected by the method described in the next three sentences. The
first step of the selection shall consist of the Executive submitting a list of
five potential arbitrators to the Company and SCW. Each of the five arbitrators
must be either (1) a member of the National Academy of Arbitrators located in
the State of California or (2) a retired California Superior Court or Appellate
Court judge. Within two weeks after receipt of the list, the Company and SCW
shall select one of the five arbitrators as the arbitrator for the dispute in
question. If the Company and SCW fail to select an arbitrator in a timely
manner, the Executive shall then designate one of the five arbitrators as the
arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator
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may close the hearing at his or her discretion when sufficient evidence to
satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company or SCW has breached this
Agreement, he or she shall order the Company or SCW, as the case may be, to
immediately take the necessary steps to remedy the breach. The award of the
arbitrator shall be final and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible after it is rendered. If
an action is brought to confirm the award, the Company, SCW and the Executive
agree that no appeal shall be taken by either party from any decision rendered
in such action.
(e) The Company and SCW will be considered the prevailing party in
a dispute if the arbitrator determines that neither the Company nor SCW has
breached this Agreement. Otherwise, the Executive will be considered the
prevailing party. In the event that the Company and SCW are the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(excluding any attorneys' fees incurred by the Company or SCW) including
stenographic reporter, if employed, shall be paid by the Executive. In the event
that Executive is the prevailing party, the fee of the arbitrator and all
necessary expenses of the hearing (including all attorneys' fees incurred by the
Executive), including the fees of a stenographic reporter if employed, shall be
paid by the Company and SCW.
13. GOVERNING LAW
The laws of California shall govern the validity and interpretation
of this Agreement, with regard to conflicts of laws.
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14. CAPTIONS
The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement shall
be in writing and shall be hand delivered to the other party or sent by prepaid
registered or certified mail, return receipt requested, addressed as follows:
If to the Executive:
-----------------------------------
-----------------------------------
-----------------------------------
If to the Company: American States Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
If to SCW: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
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17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company and SCW may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's, the Company's or SCW's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive, the Company or SCW may have under this Agreement,
including, without limitation, the right of the Executive to terminate
employment for Good Reason, shall not be deemed to be a waiver of such provision
or right or any other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive, the Company and SCW acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive,
the Company and SCW, the employment of the Executive by the Company and SCW
prior to the Change in Control Date is "at will" and, prior to the Change in
Control Date, the Executive's employment may be terminated by either the
Executive or the Company or SCW, as the case may be, at any time, in which case
the Executive shall have no further rights under this Agreement. From and after
the Change in Control Date, this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.
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21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
21. JOINT AND SEVERAL LIABILITY
The obligation of the Company and SCW to make payments hereunder
shall be joint and several.
22. ALLOCATION OF PAYMENTS
As between the Company and SCW, any payments to be made by the
Company and/ SCW hereunder shall be allocated between the Company and SCW on the
same basis as the payment of salary and benefits of the Executive were allocated
between the Company and SCW immediately prior to the Change in Control Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in Los
Angeles, California.
AMERICAN STATES WATER COMPANY
By /s/ Floyd E. Wicks
----------------------------------
Title President and C.E.O.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
----------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ Joel A. Dickson
-------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the "Agreement") is
dated as of October 25, 1999, is entered into by and among Floyd E. Wicks (the
"Executive"), American States Water Company (the "Company") and its wholly owned
subsidiary, Southern California Water Company, a California corporation ("SCW"),
and amends and restates in its entirety the Change-in-Control Agreement dated as
of October 27, 1998 among the Executive, the Company and SCW.
RECITALS
The Company considers it essential to the best interest of the Company and
its shareholders that the Executive be encouraged to remain with the Company and
SCW and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company and
SCW, and for other good and valuable consideration, the Board of Directors of
the Company and SCW has, at the recommendation of the Company's Compensation
Committee, caused the Company and SCW to enter into this Agreement.
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TERMS AND CONDITIONS
The Executive, the Company and SCW hereby agree to the following terms and
conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or before
the expiration date of this Agreement and while the Executive is still an
employee of the Company or SCW, then this Agreement will continue in effect for
two years from the date of such Change in Control and, if the Executive's
employment with the Company or SCW is terminated within such two-year period,
this Agreement shall thereafter continue in effect until all of the obligations
of the Company and SCW under this Agreement shall have been fulfilled. If no
Change in Control occurs on or before December 31, 2000, this Agreement shall
expire; provided, however that this Agreement shall be automatically extended
for an additional two years to December 31, 2002 if (i) a plan or agreement for
a Change in Control has been approved by the Board of Directors of the Company
or SCW on or before the expiration date, or (ii) the Company and SCW have not
delivered to you or you shall have not delivered to the Company and SCW written
notice at least 60 days prior to the expiration date that such expiration date
shall not be so extended. This Agreement shall continue to be automatically
extended for an additional two-year period and each succeeding two-year period
if a plan or agreement for a Change in Control has been approved by the Board of
Directors of the Company or SCW or the Company, SCW or you have failed to give
notice by the time and in the manner described in this Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company or SCW is terminated after approval by
the Board of Directors of the Company or SCW of a plan or agreement for a Change
in Control but prior to the date on which the Change in Control occurs, the
"Change in Control Date" shall mean the date immediately preceding the date of
such termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or SCW,
unless its business is continued by another entity in which holders of the
Company's voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or SCW, unless its business is continued by another entity in which
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or SCW, unless the
holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the continuing or surviving
entity's voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or SCW, unless
the holders of the Company's voting securities immediately before the event own,
either directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or SCW within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
or SCW may give the Executive written notice of their intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company or SCW shall terminate effective on the 30th day after receipt of
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such notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of his or her duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from his or her duties with
the Company or SCW on a full-time basis for 180 consecutive business days as a
result of a physical or mental condition which prevents the Executive from
performing the Executive's normal duties of employment and which is (i)
determined to be total and permanent by a physician selected by the Company or
SCW or their insurers and acceptable to the Executive or the Executive's legal
representative and/or (ii) entitles the Executive to the payment of long-term
disability benefits from the Company's or SCW's long-term disability plan
commencing no later than the Disability Effective Date.
(b) Cause: The Company or SCW may terminate the Executive's
employment other than for Cause or Disability during the Effective Period as
provided in Section 6(a). The Company or SCW may also terminate the Executive's
employment during the Effective Period for Cause. For purposes of this
Agreement, "Cause" shall be limited to the following:
(i) the Executive's failure to render services to the
Company or SCW where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company, or
(iii) the Executive's conviction of a felony or other crime
involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as in effect on the Change in Control
Date, or any other action by the Company or SCW which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company or SCW, as the case may be, promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company or SCW to reappoint the
Executive to a position held by the Executive on the Change in
Control Date, except as a result of the termination of the
Executive's employment by the Company or SCW for Cause or
Disability, the death of the Executive, or the termination of the
Executive's employment by the Executive other than for Good Reason;
(iii) reduction by the Company or SCW in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company or SCW
(including the elimination of benefit plans without providing
substitutes therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value of
the Executive's incentive awards and other fringe
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benefits including the executive benefits and perquisites from the
levels in effect prior to the Change in Control Date;
(v) the Company's or SCW's requiring the Executive to be
based at any office or location which increases the distance from
the Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company or SCW to comply with and
satisfy Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company or SCW shall terminate the Executive's employment other than for Cause
or Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company and SCW
agrees, subject to Section 8, to make the payments and provide the benefits
described below:
(i) The Company and/or SCW shall pay to the Executive in a
cash lump sum within 10 days from the date of the Executive's
termination of employment an amount equal to the product of (A) and
(B), where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the sum of (A) the Executive's base salary through
the date of termination, plus (B) any
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compensation previously deferred by the Executive (together with any
accrued earnings or interest thereon), plus (C) any accrued vacation
pay, in each case to the extent not theretofore paid (the amounts
referred to in this paragraph (ii) are hereinafter referred to as
the "Accrued Obligations").
(iii) The Company and/or SCW shall also pay to the Executive
in a cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the Executive's
accrued benefits under the terms of the Southern California Water
Company Pension Plan (or any successor thereto), including any
supplemental retirement plan providing additional pension benefits,
(hereinafter together referred to as the "Pension Plan") at the time
of the Executive's termination of employment, without regard to
whether such benefits are "vested" thereunder, if the Executive were
credited with an additional two years of continuous service after
the termination of Executive's employment with the Company or SCW at
the Executive's highest annual rate of compensation covered by such
Pension Plan within the three years preceding the date of the
termination of the Executive's employment with the Company or SCW
and (B) is equal to the single sum actuarial equivalent of the
Executive's accrued benefits under the Pension Plan at the time of
the Executive's termination of employment. The payment under this
paragraph (iii) shall not extinguish any rights the Executive has to
benefits under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the
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Pension Plan for determining the actuarial equivalence of different
annuity forms of benefits. In no event shall the additional two
years of continuous service referred to above cause the Executive to
be deemed to be older than the Executive's actual age for any
purpose under this Agreement.
(iv) For two years after the Executive's date of termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company and SCW
shall continue to provide welfare benefits and fringe benefits and
other perquisites to the Executive and/or the Executive's family at
least equal to those which would have been provided to them if the
Executive's employment had not been terminated (in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliates applicable generally to other peer
executives and their families immediately preceding the date of the
Executive's termination of employment); provided, however, that if
the Executive becomes employed by another employer and is eligible
to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for any retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until two
years after the date of termination of employment and to have
retired on the last day of such period. Following the
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period of continued benefits referred to in this subsection, the
Executive and the Executive's family shall be given the right
provided in Section 4980B of the Internal Revenue Code of 1986 (the
"Code") to elect to continue benefits in all group medical plans. In
the event that the Executive's participation in any of the plans,
programs, practices or policies of the Company or SCW referred to in
this subsection is barred by the terms of such plans, programs,
practices or policies, the Company and/or SCW shall provide the
Executive with benefits substantially similar to those which the
Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company or
SCW and relating specifically to the Executive.
(v) The Company and/or SCW shall enable the Executive to
purchase, at the end of the Effective Period, the automobile, if
any, provided by the Company and/or SCW for the Executive's use at
the time of the Executive's termination of employment at the
wholesale value of such automobile at such time, as shown in the
current addition of the National Auto Research Publication Blue
Book. At the Executive's election, the Executive may retain any
existing club memberships of the Executive purchased by the Company
or SCW upon reimbursement to the Company or SCW, as the case may be,
of any membership costs paid by the Company or SCW.
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(vi) To the extent not theretofore paid or provided, the
Company and/or SCW shall timely pay or provide the Executive any
other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company and its
affiliates (such other amounts and benefits being hereinafter
referred to as "Other Benefits") in accordance with the terms of
such plan, program, policy, practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section 6(a)
at the applicable Federal Rate provided for in Section 7872(f)(2)(A)
of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
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(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates employment during the Effective Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for Accrued Obligations and any
benefits payable to Executive under a plan, policy, practice, etc., referred to
in Section 7 below. Accrued Obligations shall be paid to the Executive in a cash
lump sum within 60 days of the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if any
payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company, SCW or another
entity or person, would not be deductible
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by the Company or SCW due to limitations imposed by Section 162(m) of the Code,
then such payments or benefits shall be deferred to the extent necessary until
such time as such payments would be deductible under Section 162(m) of the Code.
Either the Company, SCW or the Executive may request a determination as to
whether any payments would be subject to limitations on deductibility under
Section 162(m) of the Code and, of so requested, such determination shall be
made by independent legal counsel selected by the Company or SCW and approved by
the Executive. Payment may be delayed pending any such determination, provided
that the Executive shall be entitled to interest on any delayed payment at the
applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code. The
Executive shall also be entitled to interest on any payments deferred as a
result of the limitations on deductibility under Section 162(m) of the Code at
the applicable Federal Rate provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company or SCW to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments under this Section 9(a)) (a "Payment") is determined to be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company and SCW shall pay to the
Executive an additional payment (a "Gross-Up Payment") in
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an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon such Payments.
(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company and SCW
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and SCW and to Executive within 15 business days after such
determinations are requested by Executive, the Company or SCW. All fees and
expenses of the Accounting Form shall be borne solely by the Company and SCW.
The Company and SCW shall be jointly and severally obligated to pay any Gross-Up
Payment, as determined pursuant to this Section 9(b), to Executive within five
days after the receipt by the Company and/or SCW of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be final and
binding on the Company, SCW and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company and/or SCW should have
been made (an "Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company and SCW exhausts its remedies
pursuant to Section 9(c) and Executive thereafter is required to make a payment
of
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any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and the Company and SCW shall be jointly and
severally obligated to pay any such Underpayment promptly to or for the benefit
of Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company and SCW in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company and/or SCW of a Gross-Up
Payment. Executive shall give such notice as soon as practicable but no later
than ten business days after Executive is informed in writing of such claim and
shall apprise the Company and SCW of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company and SCW (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company or SCW notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
(i) Give the Company and SCW any information reasonably
requested by either of them relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company or SCW shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company or SCW,
(iii) Cooperate with the Company and SCW in good faith in
order to contest such claim effectively, and
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(iv) Permit the Company and SCW to participate in any
proceedings relating to such claim;
provided, however, that the Company and SCW shall be jointly and severally
obligated to bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 9(c), the Company
and SCW shall control all proceedings taken in connection with such contests
and, at their sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at their sole option, either direct Executive to
pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company and SCW shall determine; provided, however
that if the Company or SCW directs Executive to pay such claim and sue for a
refund, the Company or SCW, as the case may be, shall advance the amount of such
payment to Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount.
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Furthermore, the control by the Company and/or SCW of the contest shall be
limited to issues with respect to which the Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company and/or SCW pursuant to Section 9(c), Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to compliance by the Company and SCW with the requirements of Section
9(c)) promptly pay to the Company and SCW the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company and/or SCW
pursuant to Section 9(c), a determination is made that Executive shall not be
entitled to any refund with respect to such claim and the Company or SCW does
not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. FULL SETTLEMENT
The obligation of the Company and SCW to make the payments provided
for in this Agreement and otherwise to perform their obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company or SCW may have against the Executive
or others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to
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the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(iv), such amounts shall not be reduced whether or not
Executive obtains other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company, SCW and their successors and assigns.
(c) The Company and SCW will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of their business and/or assets to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company or SCW would be required to perform it if no such succession had taken
place. As used in this Agreement, the "Company" shall mean the Company as
defined and any successor to its business and/or assets which assumes and agrees
to perform this Agreement by operation of law, or otherwise, and "SCW" shall
mean SCW as defined and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. ARBITRATION
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(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company or SCW regarding the interpretation of this
Agreement and the claim is finally denied by the Company or SCW in whole or in
part, such claim may be filed in writing with an arbitrator of the Executive's
choice who is selected by the method described in the next three sentences. The
first step of the selection shall consist of the Executive submitting a list of
five potential arbitrators to the Company and SCW. Each of the five arbitrators
must be either (1) a member of the National Academy of Arbitrators located in
the State of California or (2) a retired California Superior Court or Appellate
Court judge. Within two weeks after receipt of the list, the Company and SCW
shall select one of the five arbitrators as the arbitrator for the dispute in
question. If the Company and SCW fail to select an arbitrator in a timely
manner, the Executive shall then designate one of the five arbitrators as the
arbitrator for the dispute in question.
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(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company or SCW has breached this
Agreement, he or she shall order the Company or SCW, as the case may be, to
immediately take the necessary steps to remedy the breach. The award of the
arbitrator shall be final and binding upon the parties. The award may be
enforced in any appropriate court as soon as possible after it is rendered. If
an action is brought to confirm the award, the Company, SCW and the Executive
agree that no appeal shall be taken by either party from any decision rendered
in such action.
(e) The Company and SCW will be considered the prevailing party in
a dispute if the arbitrator determines that neither the Company nor SCW has
breached this Agreement. Otherwise, the Executive will be considered the
prevailing party. In the event that the Company and SCW are the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(excluding any attorneys' fees incurred by the Company or SCW) including
stenographic reporter, if employed, shall be paid by the Executive. In the event
that Executive is the prevailing party, the fee of the arbitrator and all
necessary expenses of the hearing (including all
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attorneys' fees incurred by the Executive), including the fees of a stenographic
reporter if employed, shall be paid by the Company and SCW.
13. GOVERNING LAW
The laws of California shall govern the validity and interpretation
of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement shall
be in writing and shall be hand delivered to the other party or sent by prepaid
registered or certified mail, return receipt requested, addressed as follows:
If to the Executive:
-----------------------------------
-----------------------------------
-----------------------------------
If to the Company: American States Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
If to SCW: Southern California Water Company
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630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company and SCW may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's, the Company's or SCW's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive, the Company or SCW may have under this Agreement,
including, without limitation, the right of the Executive to terminate
employment for Good Reason, shall not be deemed to be a waiver of such provision
or right or any other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive, the Company and SCW acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive,
the Company and SCW, the employment of the Executive by the Company and SCW
prior to the Change in Control Date is "at will" and, prior to the Change in
Control Date, the Executive's employment
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may be terminated by either the Executive or the Company or SCW, as the case may
be, at any time, in which case the Executive shall have no further rights under
this Agreement. From and after the Change in Control Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
21. JOINT AND SEVERAL LIABILITY
The obligation of the Company and SCW to make payments hereunder
shall be joint and several.
22. ALLOCATION OF PAYMENTS
As between the Company and SCW, any payments to be made by the
Company and/ SCW hereunder shall be allocated between the Company and SCW on the
same basis as the payment of salary and benefits of the Executive were allocated
between the Company and SCW immediately prior to the Change in Control Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in Los
Angeles, California.
AMERICAN STATES WATER COMPANY
By /s/ Lloyd E. Ross
-----------------------------------
Title Chairman of the Board
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Lloyd E. Ross
-----------------------------------
Title Chairman of the Board
EXECUTIVE
/s/ Floyd E. Wicks
-------------------------------------
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EXHIBIT 10.15
AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENTS,
BETWEEN SOUTHERN CALIFORNIA WATER COMPANY AND CERTAIN EXECUTIVES,
DATED AS OF OCTOBER 25, 1999
<PAGE> 2
AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the
"Agreement") is dated as of October 25, 1999, is entered into by and between
Susan L. Conway (the "Executive") and Southern California Water Company, a
California corporation (the "Company"), and amends and restates in its entirety
the Change-in-Control Agreement dated as of October 27, 1998 among the Executive
and the Company.
RECITALS
The Company considers it essential to the best interest of the
Company and its shareholders that the Executive be encouraged to remain with the
Company and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company, and
for other good and valuable consideration, the Board of Directors of the Company
has, at the recommendation of its Compensation Committee, caused the Company to
enter into this Agreement.
<PAGE> 3
TERMS AND CONDITIONS
The Executive and the Company hereby agree to the following terms
and conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or
before the expiration date of this Agreement and while the Executive is still an
employee of the Company, then this Agreement will continue in effect for two
years from the date of such Change in Control and, if the Executive's employment
with the Company is terminated within such two-year period, this Agreement shall
thereafter continue in effect until all of the obligations of the Company under
this Agreement shall have been fulfilled. If no Change in Control occurs on or
before December 31, 2000, this Agreement shall expire; provided, however that
this Agreement shall be automatically extended for an additional two years to
December 31, 2002 if (i) a plan or agreement for a Change in Control has been
approved by the Board of Directors of the Company or American States Water
Company, a California corporation ("AWR"), on or before the expiration date, or
(ii) the Company has not delivered to you or you shall have not delivered to the
Company written notice at least 60 days prior to the expiration date that such
expiration date shall not be so extended. This Agreement shall continue to be
automatically extended for an additional two-year period and each succeeding
two-year period if a plan or agreement for a Change in Control has been approved
by the Board of Directors of the Company or AWR or the Company or the Executive
fails to give the notices by the time and in the manner described in this
Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company is terminated after approval by the
Board of Directors of the Company or AWR of a plan or agreement for a Change in
Control but prior to the date on which the Change in Control occurs, the "Change
in Control Date" shall mean the date immediately preceding the date of such
termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or AWR,
unless its business is continued by another entity in which holders of AWR's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or AWR, unless its business is continued by another entity in which
holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving entity's
voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or AWR within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt,
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the Executive shall not have returned to full-time performance of his or her
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from his or her duties with the Company on a full-time basis for
180 consecutive business days as a result of a physical or mental condition
which prevents the Executive from performing the Executive's normal duties of
employment and which is (i) determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative and/or (ii) entitles the Executive to the
payment of long-term disability benefits from the Company's or AWR's long-term
disability plan commencing no later than the Disability Effective Date.
(b) Cause: The Company may terminate the Executive's employment
other than for Cause or Disability during the Effective Period as provided in
Section 6(a). The Company may also terminate the Executive's employment during
the Effective Period for Cause. For purposes of this Agreement, "Cause" shall be
limited to the following:
(i) the Executive's failure to render services to the
Company where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company,
or
(iii) the Executive's conviction of a felony or other
crime involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as in effect on the Change
in Control Date, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to reappoint the Executive
to a position held by the Executive on the Change in Control
Date, except as a result of the termination of the Executive's
employment by the Company for Cause or Disability, the death of
the Executive, or the termination of the Executive's employment
by the Executive other than for Good Reason;
(iii) reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company (including
the elimination of benefit plans without providing substitutes
therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value
of the Executive's incentive awards and other fringe benefits
including the
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executive benefits and perquisites from the levels in effect
prior to the Change in Control Date;
(v) the Company's requiring the Executive to be based at
any office or location which increases the distance from the
Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company shall terminate the Executive's employment other than for Cause or
Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company agrees,
subject to Section 8, to make the payments and provide the benefits described
below:
(i) The Company shall pay to the Executive in a cash lump
sum within 10 days from the date of the Executive's termination
of employment an amount equal to the product of (A) and (B),
where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination. (ii) The Company shall
also pay to the Executive in a cash lump sum within 10 days from
the date of termination an amount equal to the sum of (A)
Executive's base salary through the date of termination, plus (B)
any
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compensation previously deferred by the Executive (together with
any accrued earnings or interest thereon), plus (C) any accrued
vacation pay, in each case to the extent not theretofore paid
(the amounts referred to in this paragraph (ii) are hereinafter
referred to as the "Accrued Obligations").
(iii) The Company shall also pay to the Executive in a
cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the
Executive's accrued benefits under the terms of the Southern
California Water Company Pension Plan (or any successor thereto),
including any supplemental retirement plan providing additional
pension benefits, (hereinafter together referred to as the
"Pension Plan") at time of the Executive's termination of
employment, without regard to whether such benefits are "vested"
thereunder, if the Executive were credited with an additional two
years of continuous service after the termination of Executive's
employment with the Company at the Executive's highest annual
rate of compensation covered by such Pension Plan within the
three years preceding the date of the termination of the
Executive's employment with the Company and (B) is equal to the
single sum actuarial equivalent of the Executive's accrued
benefits under the Pension Plan at the time of the Executive's
termination of employment. The payment under this paragraph (iii)
shall not extinguish any rights the Executive has to benefits
under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the Pension Plan for determining the
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actuarial equivalence of different annuity forms of benefits. In
no event shall the additional two years of continuous service
referred to above cause the Executive to be deemed to be older
than the Executive's actual age for any purpose under this
Agreement.
(iv) For two years after the Executive's date of
termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue to provide welfare benefits and fringe
benefits and other perquisites to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them if the Executive's employment had not been
terminated (in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliates
applicable generally to other peer executives and their families
immediately preceding the date of the Executive's termination of
employment); provided, however, that if the Executive becomes
employed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the
date of termination of employment and to have retired on the last
day of such period. Following the period of
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continued benefits referred to in this subsection, the Executive
and the Executive's family shall be given the right provided in
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"), to elect to continue benefits in all group medical
plans. In the event that the Executive's participation in any of
the plans, programs, practices or policies of the Company
referred to in this subsection is barred by the terms of such
plans, programs, practices or policies, the Company shall provide
the Executive with benefits substantially similar to those which
the Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company
and relating specifically to the Executive.
(v) The Company shall enable the Executive to purchase, at
the end of the Effective Period, the automobile, if any, provided
by the Company for the Executive's use at the time of the
Executive's termination of employment at the wholesale value of
such automobile at such time, as shown in the current addition of
the National Auto Research Publication Blue Book. At the
Executive's election, the Executive may retain any existing club
memberships of the Executive purchased by the Company upon
reimbursement to the Company of any membership costs paid by the
Company.
(vi) To the extent not theretofore paid or provided, the
Company shall timely pay or provide the Executive any other
amounts or benefits required to be
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paid or provided or which the Executive is eligible to receive
under any plan, program, policy, practice, contract or agreement
of the Company and its affiliates (such other amounts and
benefits being hereinafter referred to as "Other Benefits") in
accordance with the terms of such plan, program, policy,
practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section
6(a) at the applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates
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employment during the Effective Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and any benefits payable to Executive under a
plan, policy, practice, etc., referred to in Section 7 below. Accrued
Obligations shall be paid to the Executive in a cash lump sum within 60 days of
the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if
any payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company or another
entity or person, would not be deductible by the Company due to limitations
imposed by Section 162(m) of the Code, then such payments or benefits shall be
deferred to the extent necessary until such time as such payments would be
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deductible under Section 162(m) of the Code. Either the Company or the Executive
may request a determination as to whether any payments would be subject to
limitations on deductibility under Section 162(m) of the Code and, if so
requested, such determination shall be made by independent legal counsel
selected by the Company and approved by the Executive. Payment may be delayed
pending any such determination, provided that the Executive shall be entitled to
interest on any delayed payment at the applicable Federal Rate provided for in
Section 7872(f)(2)(A) of the Code. The Executive shall also be entitled to
interest on any payments deferred as a result of the limitations on
deductibility under Section 162(m) of the Code at the applicable Federal Rate
provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
under this Section 9(a)) (a "Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payments.
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(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days after such determinations
are requested by Executive or the Company. All fees and expenses of the
Accounting Firm shall be born solely by the Company. The Company shall pay any
Gross-Up Payment, as determined pursuant to this Section 9(b), to Executive
within five days after the receipt by the Company of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and the Company shall
pay such Underpayment promptly to or for the benefit of the Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Executive is informed in writing of such
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claim and shall apprise the Company of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) Give the Company any information reasonably requested
by it relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order to
contest such claim effectively, and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
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with such contests and, at their sole discretion, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the control by the Company of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refunds. If , after the receipt by Executive of an amount
advanced by the Company pursuant to Section 9(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
compliance by Company with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an
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amount advanced by the Company pursuant to Section 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. FULL SETTLEMENT
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(iv), such amounts shall not be reduced whether or not Executive obtains
other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as defined and any successor to its business
and/or assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of the Executive's choice
who is selected by the method described in the next three sentences. The first
step of the selection shall consist of the Executive submitting a list of five
potential arbitrators to the Company. Each of the five arbitrators must be
either (1) a member of the National Academy of Arbitrators located in the State
of California or (2) a retired California
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Superior Court or Appellate Court judge. Within two weeks after receipt of the
list, the Company shall select one of the five arbitrators as the arbitrator for
the dispute in question. If the Company fails to select an arbitrator in a
timely manner, the Executive shall then designate one of the five arbitrators as
the arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company has breached this Agreement,
he or she shall order the Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall be final and binding upon
the parties. The award may be enforced in any appropriate court as soon as
possible after it is rendered. If an action is brought to confirm the award,
both the Company and the Executive agree that no appeal shall be taken by either
party from any decision rendered in such action.
(e) The Company will be considered the prevailing party in a
dispute if the arbitrator determines that the Company has not breached this
Agreement. Otherwise, the Executive will be considered the prevailing party. In
the event that the Company is the prevailing party, the fee of the arbitrator
and all necessary expenses of the hearing (excluding any attorneys'
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fees incurred by the Company) including stenographic reporter, if employed,
shall be paid by the Executive. In the event that Executive is the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(including all attorneys' fees incurred by the Executive), including the fees of
a stenographic reporter if employed, shall be paid by the Company.
13. GOVERNING LAW
The laws of California shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement
shall be in writing and shall be hand delivered to the other party or sent by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
If to the Company: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
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or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have under this Agreement, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company prior to the
Change in Control Date is "at will" and, prior to the Change in Control Date,
the Executive's employment may be terminated by either the Executive or the
Company at any time, in which case the Executive shall have no
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further rights under this Agreement. From and after the Change in Control Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first written above in
Los Angeles, California.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
--------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ Susan L. Conway
----------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the
"Agreement") is dated as of October 25, 1999, is entered into by and between
Denise L. Kruger (the "Executive") and Southern California Water Company, a
California corporation (the "Company"), and amends and restates in its entirety
the Change-in-Control Agreement dated as of October 27, 1998 among the Executive
and the Company.
RECITALS
The Company considers it essential to the best interest of the
Company and its shareholders that the Executive be encouraged to remain with the
Company and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company, and
for other good and valuable consideration, the Board of Directors of the Company
has, at the recommendation of its Compensation Committee, caused the Company to
enter into this Agreement.
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TERMS AND CONDITIONS
The Executive and the Company hereby agree to the following terms
and conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or
before the expiration date of this Agreement and while the Executive is still an
employee of the Company, then this Agreement will continue in effect for two
years from the date of such Change in Control and, if the Executive's employment
with the Company is terminated within such two-year period, this Agreement shall
thereafter continue in effect until all of the obligations of the Company under
this Agreement shall have been fulfilled. If no Change in Control occurs on or
before December 31, 2000, this Agreement shall expire; provided, however that
this Agreement shall be automatically extended for an additional two years to
December 31, 2002 if (i) a plan or agreement for a Change in Control has been
approved by the Board of Directors of the Company or American States Water
Company, a California corporation ("AWR"), on or before the expiration date, or
(ii) the Company has not delivered to you or you shall have not delivered to the
Company written notice at least 60 days prior to the expiration date that such
expiration date shall not be so extended. This Agreement shall continue to be
automatically extended for an additional two-year period and each succeeding
two-year period if a plan or agreement for a Change in Control has been approved
by the Board of Directors of the Company or AWR or the Company or the Executive
fails to give the notices by the time and in the manner described in this
Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company is terminated after approval by the
Board of Directors of the Company or AWR of a plan or agreement for a Change in
Control but prior to the date on which the Change in Control occurs, the "Change
in Control Date" shall mean the date immediately preceding the date of such
termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or AWR,
unless its business is continued by another entity in which holders of AWR's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or AWR, unless its business is continued by another entity in which
holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving entity's
voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or AWR within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt,
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the Executive shall not have returned to full-time performance of his or her
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from his or her duties with the Company on a full-time basis for
180 consecutive business days as a result of a physical or mental condition
which prevents the Executive from performing the Executive's normal duties of
employment and which is (i) determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative and/or (ii) entitles the Executive to the
payment of long-term disability benefits from the Company's or AWR's long-term
disability plan commencing no later than the Disability Effective Date.
(b) Cause: The Company may terminate the Executive's employment
other than for Cause or Disability during the Effective Period as provided in
Section 6(a). The Company may also terminate the Executive's employment during
the Effective Period for Cause. For purposes of this Agreement, "Cause" shall be
limited to the following:
(i) the Executive's failure to render services to the
Company where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company,
or
(iii) the Executive's conviction of a felony or other
crime involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as in effect on the Change
in Control Date, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to reappoint the Executive
to a position held by the Executive on the Change in Control
Date, except as a result of the termination of the Executive's
employment by the Company for Cause or Disability, the death of
the Executive, or the termination of the Executive's employment
by the Executive other than for Good Reason;
(iii) reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company (including
the elimination of benefit plans without providing substitutes
therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value
of the Executive's incentive awards and other fringe benefits
including the
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executive benefits and perquisites from the levels in effect
prior to the Change in Control Date;
(v) the Company's requiring the Executive to be based at
any office or location which increases the distance from the
Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company shall terminate the Executive's employment other than for Cause or
Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company agrees,
subject to Section 8, to make the payments and provide the benefits described
below:
(i) The Company shall pay to the Executive in a cash lump
sum within 10 days from the date of the Executive's termination
of employment an amount equal to the product of (A) and (B),
where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company shall also pay to the Executive in a cash
lump sum within 10 days from the date of termination an amount
equal to the sum of (A) Executive's base salary through the date
of termination, plus (B) any
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compensation previously deferred by the Executive (together with
any accrued earnings or interest thereon), plus (C) any accrued
vacation pay, in each case to the extent not theretofore paid
(the amounts referred to in this paragraph (ii) are hereinafter
referred to as the "Accrued Obligations").
(iii) The Company shall also pay to the Executive in a
cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the
Executive's accrued benefits under the terms of the Southern
California Water Company Pension Plan (or any successor thereto),
including any supplemental retirement plan providing additional
pension benefits, (hereinafter together referred to as the
"Pension Plan") at time of the Executive's termination of
employment, without regard to whether such benefits are "vested"
thereunder, if the Executive were credited with an additional two
years of continuous service after the termination of Executive's
employment with the Company at the Executive's highest annual
rate of compensation covered by such Pension Plan within the
three years preceding the date of the termination of the
Executive's employment with the Company and (B) is equal to the
single sum actuarial equivalent of the Executive's accrued
benefits under the Pension Plan at the time of the Executive's
termination of employment. The payment under this paragraph (iii)
shall not extinguish any rights the Executive has to benefits
under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the Pension Plan for determining the
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actuarial equivalence of different annuity forms of benefits. In
no event shall the additional two years of continuous service
referred to above cause the Executive to be deemed to be older
than the Executive's actual age for any purpose under this
Agreement.
(iv) For two years after the Executive's date of
termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue to provide welfare benefits and fringe
benefits and other perquisites to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them if the Executive's employment had not been
terminated (in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliates
applicable generally to other peer executives and their families
immediately preceding the date of the Executive's termination of
employment); provided, however, that if the Executive becomes
employed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the
date of termination of employment and to have retired on the last
day of such period. Following the period of
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continued benefits referred to in this subsection, the Executive
and the Executive's family shall be given the right provided in
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"), to elect to continue benefits in all group medical
plans. In the event that the Executive's participation in any of
the plans, programs, practices or policies of the Company
referred to in this subsection is barred by the terms of such
plans, programs, practices or policies, the Company shall provide
the Executive with benefits substantially similar to those which
the Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company
and relating specifically to the Executive.
(v) The Company shall enable the Executive to purchase, at
the end of the Effective Period, the automobile, if any, provided
by the Company for the Executive's use at the time of the
Executive's termination of employment at the wholesale value of
such automobile at such time, as shown in the current addition of
the National Auto Research Publication Blue Book. At the
Executive's election, the Executive may retain any existing club
memberships of the Executive purchased by the Company upon
reimbursement to the Company of any membership costs paid by the
Company.
(vi) To the extent not theretofore paid or provided, the
Company shall timely pay or provide the Executive any other
amounts or benefits required to be
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paid or provided or which the Executive is eligible to receive
under any plan, program, policy, practice, contract or agreement
of the Company and its affiliates (such other amounts and
benefits being hereinafter referred to as "Other Benefits") in
accordance with the terms of such plan, program, policy,
practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section
6(a) at the applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates
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employment during the Effective Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and any benefits payable to Executive under a
plan, policy, practice, etc., referred to in Section 7 below. Accrued
Obligations shall be paid to the Executive in a cash lump sum within 60 days of
the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if
any payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company or another
entity or person, would not be deductible by the Company due to limitations
imposed by Section 162(m) of the Code, then such payments or benefits shall be
deferred to the extent necessary until such time as such payments would be
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deductible under Section 162(m) of the Code. Either the Company or the Executive
may request a determination as to whether any payments would be subject to
limitations on deductibility under Section 162(m) of the Code and, if so
requested, such determination shall be made by independent legal counsel
selected by the Company and approved by the Executive. Payment may be delayed
pending any such determination, provided that the Executive shall be entitled to
interest on any delayed payment at the applicable Federal Rate provided for in
Section 7872(f)(2)(A) of the Code. The Executive shall also be entitled to
interest on any payments deferred as a result of the limitations on
deductibility under Section 162(m) of the Code at the applicable Federal Rate
provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
under this Section 9(a)) (a "Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payments.
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(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days after such determinations
are requested by Executive or the Company. All fees and expenses of the
Accounting Firm shall be born solely by the Company. The Company shall pay any
Gross-Up Payment, as determined pursuant to this Section 9(b), to Executive
within five days after the receipt by the Company of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and the Company shall
pay such Underpayment promptly to or for the benefit of the Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Executive is informed in writing of such
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claim and shall apprise the Company of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) Give the Company any information reasonably requested
by it relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order to
contest such claim effectively, and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
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with such contests and, at their sole discretion, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the control by the Company of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 9(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
compliance by Company with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an
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amount advanced by the Company pursuant to Section 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. FULL SETTLEMENT
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(iv), such amounts shall not be reduced whether or not Executive obtains
other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as defined and any successor to its business
and/or assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of the Executive's choice
who is selected by the method described in the next three sentences. The first
step of the selection shall consist of the Executive submitting a list of five
potential arbitrators to the Company. Each of the five arbitrators must be
either (1) a member of the National Academy of Arbitrators located in the State
of California or (2) a retired California
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Superior Court or Appellate Court judge. Within two weeks after receipt of the
list, the Company shall select one of the five arbitrators as the arbitrator for
the dispute in question. If the Company fails to select an arbitrator in a
timely manner, the Executive shall then designate one of the five arbitrators as
the arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company has breached this Agreement,
he or she shall order the Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall be final and binding upon
the parties. The award may be enforced in any appropriate court as soon as
possible after it is rendered. If an action is brought to confirm the award,
both the Company and the Executive agree that no appeal shall be taken by either
party from any decision rendered in such action.
(e) The Company will be considered the prevailing party in a
dispute if the arbitrator determines that the Company has not breached this
Agreement. Otherwise, the Executive will be considered the prevailing party. In
the event that the Company is the prevailing party, the fee of the arbitrator
and all necessary expenses of the hearing (excluding any attorneys'
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fees incurred by the Company) including stenographic reporter, if employed,
shall be paid by the Executive. In the event that Executive is the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(including all attorneys' fees incurred by the Executive), including the fees of
a stenographic reporter if employed, shall be paid by the Company.
13. GOVERNING LAW
The laws of California shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement
shall be in writing and shall be hand delivered to the other party or sent by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
If to the Company: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
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or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have under this Agreement, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company prior to the
Change in Control Date is "at will" and, prior to the Change in Control Date,
the Executive's employment may be terminated by either the Executive or the
Company at any time, in which case the Executive shall have no
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further rights under this Agreement. From and after the Change in Control Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first written above in
Los Angeles, California.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
--------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ Denise L. Kruger
----------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the
"Agreement") is dated as of October 25, 1999, is entered into by and between
James B. Gallagher (the "Executive") and Southern California Water Company, a
California corporation (the "Company"), and amends and restates in its entirety
the Change-in-Control Agreement dated as of October 27, 1998 among the Executive
and the Company.
RECITALS
The Company considers it essential to the best interest of the
Company and its shareholders that the Executive be encouraged to remain with the
Company and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company, and
for other good and valuable consideration, the Board of Directors of the Company
has, at the recommendation of its Compensation Committee, caused the Company to
enter into this Agreement.
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TERMS AND CONDITIONS
The Executive and the Company hereby agree to the following terms
and conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or
before the expiration date of this Agreement and while the Executive is still an
employee of the Company, then this Agreement will continue in effect for two
years from the date of such Change in Control and, if the Executive's employment
with the Company is terminated within such two-year period, this Agreement shall
thereafter continue in effect until all of the obligations of the Company under
this Agreement shall have been fulfilled. If no Change in Control occurs on or
before December 31, 2000, this Agreement shall expire; provided, however that
this Agreement shall be automatically extended for an additional two years to
December 31, 2002 if (i) a plan or agreement for a Change in Control has been
approved by the Board of Directors of the Company or American States Water
Company, a California corporation ("AWR"), on or before the expiration date, or
(ii) the Company has not delivered to you or you shall have not delivered to the
Company written notice at least 60 days prior to the expiration date that such
expiration date shall not be so extended. This Agreement shall continue to be
automatically extended for an additional two-year period and each succeeding
two-year period if a plan or agreement for a Change in Control has been approved
by the Board of Directors of the Company or AWR or the Company or the Executive
fails to give the notices by the time and in the manner described in this
Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company is terminated after approval by the
Board of Directors of the Company or AWR of a plan or agreement for a Change in
Control but prior to the date on which the Change in Control occurs, the "Change
in Control Date" shall mean the date immediately preceding the date of such
termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or AWR,
unless its business is continued by another entity in which holders of AWR's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or AWR, unless its business is continued by another entity in which
holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving entity's
voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or AWR within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt,
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the Executive shall not have returned to full-time performance of his or her
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from his or her duties with the Company on a full-time basis for
180 consecutive business days as a result of a physical or mental condition
which prevents the Executive from performing the Executive's normal duties of
employment and which is (i) determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative and/or (ii) entitles the Executive to the
payment of long-term disability benefits from the Company's or AWR's long-term
disability plan commencing no later than the Disability Effective Date.
(b) Cause: The Company may terminate the Executive's employment
other than for Cause or Disability during the Effective Period as provided in
Section 6(a). The Company may also terminate the Executive's employment during
the Effective Period for Cause. For purposes of this Agreement, "Cause" shall be
limited to the following:
(i) the Executive's failure to render services to the
Company where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company,
or
(iii) the Executive's conviction of a felony or other
crime involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as in effect on the Change
in Control Date, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to reappoint the Executive
to a position held by the Executive on the Change in Control
Date, except as a result of the termination of the Executive's
employment by the Company for Cause or Disability, the death of
the Executive, or the termination of the Executive's employment
by the Executive other than for Good Reason;
(iii) reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time; (iv) the taking of any action by the
Company (including the elimination of benefit plans without
providing substitutes therefore or the reduction of the
Executive's benefits thereunder) that would substantially
diminish the aggregate value of the Executive's incentive awards
and other fringe benefits including the
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executive benefits and perquisites from the levels in effect
prior to the Change in Control Date;
(v) the Company's requiring the Executive to be based at
any office or location which increases the distance from the
Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company shall terminate the Executive's employment other than for Cause or
Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company agrees,
subject to Section 8, to make the payments and provide the benefits described
below:
(i) The Company shall pay to the Executive in a cash lump
sum within 10 days from the date of the Executive's termination
of employment an amount equal to the product of (A) and (B),
where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination. (ii) The Company shall
also pay to the Executive in a cash lump sum within 10 days from
the date of termination an amount equal to the sum of (A)
Executive's base salary through the date of termination, plus (B)
any
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compensation previously deferred by the Executive (together with
any accrued earnings or interest thereon), plus (C) any accrued
vacation pay, in each case to the extent not theretofore paid
(the amounts referred to in this paragraph (ii) are hereinafter
referred to as the "Accrued Obligations").
(iii) The Company shall also pay to the Executive in a
cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the
Executive's accrued benefits under the terms of the Southern
California Water Company Pension Plan (or any successor thereto),
including any supplemental retirement plan providing additional
pension benefits, (hereinafter together referred to as the
"Pension Plan") at time of the Executive's termination of
employment, without regard to whether such benefits are "vested"
thereunder, if the Executive were credited with an additional two
years of continuous service after the termination of Executive's
employment with the Company at the Executive's highest annual
rate of compensation covered by such Pension Plan within the
three years preceding the date of the termination of the
Executive's employment with the Company and (B) is equal to the
single sum actuarial equivalent of the Executive's accrued
benefits under the Pension Plan at the time of the Executive's
termination of employment. The payment under this paragraph (iii)
shall not extinguish any rights the Executive has to benefits
under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the Pension Plan for determining the
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actuarial equivalence of different annuity forms of benefits. In
no event shall the additional two years of continuous service
referred to above cause the Executive to be deemed to be older
than the Executive's actual age for any purpose under this
Agreement.
(iv) For two years after the Executive's date of
termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue to provide welfare benefits and fringe
benefits and other perquisites to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them if the Executive's employment had not been
terminated (in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliates
applicable generally to other peer executives and their families
immediately preceding the date of the Executive's termination of
employment); provided, however, that if the Executive becomes
employed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the
date of termination of employment and to have retired on the last
day of such period. Following the period of
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continued benefits referred to in this subsection, the Executive
and the Executive's family shall be given the right provided in
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"), to elect to continue benefits in all group medical
plans. In the event that the Executive's participation in any of
the plans, programs, practices or policies of the Company
referred to in this subsection is barred by the terms of such
plans, programs, practices or policies, the Company shall provide
the Executive with benefits substantially similar to those which
the Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company
and relating specifically to the Executive.
(v) The Company shall enable the Executive to purchase, at
the end of the Effective Period, the automobile, if any, provided
by the Company for the Executive's use at the time of the
Executive's termination of employment at the wholesale value of
such automobile at such time, as shown in the current addition of
the National Auto Research Publication Blue Book. At the
Executive's election, the Executive may retain any existing club
memberships of the Executive purchased by the Company upon
reimbursement to the Company of any membership costs paid by the
Company.
(vi) To the extent not theretofore paid or provided, the
Company shall timely pay or provide the Executive any other
amounts or benefits required to be
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paid or provided or which the Executive is eligible to receive
under any plan, program, policy, practice, contract or agreement
of the Company and its affiliates (such other amounts and
benefits being hereinafter referred to as "Other Benefits") in
accordance with the terms of such plan, program, policy,
practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section
6(a) at the applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates
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employment during the Effective Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and any benefits payable to Executive under a
plan, policy, practice, etc., referred to in Section 7 below. Accrued
Obligations shall be paid to the Executive in a cash lump sum within 60 days of
the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if
any payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company or another
entity or person, would not be deductible by the Company due to limitations
imposed by Section 162(m) of the Code, then such payments or benefits shall be
deferred to the extent necessary until such time as such payments would be
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deductible under Section 162(m) of the Code. Either the Company or the Executive
may request a determination as to whether any payments would be subject to
limitations on deductibility under Section 162(m) of the Code and, if so
requested, such determination shall be made by independent legal counsel
selected by the Company and approved by the Executive. Payment may be delayed
pending any such determination, provided that the Executive shall be entitled to
interest on any delayed payment at the applicable Federal Rate provided for in
Section 7872(f)(2)(A) of the Code. The Executive shall also be entitled to
interest on any payments deferred as a result of the limitations on
deductibility under Section 162(m) of the Code at the applicable Federal Rate
provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
under this Section 9(a)) (a "Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payments.
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(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days after such determinations
are requested by Executive or the Company. All fees and expenses of the
Accounting Firm shall be born solely by the Company. The Company shall pay any
Gross-Up Payment, as determined pursuant to this Section 9(b), to Executive
within five days after the receipt by the Company of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and the Company shall
pay such Underpayment promptly to or for the benefit of the Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Executive is informed in writing of such
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claim and shall apprise the Company of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) Give the Company any information reasonably requested
by it relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order to
contest such claim effectively, and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
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with such contests and, at their sole discretion, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the control by the Company of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refunds. If , after the receipt by Executive of an amount
advanced by the Company pursuant to Section 9(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
compliance by Company with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an
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amount advanced by the Company pursuant to Section 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. FULL SETTLEMENT
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(iv), such amounts shall not be reduced whether or not Executive obtains
other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as defined and any successor to its business
and/or assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of the Executive's choice
who is selected by the method described in the next three sentences. The first
step of the selection shall consist of the Executive submitting a list of five
potential arbitrators to the Company. Each of the five arbitrators must be
either (1) a member of the National Academy of Arbitrators located in the State
of California or (2) a retired California
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Superior Court or Appellate Court judge. Within two weeks after receipt of the
list, the Company shall select one of the five arbitrators as the arbitrator for
the dispute in question. If the Company fails to select an arbitrator in a
timely manner, the Executive shall then designate one of the five arbitrators as
the arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company has breached this Agreement,
he or she shall order the Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall be final and binding upon
the parties. The award may be enforced in any appropriate court as soon as
possible after it is rendered. If an action is brought to confirm the award,
both the Company and the Executive agree that no appeal shall be taken by either
party from any decision rendered in such action.
(e) The Company will be considered the prevailing party in a
dispute if the arbitrator determines that the Company has not breached this
Agreement. Otherwise, the Executive will be considered the prevailing party. In
the event that the Company is the prevailing party, the fee of the arbitrator
and all necessary expenses of the hearing (excluding any attorneys'
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fees incurred by the Company) including stenographic reporter, if employed,
shall be paid by the Executive. In the event that Executive is the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(including all attorneys' fees incurred by the Executive), including the fees of
a stenographic reporter if employed, shall be paid by the Company.
13. GOVERNING LAW
The laws of California shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement
shall be in writing and shall be hand delivered to the other party or sent by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
If to the Company: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
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or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have under this Agreement, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company prior to the
Change in Control Date is "at will" and, prior to the Change in Control Date,
the Executive's employment may be terminated by either the Executive or the
Company at any time, in which case the Executive shall have no
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further rights under this Agreement. From and after the Change in Control Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first written above in
Los Angeles, California.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
--------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ James B. Gallagher
----------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the
"Agreement") is dated as of October 25, 1999, is entered into by and between
Donald K. Saddoris (the "Executive") and Southern California Water Company, a
California corporation (the "Company"), and amends and restates in its entirety
the Change-in-Control Agreement dated as of October 27, 1998 among the Executive
and the Company.
RECITALS
The Company considers it essential to the best interest of the
Company and its shareholders that the Executive be encouraged to remain with the
Company and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company, and
for other good and valuable consideration, the Board of Directors of the Company
has, at the recommendation of its Compensation Committee, caused the Company to
enter into this Agreement.
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TERMS AND CONDITIONS
The Executive and the Company hereby agree to the following terms
and conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or
before the expiration date of this Agreement and while the Executive is still an
employee of the Company, then this Agreement will continue in effect for two
years from the date of such Change in Control and, if the Executive's employment
with the Company is terminated within such two-year period, this Agreement shall
thereafter continue in effect until all of the obligations of the Company under
this Agreement shall have been fulfilled. If no Change in Control occurs on or
before December 31, 2000, this Agreement shall expire; provided, however that
this Agreement shall be automatically extended for an additional two years to
December 31, 2002 if (i) a plan or agreement for a Change in Control has been
approved by the Board of Directors of the Company or American States Water
Company, a California corporation ("AWR"), on or before the expiration date, or
(ii) the Company has not delivered to you or you shall have not delivered to the
Company written notice at least 60 days prior to the expiration date that such
expiration date shall not be so extended. This Agreement shall continue to be
automatically extended for an additional two-year period and each succeeding
two-year period if a plan or agreement for a Change in Control has been approved
by the Board of Directors of the Company or AWR or the Company or the Executive
fails to give the notices by the time and in the manner described in this
Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company is terminated after approval by the
Board of Directors of the Company or AWR of a plan or agreement for a Change in
Control but prior to the date on which the Change in Control occurs, the "Change
in Control Date" shall mean the date immediately preceding the date of such
termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or AWR,
unless its business is continued by another entity in which holders of AWR's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or AWR, unless its business is continued by another entity in which
holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving entity's
voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or AWR within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt,
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the Executive shall not have returned to full-time performance of his or her
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from his or her duties with the Company on a full-time basis for
180 consecutive business days as a result of a physical or mental condition
which prevents the Executive from performing the Executive's normal duties of
employment and which is (i) determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative and/or (ii) entitles the Executive to the
payment of long-term disability benefits from the Company's or AWR's long-term
disability plan commencing no later than the Disability Effective Date.
(b) Cause: The Company may terminate the Executive's employment
other than for Cause or Disability during the Effective Period as provided in
Section 6(a). The Company may also terminate the Executive's employment during
the Effective Period for Cause. For purposes of this Agreement, "Cause" shall be
limited to the following:
(i) the Executive's failure to render services to the
Company where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company,
or
(iii) the Executive's conviction of a felony or other
crime involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as in effect on the Change
in Control Date, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to reappoint the Executive
to a position held by the Executive on the Change in Control
Date, except as a result of the termination of the Executive's
employment by the Company for Cause or Disability, the death of
the Executive, or the termination of the Executive's employment
by the Executive other than for Good Reason;
(iii) reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time;
(iv) the taking of any action by the Company (including
the elimination of benefit plans without providing substitutes
therefore or the reduction of the Executive's benefits
thereunder) that would substantially diminish the aggregate value
of the Executive's incentive awards and other fringe benefits
including the
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executive benefits and perquisites from the levels in effect
prior to the Change in Control Date;
(v) the Company's requiring the Executive to be based at
any office or location which increases the distance from the
Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company shall terminate the Executive's employment other than for Cause or
Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company agrees,
subject to Section 8, to make the payments and provide the benefits described
below:
(i) The Company shall pay to the Executive in a cash lump
sum within 10 days from the date of the Executive's termination
of employment an amount equal to the product of (A) and (B),
where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company shall also pay to the Executive in a cash
lump sum within 10 days from the date of termination an amount
equal to the sum of (A) Executive's base salary through the date
of termination, plus (B) any
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compensation previously deferred by the Executive (together with
any accrued earnings or interest thereon), plus (C) any accrued
vacation pay, in each case to the extent not theretofore paid
(the amounts referred to in this paragraph (ii) are hereinafter
referred to as the "Accrued Obligations").
(iii) The Company shall also pay to the Executive in a
cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the
Executive's accrued benefits under the terms of the Southern
California Water Company Pension Plan (or any successor thereto),
including any supplemental retirement plan providing additional
pension benefits, (hereinafter together referred to as the
"Pension Plan") at time of the Executive's termination of
employment, without regard to whether such benefits are "vested"
thereunder, if the Executive were credited with an additional two
years of continuous service after the termination of Executive's
employment with the Company at the Executive's highest annual
rate of compensation covered by such Pension Plan within the
three years preceding the date of the termination of the
Executive's employment with the Company and (B) is equal to the
single sum actuarial equivalent of the Executive's accrued
benefits under the Pension Plan at the time of the Executive's
termination of employment. The payment under this paragraph (iii)
shall not extinguish any rights the Executive has to benefits
under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the Pension Plan for determining the
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actuarial equivalence of different annuity forms of benefits. In
no event shall the additional two years of continuous service
referred to above cause the Executive to be deemed to be older
than the Executive's actual age for any purpose under this
Agreement.
(iv) For two years after the Executive's date of
termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue to provide welfare benefits and fringe
benefits and other perquisites to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them if the Executive's employment had not been
terminated (in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliates
applicable generally to other peer executives and their families
immediately preceding the date of the Executive's termination of
employment); provided, however, that if the Executive becomes
employed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the
date of termination of employment and to have retired on the last
day of such period. Following the period of
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continued benefits referred to in this subsection, the Executive
and the Executive's family shall be given the right provided in
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"), to elect to continue benefits in all group medical
plans. In the event that the Executive's participation in any of
the plans, programs, practices or policies of the Company
referred to in this subsection is barred by the terms of such
plans, programs, practices or policies, the Company shall provide
the Executive with benefits substantially similar to those which
the Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company
and relating specifically to the Executive.
(v) The Company shall enable the Executive to purchase, at
the end of the Effective Period, the automobile, if any, provided
by the Company for the Executive's use at the time of the
Executive's termination of employment at the wholesale value of
such automobile at such time, as shown in the current addition of
the National Auto Research Publication Blue Book. At the
Executive's election, the Executive may retain any existing club
memberships of the Executive purchased by the Company upon
reimbursement to the Company of any membership costs paid by the
Company.
(vi) To the extent not theretofore paid or provided, the
Company shall timely pay or provide the Executive any other
amounts or benefits required to be
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paid or provided or which the Executive is eligible to receive
under any plan, program, policy, practice, contract or agreement
of the Company and its affiliates (such other amounts and
benefits being hereinafter referred to as "Other Benefits") in
accordance with the terms of such plan, program, policy,
practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section
6(a) at the applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates
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employment during the Effective Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and any benefits payable to Executive under a
plan, policy, practice, etc., referred to in Section 7 below. Accrued
Obligations shall be paid to the Executive in a cash lump sum within 60 days of
the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if
any payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company or another
entity or person, would not be deductible by the Company due to limitations
imposed by Section 162(m) of the Code, then such payments or benefits shall be
deferred to the extent necessary until such time as such payments would be
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deductible under Section 162(m) of the Code. Either the Company or the Executive
may request a determination as to whether any payments would be subject to
limitations on deductibility under Section 162(m) of the Code and, if so
requested, such determination shall be made by independent legal counsel
selected by the Company and approved by the Executive. Payment may be delayed
pending any such determination, provided that the Executive shall be entitled to
interest on any delayed payment at the applicable Federal Rate provided for in
Section 7872(f)(2)(A) of the Code. The Executive shall also be entitled to
interest on any payments deferred as a result of the limitations on
deductibility under Section 162(m) of the Code at the applicable Federal Rate
provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
under this Section 9(a)) (a "Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payments.
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(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days after such determinations
are requested by Executive or the Company. All fees and expenses of the
Accounting Firm shall be born solely by the Company. The Company shall pay any
Gross-Up Payment, as determined pursuant to this Section 9(b), to Executive
within five days after the receipt by the Company of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and the Company shall
pay such Underpayment promptly to or for the benefit of the Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Executive is informed in writing of such
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claim and shall apprise the Company of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) Give the Company any information reasonably requested
by it relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order to
contest such claim effectively, and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
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with such contests and, at their sole discretion, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the control by the Company of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 9(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
compliance by Company with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an
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amount advanced by the Company pursuant to Section 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. FULL SETTLEMENT
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(iv), such amounts shall not be reduced whether or not Executive obtains
other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as defined and any successor to its business
and/or assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of the Executive's choice
who is selected by the method described in the next three sentences. The first
step of the selection shall consist of the Executive submitting a list of five
potential arbitrators to the Company. Each of the five arbitrators must be
either (1) a member of the National Academy of Arbitrators located in the State
of California or (2) a retired California
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Superior Court or Appellate Court judge. Within two weeks after receipt of the
list, the Company shall select one of the five arbitrators as the arbitrator for
the dispute in question. If the Company fails to select an arbitrator in a
timely manner, the Executive shall then designate one of the five arbitrators as
the arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company has breached this Agreement,
he or she shall order the Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall be final and binding upon
the parties. The award may be enforced in any appropriate court as soon as
possible after it is rendered. If an action is brought to confirm the award,
both the Company and the Executive agree that no appeal shall be taken by either
party from any decision rendered in such action.
(e) The Company will be considered the prevailing party in a
dispute if the arbitrator determines that the Company has not breached this
Agreement. Otherwise, the Executive will be considered the prevailing party. In
the event that the Company is the prevailing party, the fee of the arbitrator
and all necessary expenses of the hearing (excluding any attorneys'
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fees incurred by the Company) including stenographic reporter, if employed,
shall be paid by the Executive. In the event that Executive is the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(including all attorneys' fees incurred by the Executive), including the fees of
a stenographic reporter if employed, shall be paid by the Company.
13. GOVERNING LAW
The laws of California shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement
shall be in writing and shall be hand delivered to the other party or sent by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
If to the Company: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
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or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have under this Agreement, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company prior to the
Change in Control Date is "at will" and, prior to the Change in Control Date,
the Executive's employment may be terminated by either the Executive or the
Company at any time, in which case the Executive shall have no
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further rights under this Agreement. From and after the Change in Control Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first written above in
Los Angeles, California.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
--------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ Donald K. Saddoris
----------------------------------------
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AMENDED AND RESTATED CHANGE-IN-CONTROL AGREEMENT
This Amended and Restated Change-in-Control Agreement (the
"Agreement") is dated as of October 25, 1999, is entered into by and between
Joseph F. Young (the "Executive") and Southern California Water Company, a
California corporation (the "Company"), and amends and restates in its entirety
the Change-in-Control Agreement dated as of October 27, 1998 among the Executive
and the Company.
RECITALS
The Company considers it essential to the best interest of the
Company and its shareholders that the Executive be encouraged to remain with the
Company and continue to devote full attention to the Company's business
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined in Section 3). The Company believes that it is in the best interest of
the Company and its shareholders to reinforce and encourage the continued
attention and dedication of the Executive and to diminish inevitable
distractions arising from the possibility of a Change in Control. Accordingly,
to assure the Company that it will have the Executive's undivided attention and
services notwithstanding the possibility, threat or occurrence of a Change in
Control, and to induce the Executive to remain in the employ of the Company, and
for other good and valuable consideration, the Board of Directors of the Company
has, at the recommendation of its Compensation Committee, caused the Company to
enter into this Agreement.
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TERMS AND CONDITIONS
The Executive and the Company hereby agree to the following terms
and conditions:
1. TERM OF AGREEMENT
If a Change in Control (as defined in Section 3) occurs on or
before the expiration date of this Agreement and while the Executive is still an
employee of the Company, then this Agreement will continue in effect for two
years from the date of such Change in Control and, if the Executive's employment
with the Company is terminated within such two-year period, this Agreement shall
thereafter continue in effect until all of the obligations of the Company under
this Agreement shall have been fulfilled. If no Change in Control occurs on or
before December 31, 2000, this Agreement shall expire; provided, however that
this Agreement shall be automatically extended for an additional two years to
December 31, 2002 if (i) a plan or agreement for a Change in Control has been
approved by the Board of Directors of the Company or American States Water
Company, a California corporation ("AWR"), on or before the expiration date, or
(ii) the Company has not delivered to you or you shall have not delivered to the
Company written notice at least 60 days prior to the expiration date that such
expiration date shall not be so extended. This Agreement shall continue to be
automatically extended for an additional two-year period and each succeeding
two-year period if a plan or agreement for a Change in Control has been approved
by the Board of Directors of the Company or AWR or the Company or the Executive
fails to give the notices by the time and in the manner described in this
Section 1.
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2. CHANGE IN CONTROL DATE
The "Change in Control Date" shall mean the first date during the
term of this Agreement on which a Change in Control (as defined in Section 3)
occurs; provided, however, that if a Change in Control occurs and if the
Executive's employment with the Company is terminated after approval by the
Board of Directors of the Company or AWR of a plan or agreement for a Change in
Control but prior to the date on which the Change in Control occurs, the "Change
in Control Date" shall mean the date immediately preceding the date of such
termination.
3. CHANGE IN CONTROL
A "Change in Control" shall mean any of the following events:
(a) the dissolution or liquidation of either the Company or AWR,
unless its business is continued by another entity in which holders of AWR's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(b) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of either the
Company or AWR, unless its business is continued by another entity in which
holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's voting
securities immediately after the event;
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(c) any reorganization or merger of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving entity's
voting securities immediately after the event;
(d) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company or AWR, unless
the holders of AWR's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(e) a change of one-half or more of the members of the Board of
Directors of the Company or AWR within a twelve-month period, unless the
election or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the vote
of at least two-thirds of the directors then still in office who were in office
at the beginning of the twelve-month period.
4. EFFECTIVE PERIOD
For the purpose of this Agreement, the "Effective Period" is the
period commencing on the Change in Control Date and ending on the date this
Agreement terminates.
5. TERMINATION OF EMPLOYMENT
(a) Death or Disability: The Executive's employment shall
terminate automatically upon the Executive's death. If the Disability (as
defined below) of the Executive occurs during the Effective Period, the Company
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt,
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the Executive shall not have returned to full-time performance of his or her
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from his or her duties with the Company on a full-time basis for
180 consecutive business days as a result of a physical or mental condition
which prevents the Executive from performing the Executive's normal duties of
employment and which is (i) determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative and/or (ii) entitles the Executive to the
payment of long-term disability benefits from the Company's or AWR's long-term
disability plan commencing no later than the Disability Effective Date.
(b) Cause: The Company may terminate the Executive's employment
other than for Cause or Disability during the Effective Period as provided in
Section 6(a). The Company may also terminate the Executive's employment during
the Effective Period for Cause. For purposes of this Agreement, "Cause" shall be
limited to the following:
(i) the Executive's failure to render services to the
Company where such failure amounts to gross neglect or gross
misconduct of the Executive's responsibility and duties,
(ii) the Executive's commission of an act of fraud or
dishonesty against the Company or any affiliate of the Company,
or
(iii) the Executive's conviction of a felony or other
crime involving moral turpitude.
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(c) Good Reason: The Executive's employment may be terminated by
the Executive during the Effective Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as in effect on the Change
in Control Date, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to reappoint the Executive
to a position held by the Executive on the Change in Control
Date, except as a result of the termination of the Executive's
employment by the Company for Cause or Disability, the death of
the Executive, or the termination of the Executive's employment
by the Executive other than for Good Reason;
(iii) reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time-to-time; (iv) the taking of any action by the
Company (including the elimination of benefit plans without
providing substitutes therefore or the reduction of the
Executive's benefits thereunder) that would substantially
diminish the aggregate value of the Executive's incentive awards
and other fringe benefits including the
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executive benefits and perquisites from the levels in effect
prior to the Change in Control Date;
(v) the Company's requiring the Executive to be based at
any office or location which increases the distance from the
Executive's home to the office location by more than 35 miles
from the distance in effect as of the Change in Control Date;
(vi) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Good Reason, Other Than for Cause or Disability: If the
Company shall terminate the Executive's employment other than for Cause or
Disability during the Effective Period, or the Executive shall terminate
employment for Good Reason during the Effective Period, the Company agrees,
subject to Section 8, to make the payments and provide the benefits described
below:
(i) The Company shall pay to the Executive in a cash lump
sum within 10 days from the date of the Executive's termination
of employment an amount equal to the product of (A) and (B),
where (A) is 2.99 and (B) is the Executive's annual base salary
at the highest of the rate in effect at any time during the three
years preceding the date of termination.
(ii) The Company shall also pay to the Executive in a cash
lump sum within 10 days from the date of termination an amount
equal to the sum of (A) Executive's base salary through the date
of termination, plus (B) any
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compensation previously deferred by the Executive (together with
any accrued earnings or interest thereon), plus (C) any accrued
vacation pay, in each case to the extent not theretofore paid
(the amounts referred to in this paragraph (ii) are hereinafter
referred to as the "Accrued Obligations").
(iii) The Company shall also pay to the Executive in a
cash lump sum within 10 days from the date of termination an
amount equal to the excess of (A) over (B), where (A) is equal to
the single sum actuarial equivalent of what would be the
Executive's accrued benefits under the terms of the Southern
California Water Company Pension Plan (or any successor thereto),
including any supplemental retirement plan providing additional
pension benefits, (hereinafter together referred to as the
"Pension Plan") at time of the Executive's termination of
employment, without regard to whether such benefits are "vested"
thereunder, if the Executive were credited with an additional two
years of continuous service after the termination of Executive's
employment with the Company at the Executive's highest annual
rate of compensation covered by such Pension Plan within the
three years preceding the date of the termination of the
Executive's employment with the Company and (B) is equal to the
single sum actuarial equivalent of the Executive's accrued
benefits under the Pension Plan at the time of the Executive's
termination of employment. The payment under this paragraph (iii)
shall not extinguish any rights the Executive has to benefits
under the Pension Plan. For purposes of this paragraph,
"actuarial equivalent" shall be determined using the actuarial
assumptions used under the Pension Plan for determining the
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actuarial equivalence of different annuity forms of benefits. In
no event shall the additional two years of continuous service
referred to above cause the Executive to be deemed to be older
than the Executive's actual age for any purpose under this
Agreement.
(iv) For two years after the Executive's date of
termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue to provide welfare benefits and fringe
benefits and other perquisites to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them if the Executive's employment had not been
terminated (in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliates
applicable generally to other peer executives and their families
immediately preceding the date of the Executive's termination of
employment); provided, however, that if the Executive becomes
employed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the
date of termination of employment and to have retired on the last
day of such period. Following the period of
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continued benefits referred to in this subsection, the Executive
and the Executive's family shall be given the right provided in
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"), to elect to continue benefits in all group medical
plans. In the event that the Executive's participation in any of
the plans, programs, practices or policies of the Company
referred to in this subsection is barred by the terms of such
plans, programs, practices or policies, the Company shall provide
the Executive with benefits substantially similar to those which
the Executive would be entitled as a participant in such plans,
programs, practices or policies. At the end of the period of
coverage, the Executive shall have the option to have assigned to
the Executive, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Company
and relating specifically to the Executive.
(v) The Company shall enable the Executive to purchase, at
the end of the Effective Period, the automobile, if any, provided
by the Company for the Executive's use at the time of the
Executive's termination of employment at the wholesale value of
such automobile at such time, as shown in the current addition of
the National Auto Research Publication Blue Book. At the
Executive's election, the Executive may retain any existing club
memberships of the Executive purchased by the Company upon
reimbursement to the Company of any membership costs paid by the
Company.
(vi) To the extent not theretofore paid or provided, the
Company shall timely pay or provide the Executive any other
amounts or benefits required to be
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paid or provided or which the Executive is eligible to receive
under any plan, program, policy, practice, contract or agreement
of the Company and its affiliates (such other amounts and
benefits being hereinafter referred to as "Other Benefits") in
accordance with the terms of such plan, program, policy,
practice, contract or agreement.
(vii) The Executive shall be entitled to interest on any
payments not paid on a timely basis as provided in this Section
6(a) at the applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) Death: If the Executive's employment is terminated by reason
of the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a cash lump sum
within 10 days of the date of the Executive's death.
(c) Disability: If the Executive's employment is terminated by
reason of the Executive's Disability during the Effective Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a cash lump sum
within 30 days of the Executive's termination of employment.
(d) Cause, Other than for Good Reason: If the Executive's
employment shall be terminated for Cause during the Effective Period or, if the
Executive voluntarily terminates
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employment during the Effective Period, excluding a termination for Good Reason,
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and any benefits payable to Executive under a
plan, policy, practice, etc., referred to in Section 7 below. Accrued
Obligations shall be paid to the Executive in a cash lump sum within 60 days of
the Executive's termination of employment.
7. NON-EXCLUSIVITY OF RIGHTS
Subject to Section 8, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor, subject to Sections 8 and 20, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliates.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice, program, contract or agreement with
the Company or any of its affiliates at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
policy, practice, program, contract or agreement except as explicitly modified
by this Agreement.
8. LIMITATION ON BENEFITS
Notwithstanding anything in this Agreement to the contrary, if
any payments or benefits to be made to or for the Executive's benefit, whether
pursuant to this Agreement or otherwise, whether by the Company or another
entity or person, would not be deductible by the Company due to limitations
imposed by Section 162(m) of the Code, then such payments or benefits shall be
deferred to the extent necessary until such time as such payments would be
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deductible under Section 162(m) of the Code. Either the Company or the Executive
may request a determination as to whether any payments would be subject to
limitations on deductibility under Section 162(m) of the Code and, if so
requested, such determination shall be made by independent legal counsel
selected by the Company and approved by the Executive. Payment may be delayed
pending any such determination, provided that the Executive shall be entitled to
interest on any delayed payment at the applicable Federal Rate provided for in
Section 7872(f)(2)(A) of the Code. The Executive shall also be entitled to
interest on any payments deferred as a result of the limitations on
deductibility under Section 162(m) of the Code at the applicable Federal Rate
provided for in Section 7872(f)(2)(A) of the Code.
9. PARACHUTE PAYMENTS
(a) Gross-Up Payment. In the event that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
under this Section 9(a)) (a "Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payments.
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(b) Accounting Firm. Subject to the provisions of Section 9(c),
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP or such other certified public accounting firm as
may be designated by Executive and which is satisfactory to the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days after such determinations
are requested by Executive or the Company. All fees and expenses of the
Accounting Firm shall be born solely by the Company. The Company shall pay any
Gross-Up Payment, as determined pursuant to this Section 9(b), to Executive
within five days after the receipt by the Company of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and the Company shall
pay such Underpayment promptly to or for the benefit of the Executive.
(c) Internal Revenue Service Claims. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Executive is informed in writing of such
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claim and shall apprise the Company of the nature of such claim, and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) Give the Company any information reasonably requested
by it relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order to
contest such claim effectively, and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
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with such contests and, at their sole discretion, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the control by the Company of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refunds. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 9(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
compliance by Company with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an
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amount advanced by the Company pursuant to Section 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. FULL SETTLEMENT
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(iv), such amounts shall not be reduced whether or not Executive obtains
other employment.
11. SUCCESSORS
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as defined and any successor to its business
and/or assets which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. ARBITRATION
(a) Because it is agreed that time will be of the essence in
determining whether any payments are due to the Executive under this Agreement,
the Executive may submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of the Executive, and the Executive may
decide whether or not to arbitrate in his or her discretion. The "right to
select arbitration" is not mandatory on the Executive, and the Executive may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Executive
only he or she can use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: If the
Executive disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of the Executive's choice
who is selected by the method described in the next three sentences. The first
step of the selection shall consist of the Executive submitting a list of five
potential arbitrators to the Company. Each of the five arbitrators must be
either (1) a member of the National Academy of Arbitrators located in the State
of California or (2) a retired California
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Superior Court or Appellate Court judge. Within two weeks after receipt of the
list, the Company shall select one of the five arbitrators as the arbitrator for
the dispute in question. If the Company fails to select an arbitrator in a
timely manner, the Executive shall then designate one of the five arbitrators as
the arbitrator for the dispute in question.
(c) The arbitration hearing shall be held within thirty days (or
as soon thereafter as possible) after the picking of the arbitrator. No
continuance of the hearing shall be allowed without the mutual consent of the
Executive and the Company. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing procedures
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing at his or her discretion when
sufficient evidence to satisfy issuance of an award has been presented.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than thirty days after the close of the hearing.
In the event the arbitrator finds that the Company has breached this Agreement,
he or she shall order the Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall be final and binding upon
the parties. The award may be enforced in any appropriate court as soon as
possible after it is rendered. If an action is brought to confirm the award,
both the Company and the Executive agree that no appeal shall be taken by either
party from any decision rendered in such action.
(e) The Company will be considered the prevailing party in a
dispute if the arbitrator determines that the Company has not breached this
Agreement. Otherwise, the Executive will be considered the prevailing party. In
the event that the Company is the prevailing party, the fee of the arbitrator
and all necessary expenses of the hearing (excluding any attorneys'
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fees incurred by the Company) including stenographic reporter, if employed,
shall be paid by the Executive. In the event that Executive is the prevailing
party, the fee of the arbitrator and all necessary expenses of the hearing
(including all attorneys' fees incurred by the Executive), including the fees of
a stenographic reporter if employed, shall be paid by the Company.
13. GOVERNING LAW
The laws of California shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
14. CAPTIONS
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
15. AMENDMENT
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
16. NOTICES
All notices and other communications regarding this Agreement
shall be in writing and shall be hand delivered to the other party or sent by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
If to the Company: Southern California Water Company
630 East Foothill Boulevard
San Dimas, CA 91773
Attn: Secretary
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or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
17. SEVERABILITY
The lack of validity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
18. WITHHOLDING TAXES
The Company may withhold required federal, state, local or
foreign taxes from any amounts payable under this Agreement.
19. NO WAIVER
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have under this Agreement, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right under this Agreement.
20. AT-WILL EMPLOYMENT
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company prior to the
Change in Control Date is "at will" and, prior to the Change in Control Date,
the Executive's employment may be terminated by either the Executive or the
Company at any time, in which case the Executive shall have no
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further rights under this Agreement. From and after the Change in Control Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first written above in
Los Angeles, California.
SOUTHERN CALIFORNIA WATER COMPANY
By /s/ Floyd E. Wicks
--------------------------------
Title President and C.E.O.
EXECUTIVE
/s/ Joseph F. Young
----------------------------------------
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EXHIBIT 10.16
SOUTHERN CALIFORNIA WATER COMPANY PENSION RESTORATION PLAN
<PAGE> 2
SOUTHERN CALIFORNIA WATER COMPANY
PENSION RESTORATION PLAN
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.................................................................................. 1
1.1 - Title........................................................................ 1
1.2 - Purpose...................................................................... 1
1.3 - Definitions.................................................................. 1
ARTICLE II................................................................................. 2
2.1 - Eligibility Requirements..................................................... 3
ARTICLE III................................................................................ 3
3.1 - Payment...................................................................... 3
ARTICLE IV................................................................................. 3
4.1 - Retirement Benefit........................................................... 3
4.2 - Benefit Limitation........................................................... 4
4.3 - Payment of Retirement Benefits............................................... 4
4.4 - Small Benefit................................................................ 5
4.5 - Forfeiture of Benefits....................................................... 5
4.6 - Spouse Pre-Retirement Death Benefit.......................................... 5
ARTICLE V.................................................................................. 6
5.1 - Committee.................................................................... 6
5.2 - Agents....................................................................... 6
5.3 - Binding Effect of Decisions.................................................. 7
5.4 - Indemnity.................................................................... 7
5.5 - Claim Procedure.............................................................. 7
ARTICLE VI................................................................................. 8
6.1 - Amendments and Termination................................................... 8
6.2 - Protection of Accrued Benefits............................................... 8
ARTICLE VII................................................................................ 9
7.1 - Unfunded Plan................................................................ 9
7.2 - Unsecured General Creditor................................................... 9
7.3 - Trust Fund................................................................... 10
7.4 - Nonassignability............................................................. 10
7.5 - Limitation on Participants' Rights........................................... 10
7.6 - Participants Bound........................................................... 11
7.7 - Receipt and Release.......................................................... 11
7.8 - Federal Law Governs.......................................................... 11
7.9 - Headings and Subheadings..................................................... 12
7.10 - Successors and Assigns..................................................... 12
</TABLE>
<PAGE> 4
SOUTHERN CALIFORNIA WATER COMPANY
PENSION RESTORATION PLAN
THIS PLAN is adopted, effective the 1st day of January, 1997, by
SOUTHERN CALIFORNIA WATER COMPANY, a California corporation ("Company"), and
evidences the terms of a Pension Restoration Plan for certain executives.
W I T N E S S E T H
ARTICLE I
TITLE, PURPOSE AND DEFINITIONS
1.1 - Title.
This plan shall be known as the "Southern California Water Company
Pension Restoration Plan."
1.2 - Purpose.
The purpose of this Plan is to supplement retirement benefits payable to
certain participants in the Southern California Water Company Pension Plan, as
amended and in effect from time to time ("Pension Plan") by making up benefits
which are reduced by virtue of Sections 401(a)(17) or 415 of the Internal
Revenue Code of 1986. No payment shall be made under this Plan which duplicates
a benefit payable under any other deferred compensation plan or employment
agreement of the Company.
1.3 - Definitions.
<PAGE> 5
Unless defined herein, any word, phrase or term used in this Plan
with initial capitals shall have the meaning given therefor in the Pension Plan.
"Company" means Southern California Water Company or any
successor corporation by merger, consolidation, or otherwise.
"Employer" means the Company and any subsidiary or any other
member of its consolidated group (for federal tax purposes) designated by the
Board of Directors to participate in the Plan.
"Eligible Employee" means each individual who meets each of the
following requirements: (1) he or she is an officer of the Employer; (2) he or
she is a participant in the Pension Plan; (3) his or her Pension Plan benefits
are reduced by the application of Sections 401(a)(17) or 415 of the Code; and
(4) he or she is designated as an Eligible Employee by the Board of Directors.
"Participant" means any Eligible Employee who is eligible for
participation in this Plan as specified in Section 2.1.
"Plan" means the Southern California Water Company Pension
Restoration Plan as set forth in this Agreement and all subsequent amendments
hereto.
"Plan Year" means the calendar year.
ARTICLE II
PARTICIPATION
2
<PAGE> 6
2.1 - Eligibility Requirements.
An Employee who is an Eligible Employee shall become a Participant on
the later of the date he or she becomes vested under the Pension Plan or becomes
an Eligible Employee.
ARTICLE III
PAYMENT OF BENEFITS
3.1 - Payment.
There shall be no funding of any benefit which may become payable
hereunder. The Company may, but is not obligated to, invest in any assets or in
life insurance policies which it deems desirable to provide assets for payments
under this Plan but all such assets or life insurance policies shall remain the
general assets of the Company. In connection with any such investments and as a
condition of further participation in this Plan, Participants shall execute any
documentation reasonably requested by the Company.
ARTICLE IV
RETIREMENT BENEFITS
4.1 - Retirement Benefit.
Subject to Section 4.3, a Participant's retirement benefit under this
Plan shall equal the excess of A over B where:
3
<PAGE> 7
A equals the Participant's vested retirement benefit under the Pension
Plan, commencing on the date benefits commence under the Pension Plan,
and payable in form of benefit elected by the Participant (and spouse,
if applicable) under the Pension Plan, calculated by ignoring Sections
401(a)(17) and 415 of the Code (and the Pension Plan provisions
implementing those Code sections), and
B equals the vested retirement benefit actually payable under the
Pension Plan, commencing on the date benefits commence under the Pension
Plan, and payable in form of benefit elected by the Participant (and
spouse, if applicable) under the Pension Plan.
4.2 - Benefit Limitation.
Notwithstanding any other provisions of the Plan, in the event that any
benefit provided under this agreement would, in the opinion of counsel for the
Company, not be deductible in whole or in part in the calculation of the federal
income tax of the Company by reason of Section 280G of the Internal Revenue Code
of 1986 (the "Code"), the aggregate benefits provided hereunder shall be reduced
so that no portion of any amount which is paid to the Participant or Beneficiary
is not deductible for tax purposes by reason of Section 280G of the Code.
4.3 - Payment of Retirement Benefits.
Upon a Participant's commencement of benefits under the Pension Plan,
the Employer shall commence to pay to such retired Participant (or beneficiary,
if applicable, after
4
<PAGE> 8
the Participant's death) the monthly retirement benefit to which the Participant
is entitled under this Plan, commencing on the date benefits commence under the
Pension Plan, and payable in form of benefit elected by the Participant (and
spouse, if applicable) under the Pension Plan. No benefits shall be payable
under this Plan while the Participant is an Employee.
4.4 - Small Benefit.
Notwithstanding any other provision or provisions of this Plan to the
contrary, if any benefit hereunder is for an amount of less than fifty dollars
per month, such benefit shall instead be paid in a lump sum which is the
Actuarial Equivalent of such monthly benefit.
4.5 - Forfeiture of Benefits.
Notwithstanding any provision of this Plan to the contrary, no benefits
shall be payable under this Plan with respect to any Participant if the
Participant confesses to, is convicted of, or pleads no contest to, any act of
fraud, theft or dishonesty arising in the course of, or in connection with, his
or her employment with the Employer.
4.6 - Spouse Pre-Retirement Death Benefit.
If a Participant's spouse is entitled to a pre-retirement death benefit
under Section 4.12 of the Pension Plan, the monthly benefit, if any, payable
upon the death of a Participant to the Participant's spouse, commencing upon the
date that monthly benefits to such spouse commence under Section 4.12 of the
Pension Plan and payable for the period such benefit is payable under the
Pension Plan, shall be equal to the excess, if any, of:
5
<PAGE> 9
(a) The monthly death benefit determined in accordance with Section 4.12
of the Pension Plan, calculated by ignoring Sections 401(a)(17) and 415
of the Code (and the Pension Plan provisions implementing those Code
sections),
over
(b) The amount of the monthly spouse death benefit payable to the
Participant's spouse pursuant to Section 4.12 of the Pension Plan.
No benefits under this Section 4.7 shall be paid if the benefits payable
pursuant to any other provisions of this Article IV have already commenced.
ARTICLE V
COMMITTEE
5.1 - Committee.
This Plan shall be administered by the Committee. The Committee shall
have the authority to (i) make, amend, interpret, and enforce all appropriate
rules and regulations for the administration of this Plan and (ii) decide or
resolve any and all questions, including interpretations and constructions of
this Plan as may arise in connection with the Plan. The Committee shall also
have all rights and duties set forth in Section 6.3 of the Pension Plan. The
Committee shall have full discretion to construe and interpret the terms and
provisions of this Plan. The Committee members may be Participants under this
Plan.
5.2 - Agents.
6
<PAGE> 10
The Committee may, from time to time, employ other agents and delegate
to them such administrative duties as it sees fit, and may from time to time
consult with counsel who may be counsel to the Company.
5.3 - Binding Effect of Decisions.
The decision or action of the Committee in respect of any questions
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and conclusive and binding upon all persons having any interest
in the Plan.
5.4 - Indemnity.
To the extent permitted by applicable federal and state laws the Company
shall indemnify and save harmless the Board of Directors, the Committee and each
member of each thereof, and any employee appointed pursuant to Section 5.2,
against any and all expenses, liabilities and claims, including legal fees to
defend against such liabilities and claims, arising out of their discharge in
good faith of responsibilities under or incident to the Plan, excepting only
expenses and liabilities arising out of willful misconduct or gross negligence.
This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by the Company or provided by the Company under any
Bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
as such indemnities are permitted under state law.
5.5 - Claim Procedure.
7
<PAGE> 11
The entire claim procedure set forth in Section 6.3(g) of the Pension
Plan, as amended from time to time, is hereby incorporated by reference.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 - Amendments and Termination.
The Company shall have the right to amend this Plan (and to amend or
cancel any amendments) from time to time by resolution of the Board of
Directors. Such amendment shall be stated in an instrument in writing, executed
by the Company in the same manner as this Plan. The Company also reserves the
right to terminate this Plan at any time by resolution of the Board of
Directors.
6.2 - Protection of Accrued Benefits.
This Plan is strictly a voluntary undertaking on the part of the Company
and shall not be deemed to constitute a contract between the Company and any
Eligible Employee (or any other employee) or a consideration for, or an
inducement or condition of employment for the performance of services by any
Eligible Employee or employee. Although the Company reserves the right to amend
or terminate this Plan at any time and, subject at all times to the provisions
of Section 4.3, no such amendment or termination shall result in the forfeiture
of benefits accrued pursuant to this Plan as of the date of termination. The
benefits accrued at that time shall be the lesser of (1) the benefit that would
be payable if the Participant terminated employment on the date of
8
<PAGE> 12
termination, or (2) the benefit that would be payable at actual retirement under
the Pension Plan (or death, if earlier) if this Plan were terminated.
ARTICLE VII
MISCELLANEOUS
7.1 - Unfunded Plan.
All benefits due under this Plan to a Participant shall be paid by the
Employer that employed that Participant. This Plan is intended to be an unfunded
plan maintained primarily to provide deferred compensation benefits for a select
group of "management or highly compensated employees" within the meaning of
Section 201, 301 and 401 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and therefore to be exempt from the provisions of Parts 2,
3 and 4 of Title I of ERISA.
7.2 - Unsecured General Creditor.
In the event of an Employer's insolvency, Participants and their
Beneficiaries, heirs, successors and assigns shall have no legal or equitable
rights, interest or claims in any property or assets of Employer, nor shall they
be beneficiaries of, or have any rights, claims or interest in any life
insurance policies, annuity contracts or the proceeds therefrom owned or which
may be acquired by Employer. In that event, any and all of Employer's assets and
policies shall be, and remain, unrestricted by the provisions of this Plan. An
Employer's obligation under the Plan shall be that of an unfunded and unsecured
promise of Employer to pay money in the future.
9
<PAGE> 13
7.3 - Trust Fund.
Each Employer shall be responsible for the payment of all benefits
provided under the Plan to Participants employed by it. At its discretion, the
Company may establish one or more trusts, with such trustees as the Board may
approve, for the purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Company's creditors. To the extent any benefits provided under
the Plan are actually paid from any such trust, the Employer shall have no
further obligation with respect thereto, but to the extent not so paid, such
benefits shall remain the obligation of, and shall be paid by, the Employer.
7.4 - Nonassignability.
None of the benefits, payments, proceeds or claims of any Participant or
Beneficiary shall be subject to any claim of any creditor and, in particular,
the same shall not be subject to attachment or garnishment or other legal
process by any creditor, nor shall any Participant or Beneficiary have any right
to alienate, anticipate, commute, pledge, encumber or assign any of the benefits
or payments or proceeds which he may expect to receive, contingently or
otherwise, under this agreement.
7.5 - Limitation on Participants' Rights.
Participation in this Plan shall not give any Eligible Employee the
right to be retained in the Employer's employ or any right or interest in the
Plan other than as herein
10
<PAGE> 14
provided. The Employer reserves the right to dismiss any Eligible Employee
without any liability for any claim against the Employer, except to the extent
provided herein.
7.6 - Participants Bound.
Any action with respect to this Plan taken by the Committee or by the
Company, or any action authorized by or taken at the direction of the Committee
or the Company, shall be conclusive upon all Participants and Beneficiaries
entitled to benefits under the Plan.
7.7 - Receipt and Release.
Any payment to any Participant or Beneficiary in accordance with the
provisions of this Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Employer and the Committee, and the Committee may require
such Participant or Beneficiary, as a condition precedent to such payment, to
execute a receipt and release to such effect. If any Participant or Beneficiary
is determined by the Committee to be incompetent by reason of physical or mental
disability (including minority) to give a valid receipt and release, the
Committee may cause the payment or payments becoming due to such person to be
made to another person for his or her benefit without responsibility on the part
of the Committee or the Company to follow the application of such funds.
7.8 - Federal Law Governs.
This Plan shall be construed, administered, and governed in all respects
under federal law (except as otherwise provided by Section 5.4), and to the
extent that federal law is inapplicable, under the laws of the State of
California, provided, however, that if any provision is
11
<PAGE> 15
susceptible to more than one interpretation, such interpretation shall be given
thereto as consistent with this Plan being an unfunded plan described in Section
7.1. If any provision shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof shall continue to be
fully effective.
7.9 - Headings and Subheadings.
Headings and subheadings in this agreement are inserted for convenience
of records only and are not to be considered in the construction of the
provisions hereof.
7.10 - Successors and Assigns.
This agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their successors and assigns.
12
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused these presents to be executed
by its duly authorized officers and the corporate seal to be hereunto affixed
this ____ day of ________________, 1997.
SOUTHERN CALIFORNIA WATER COMPANY
By ________________________________
By ________________________________
13
<PAGE> 1
EXHIBIT 10.17
AMERICAN STATES WATER COMPANY ANNUAL INCENTIVE PLAN
<PAGE> 2
AMERICAN STATES WATER COMPANY
ANNUAL INCENTIVE PLAN
<PAGE> 3
AMERICAN STATES WATER COMPANY
ANNUAL INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE PLAN............................................................... I-1
1.1 Purpose................................................................ I-1
1.2 Definitions............................................................ I-1
1.3 Administration and Authorization; Power and Procedure.................. I-3
1.4 Payment/Grant of Awards................................................ I-4
1.5 Non-Transferability.................................................... I-4
1.6 Beneficiary Designation................................................ I-4
ARTICLE II AWARDS................................................................. II-1
2.1 Award Determination.................................................... II-1
2.2 Vesting................................................................ II-2
2.3 Award Payment.......................................................... II-2
2.4 Acceleration of Awards upon Change in Control.......................... II-2
ARTICLE III OTHER PROVISIONS....................................................... III-1
3.1 Rights of Eligible Employees, Participants and Beneficiaries........... III-1
3.2 Compliance with Laws................................................... III-1
3.3 Withholding; Payroll Taxes............................................. III-1
3.4 Plan Amendment, Termination and Suspension............................. III-1
3.5 Effective Date of the Plan............................................. III-1
3.6 Governing Law.......................................................... III-1
3.7 Captions............................................................... III-2
3.8 Terms.................................................................. III-2
3.9 Non-Exclusivity of Plan................................................ III-2
</TABLE>
<PAGE> 4
AMERICAN STATES WATER COMPANY
ANNUAL INCENTIVE PLAN
I. THE PLAN
1.1 Purpose: The purpose of this Plan is to promote the success of the
Company by contributing to a team culture, focusing attention on
increasing shareholder value, and creating an incentive program
that will support future growth.
1.2 Definitions: For purposes of this Plan, the following terms shall
have the meanings indicated below:
(a) "Actual Return on Rate Base" shall mean the Company's actual
annual rate of return on net assets included in the Company's
rate filings.
(b) "Authorized Return on Rate Base" shall mean the composite
annual rate of return on equity authorized for the Company
during the Plan Year by the California Public Utilities
Commission. The Authorized Rate of Return shall be calculated
by the Company in accordance with the rules and/or examples
approved by the Committee, and will be reviewed by the
Company's external auditors.
(c) "Award" shall mean an award of a specified amount of cash or
restricted stock to a Participant under the Plan.
(d) "Base Compensation" shall mean the salary and hourly wages,
exclusive of overtime and bonuses, paid to an Eligible
Employee during the calendar year proceeding the Determination
Date.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control Event": Shall have the meaning given such
term in the Company's 2000 Stock Incentive Plan.
(g) "Class A Managers" shall mean the managers of the Company, or
a Subsidiary, designated as Class A Managers by the Chief
Executive Officer.
(h) "Class B Managers" shall mean the managers of the Company, or
a Subsidiary, designated as Class B Managers by the Chief
Executive Officer.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(j) "Committee" shall mean the Compensation Committee of the Board
of Directors.
I-1
<PAGE> 5
(k) "Company" shall mean American States Water Company.
(l) "Consolidated Total Operating Revenues" shall be as set forth
in the Company's audited consolidated financial statements.
(m) "Determination Date" shall mean the last day of each Plan
Year.
(n) "Eligible Employee" shall mean an employee of the Company, or
a Subsidiary, designated by the Committee at the beginning of
a Plan Year as eligible to receive an Award under this Plan.
(o) "Employer" shall mean the Company, or a Subsidiary of the
Company which directly employs an Eligible Employee.
(p) "Financial Performance" shall mean the Company's Actual Return
on Rate Base as a percentage of its Authorized Return on Rate
Base.
(q) "Individual Adjustment" shall be the adjustment determined in
accordance with section 2.1(a)(iv) of this document.
(r) "Increase in Total Operating Revenues from Acquisition" shall
mean the projected increase in Consolidated Total Operating
Revenues from the Company's acquisition of another firm during
the Plan Year.
(s) "Maintenance Adjustment" shall be calculated in accordance
with section 2.1(a)(ii) of this document.
(t) "Participant" shall mean an Eligible Employee whose last
performance appraisal was satisfactory.
(u) "Personal Representative" shall mean the person or persons
who, upon the Total Disability or incompetence of a
Participant, shall have acquired on behalf of the Participant,
by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(v) "Plan" shall mean this Annual Incentive Plan.
(w) "Plan Year" shall mean the calendar year.
(x) "Restricted Stock" shall mean shares of the common stock of
the Company that are non-transferable and subject to
forfeiture upon termination of employment within a specified
period of time following the date of grant.
I-2
<PAGE> 6
(y) "Strategic Adjustment" shall be a factor based on Company
performance. At the beginning of each plan year the Committee
will establish performance criteria reflecting progress
towards the Company's strategic goals. The Committee will, at
that time, also establish the amount of the adjustment (no
more than 50% in total) to be made to Awards otherwise payable
under the Plan based on the achievement of these criteria.
(z) "Subsidiary" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company.
(aa) "Target Award" shall mean the amount equal to a Participant's
Base Compensation multiplied by a percentage determined at the
beginning of each Plan Year by the Committee.
1.3 Administration and Authorization; Power and Procedure:
(a) Committee: This Plan shall be administered by, and all
granting of Awards to Eligible Employees shall be authorized
by, the Committee. Action with respect to the administration
of this Plan shall be the sole and absolute discretion and
responsibility of the Committee.
(b) Plan Awards; Interpretation; Powers of Committee: Subject to
the express provisions of this Plan, the Committee shall have
the sole and absolute authority:
(i) to determine which employees are eligible to participate
in the Plan for a Plan Year;
(ii) to determine the amount of the Award payable to each
Participant for a Plan Year;
(iii) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and
Participants under this Plan, further define the terms
used in this Plan, and prescribe, amend and rescind
rules and regulations relating to the administration of
this Plan;
(iv) to make all other determinations and take such other
action as contemplated by this Plan or as may be
necessary or advisable for the administration of this
Plan and the effectuation of its purposes.
(c) Binding Determinations: The Committee shall have full
discretion to construe and interpret the terms and provisions
of the Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to
the Company, any Subsidiary and any Participants or
Beneficiaries. Any action taken by, or inaction of, the
I-3
<PAGE> 7
Company, or the Committee relating or pursuant to this Plan
shall be within the absolute discretion of that entity or body
and shall be conclusive and binding upon all persons. No
member of the Committee, or officer of the Company, shall be
liable for any such action or inaction of the entity or body,
of another person or, except in circumstances involving bad
faith, of himself or herself.
(d) Reliance on Experts: In making any determination or in taking
or not taking any action under this Plan, the Committee may
obtain and may rely upon the advice of experts, including
professional advisors to the Company.
(e) Delegation: The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or
employees of the Company or a Subsidiary.
(f) Absence of Liability; Indemnity: No member of the Committee,
director, officer or agent of the Company shall be liable for
any action or determination taken, made or omitted in good
faith. To the extent permitted under applicable state law, the
Company shall indemnify and hold harmless the members of the
Committee and any delegate against any and all claims, loss,
damage, expense or liability arising from any action or
failure to act with respect to this Plan, except in the case
of gross negligence or willful misconduct.
1.4 Payment/Grant of Awards: Subject to the express provisions of this
Plan, the Committee shall determine the amount of each Award.
1.5 Non-Transferability: Neither a Participant nor any other person
shall have the right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate
or convey in advance of actual receipt of the amounts, if any,
payable hereunder, or any part thereof, part thereof, which are,
and all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall, prior
to actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
1.6 Beneficiary Designation:
(a) "Beneficiary" or "Beneficiaries" shall mean the person or
persons, including a trustee, Personal Representative or other
fiduciary, last designated in writing by a Participant in
accordance with procedures established by the Committee to
receive the benefits, if any, specified hereunder in the event
of the Participant's death. No beneficiary designation shall
become effective
I-4
<PAGE> 8
until it is filed with the Committee, and no Beneficiary
designation of someone other than the Participant's spouse
shall be effective unless such designation is consented to by
the Participant's spouse on a form provided by and in
accordance with procedures established by the Committee. If
there is no valid Beneficiary designation in effect, or if
there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary. If
there is no surviving spouse to receive any benefits payable
in accordance with the preceding sentence, the duly appointed
and currently acting personal representative of the
Participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the
Beneficiary. In any case where there is no such personal
representative of the Participant's estate duly appointed and
acting in that capacity within 90 days after the Participant's
death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to
be appointed but not to exceed 180 days after the
Participant's death), then Beneficiary shall mean the person
or persons who can verify by affidavit or court order to the
satisfaction of the Committee that they are legally entitled
to receive the benefits specified hereunder. In the event any
amount is payable under the Plan to a minor, payment shall not
be made to the minor, but instead be paid (a) to that person's
living parent(s) to act as custodian, (b) if that person's
parents are then divorced, and one parent is the sole
custodial parent, to such custodial parent, or (c) if no
parent of that person is then living, to a custodian selected
by the Committee to hold the funds for the minor under the
Uniform Transfers of Gifts to Minors Act in effect in the
jurisdiction in which the minor resides. If no parent is
living and the Committee decides not to select another
custodian to hold the funds for the minor, then payment shall
be made to the duly appointed and currently acting guardian of
the estate for the minor or, if no guardian of the estate for
the minor is duly appointed and currently acting within 60
days after the date the amount becomes payable, payment shall
be deposited with the court having jurisdiction over the
estate of the minor.
(b) Effect of Payment: The payment to the Beneficiary or deemed
Beneficiary, in accordance with the provisions of this Plan,
shall completely discharge all obligations under this Plan of
the Committee, the Company and any Subsidiary.
I-5
<PAGE> 9
II. AWARDS
2.1 Award Determination:
(a) Performance Evaluation:
(i) Financial Performance: Performance shall first be
evaluated based on the Company's Actual Return on Rate
Base as a percentage of its Authorized Return on Rate
Base. In 2000, the following schedule shall apply:
<TABLE>
<CAPTION>
Actual/Authorized Return Financial Performance Percentage
------------------------ --------------------------------
<S> <C>
Greater than 100% 120%
98% 100%
96% 85%
94% 60%
92% 25%
Less than 92% 0%
</TABLE>
Note: Percentages will be interpolated for performance
between levels.
(ii) Maintenance Adjustment: If the Company's maintenance
costs are significantly less than estimated for rate base
purposes (more than .5% of the Authorized Return on Rate
Base), the Actual Return on Rate Base will be adjusted
downwards by the amount of the shortfall.
(iii)Strategic Adjustment: For Executives (Vice Presidents and
above) and Class A Managers, the Company's Financial
Performance shall be adjusted (up or down) based on
factors including the achievement of strategic goals such
as acquisitions of other firms. The maximum adjustment
for strategic performance in one year shall be capped at
50%. In 2000, the following schedule shall apply:
<TABLE>
<CAPTION>
Increase in Total Operating Revenues
from Acquisition Strategic Adjustment
--------------------------------------- --------------------
<S> <C>
Less than 10% 0%
10% 10%
13% 12%
16% 14%
19% 16%
22% 18%
25% 20%
28% 22%
31% 24%
Greater than 33% 25%
</TABLE>
II-1
<PAGE> 10
(iv) Individual Adjustment: For Class B Managers, the
Company's Financial Performance shall be adjusted based
on team/individual performance. The adjustment can
increase or decrease payout by 0% - 50%. The size of the
adjustment shall be based on the accomplishment of goals
that are established by the Employer at the beginning of
each Plan Year.
(b) Determination of Individual Awards: The Award to be paid to
any Participant will be equal to (i) the Financial Performance
times (ii) one hundred percent (100%) plus the Strategic
Adjustment or Individual Adjustment, whichever is applicable,
times the Target Award.
(c) Participant's Award: A Participant's Award shall be pro-rated
in the event he/she participates in the Plan for less than the
full year, moves into a position covered under a different
schedule of awards, and/or moves into or from a position not
currently included under this Plan. The pro-rated amount will
be calculated by multiplying the Award otherwise payable to
the Participant for the entire year by a fraction, the
numerator of which is the number months completed by the
Participant during the Plan Year, and the denominator of
which is 12.
2.2 Vesting: There is no vested right to receive an Award and no Award
is earned until paid. A Participant who terminates employment for
any reason before the payment of the Awards shall forfeit any
unpaid Awards, except in the cases of death or disability.
2.3 Award Payment: Awards will be paid by the Employer following the
completion of the audit of the financials, normally within 75 days
of the end of the fiscal year. Payment shall be provided in cash
and/or Restricted Stock. All payments less than 20% of Base
Compensation shall be paid cash. Payments above 20% of Base
Compensation may be paid, at the discretion of the Committee, in
Restricted Stock issued in accordance with the provisions of the
American States Water Company Long-Term Incentive Plan (the
"Long-Term Incentive Plan"). The number of shares of Restricted
Stock (if any) to be issued shall equal the difference between the
amount of the Award and the amount paid in cash divided by the Fair
Market Value (as defined in the Long-Term Incentive Plan) of a
share of the Company common stock determined as of the
Determination Date. Unless the Committee otherwise provides, the
rights of a Participant with respect to Restricted Stock issued
hereunder shall vest, and the applicable restrictions shall lapse,
in a series of three successive equal annual installments
commencing on the first anniversary of the Determination Date.
2.4 Acceleration of Awards upon Change in Control: Notwithstanding the
foregoing, unless prior to a Change in Control Event the Committee
determines that, upon its
II-2
<PAGE> 11
occurrence, benefits under any or all Awards shall not be
accelerated or determines that only certain or limited benefits
under any or all Awards shall be accelerated and the extent to
which they shall be accelerated, then upon the occurrence of a
Change in Control Event, the Awards shall be vested and the
Participant shall be entitled to the payment thereof within 75 days
after the Change in Control Event. The Award to be paid to any
Participant will be equal to (i) the Financial Performance for the
12 month period preceding the Change in Control Event times (ii)
one hundred percent (100%) plus the Strategic Adjustment or
Individual Adjustment, whichever is applicable, for the 12 month
period preceding the Change in Control Event, times the Target
Award times (iii) a fraction, the numerator of which is the number
of months completed by the Participant during the Plan Year, and
the denominator of which is 12. Any discretion with respect to
these events shall be limited to the extent required by applicable
accounting requirements in the case of a transaction intended to be
accounted for as a pooling of interests transaction. The Committee
may override the limitations on acceleration and may accord any
Participant the right to refuse any acceleration in such
circumstances as the Committee may approve.
II-3
<PAGE> 12
III. OTHER PROVISIONS
3.1 Rights of Eligible Employees, Participants and Beneficiaries:
(a) Employment Status: Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under
this Plan to an Eligible Employee or to Eligible Employees
generally.
(b) No Employment Contract: Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award)
shall confer upon any Eligible Employee or Participant any
right to continue in the employ or other service of the
Company, or any Subsidiary, or constitute any contract or
agreement of employment or other service, nor shall interfere
in any way with the right of the Company, or any Subsidiary,
to change such person's compensation or other benefits or to
terminate the employment of such person, with or without
cause, but nothing contained in this Plan or any document
related hereto shall adversely affect any independent
contractual right of such person without his or her consent
thereto.
3.2 Compliance with Laws: This Plan, the granting and vesting of Awards
under this Plan and the payment of money under this Plan or under
Awards granted hereunder are subject to compliance with all,
applicable federal and state laws, rules and regulations and to
such approvals by any listing, regulatory or governmental authority
as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith.
3.3 Withholding; Payroll Taxes: The Employer shall withhold from
payments made hereunder any taxes required to be withheld from such
payments under federal, state or local law.
3.4 Plan Amendment, Termination and Suspension:
(a) Board Authorization: The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in
whole or in part. Any Restricted Stock outstanding at that
time will be governed by the terms of the American States
Water Company Long-Term Incentive Plan.
3.5 Effective Date of the Plan: This Plan shall be effective as of
January 1, 1999.
3.6 Governing Law: Severability
(a) Choice of Law: This Plan shall be governed by, and construed
in accordance with the laws of the State of California
applicable to contracts made and performed within such State,
except as such laws may be preempted by the
III-1
<PAGE> 13
laws of the United States of America, which laws shall then
govern its effect and its construction to the extent they
preempt California law.
(b) Severability: If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the
remaining provisions of this Plan shall continue in effect.
3.7 Captions: Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any
provision thereof.
3.8 Terms: Whenever any words are used herein in the masculine, they
shall be construed as though they were used in the feminine in all
cases where they would so apply; and wherever any words are used
herein in the singular or plural, they shall be construed as though
they were used in the plural or the singular, as the case may be,
in all cases where they would so apply.
3.9 Non-Exclusivity of Plan: Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Committee to
grant awards or authorize any other compensation.
EXECUTED this ______ day of ____________________, 1999.
AMERICAN STATES WATER COMPANY
By:
-------------------------------------
Title:
----------------------------------
III-2
<PAGE> 1
EXHIBIT 13
1999 ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 2
Front Cover
American States Water Company
1999 Annual Report
Reflecting the Needs of A New Age
[8 photos]
<PAGE> 3
Inside Front Cover
CORPORATE PROFILE
American States Water Company (NYSE:AWR) is a holding company for Southern
California Water Company (SCW) and American States Utility Services, Inc.
(ASUS). AWR offers long-term, income-oriented investors an attractive total
return potential and has paid dividends on its common shares every year since
1931.
AWR's philosophy is to continue to implement long-term strategies through its
subsidiaries, to increase shareholder value by earning the authorized rate of
return for its utility operations, and to increase overall earnings through
selective non-regulated activities.
SCW is a public utility company engaged principally in the delivery of water
service. SCW operates 39 separate water systems within 75 communities in 10
counties in California and provides water service to over 1 million people, or
one out of every 33 Californians. In addition, SCW provides electric service to
approximately 21,000 customers. SCW focuses on customers by providing water and
electric services at affordable rates approved by the California Public
Utilities Commission (CPUC). SCW complies with state environmental regulations
and the federal Safe Drinking Water Act. Over one-half of the water the company
sells is provided from its own wells.
ASUS engages in non-regulated business activities through long-term leases or
operations and maintenance contracts with municipally owned water and wastewater
systems. ASUS meets the needs and challenges facing municipalities throughout
the country, by offering cost effective alternatives to higher water rates and
diminishing water supplies.
[3 photos]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Corporate Profile........................................................................ IFC
Selected Financial Data.................................................................. 1
Letter to Shareholders................................................................... 2
Strategy and Operating Review............................................................ 4
Management's Discussion and Analysis..................................................... 13
Financial Statements..................................................................... 19
Report of Management..................................................................... 32
Report of Independent Public Accountants................................................. 32
Shareholder Information.................................................................. 33
Statistical Review 1999-1990............................................................. 34
Customer Service Areas................................................................... 36
Corporate Information.................................................................... IBC
</TABLE>
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 Variance % Change
-------- -------- -------- --------
(in thousands, expect per share amounts)
<S> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION
Total Operating Revenues $173,421 $148,060 $ 25,361 17.13%
Total Operating Expenses 144,907 122,999 $ 21,908 17.81%
Operating Income 28,514 25,061 3,453 13.78%
Other Income 532 769 (237) (30.82%)
Interest Charges 12,945 11,207 1,738 15.51%
Net Income 16,101 14,623 1,478 10.11%
Preferred Dividends 88 90 (2) (2.22%)
Earnings Available for Common Shareholders 16,013 14,533 1,480 10.18%
Basic Earnings per Common Share $ 1.79 $ 1.62 $ 0.17 10.49%
Dividends Declared per Common Share $ 1.28 $ 1.26 $ 0.02 1.59%
BALANCE SHEET INFORMATION
Total Assets $533,181 $484,671 $ 48,510 10.01%
Net Utility Plant 449,595 414,753 34,842 8.40%
Common Shareholders' Equity 158,846 154,299 4,547 2.95%
Long-Term Debt (Net) 167,363 120,809 46,554 38.54%
Preferred Shares 1,600 1,600 -- --
Preferred Shares -
Subject to Mandatory Redemption 360 400 (40) (10.00%)
Total Capitalization $328,169 $277,108 $ 51,061 18.43%
Book Value per Common Share $ 17.73 $ 17.23 $ 0.50 2.90%
Average Shares Outstanding 8,958 8,958 -- --
OTHER INFORMATION
Ratio of Earnings to Fixed Charges 3.27% 3.21% 0.06% 1.87%
Ratio of Earnings to Total Fixed Charges 3.23% 3.17% 0.06% 1.89%
Return on Average Common Equity 10.2% 9.6% 0.60% 6.25%
Cash Flow from Operations $ 34,913 $ 31,404 $ 3,509 11.17%
Earnings Before Interest and Taxes 42,391 35,960 6,431 17.88%
Earnings Before Interest, Taxes, $ 56,041 $ 48,498 $ 7,543 15.55%
Depreciation and Amortization
</TABLE>
[3 graphs]
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LETTER TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS:
As American States Water Company marks the end of the 20th century, and plans
for the new century, we are encouraged by the many opportunities for customers
and shareholders. The water industry is changing. There is increased emphasis on
quality of service and affordability, and your company is positioned to take
economic advantage of these growth opportunities.
FINANCIAL RESULTS
We are pleased to report that for the year ended December 31, 1999 total
earnings available for common shareholders were $16.0 million, or $1.79 per
share, as compared to total recorded earnings last year of $14.5 million, or
$1.62 per share. The 10.5% increase in earnings in 1999 was driven by a return
to normal weather patterns and rate increases covering approximately 65% of the
company's water customer base. The 1999 rate increases reflected recovery of
costs associated with additional investments, designed to provide high quality
service levels for customers. The company anticipates continued increases in
revenues in future years from additional rate increases to recover capital costs
and, to a lesser extent, increased operating expenses.
STRATEGIES FOR THE FUTURE
During 1999, the price per Common Share reached an all-time high of $39.75. This
price reflects both the improved financial performance of the company and
current trends in the water utility industry, where consolidation continued at
an increasing pace. Although the company's stock price, like most others in the
industry, reflects some speculation about the future, your company remains
solidly established as a leader within the industry with a sound and responsible
business strategy. Customer base expansion, acquisitions, "beyond the meter"
services, and continued capital investment for regulated and non-regulated
operations drive financial growth. Your company will (i) continue to focus on
core regulated operations to earn authorized returns on equity for shareholders,
(ii) make acquisitions of regulated assets that complement existing operations
[Photos of Floyd E. Wicks, President and Chief Executive Officer, and Lloyd E.
Ross, Chairman of the Board]
<PAGE> 6
Page 3
and promote geographic and regulatory diversity, and (iii) make investments in
non-regulated enterprises such as privatized municipal concessions and contract
operation and maintenance services. In order to make these long term,
value-enhancing investments, these strategies may be slightly dilutive to
current earnings. Management remains committed to making operational
improvements to minimize this short term impact.
WATER QUALITY-RELATED LAWSUITS
In September 1999, the Court of Appeal ordered dismissal of seven of the 11
lawsuits filed against the company. In October 1999, one group of plaintiffs
appealed that decision to the California Supreme Court. On December 15, 1999,
the California Supreme Court announced that it will review the appeal.
Management is confident that there is no factual basis for these lawsuits
against the company. However, it is impossible to predict the final decision of
the courts in these matters.
YEAR 2000
Like most of the world, the changing of the century was a quiet and successful
transition for customers and employees of the company. The capital investment
and the hours of effort by employees have, however, better positioned the
company in the event of future emergency events.
ABILITY
The word alone is strong, and as a suffix, it creates words defining strong
capabilities. Sensibility, durability, affordability and accountability govern
your company's ability to provide long-term, income oriented investors with an
attractive total return potential and to meet the service needs of its growing
customer base into the next century. We invite you to read further about the
abilities of your company and thank you for your continued support.
Floyd E. Wicks
President and Chief Executive Officer
Lloyd E. Ross
Chairman of the Board
[signatures Floyd E. Wicks, President and Chief Executive Officer and Lloyd E.
Ross, Chairman of the Board]
<PAGE> 7
Page 4
STRATEGY AND OPERATING REVIEW
SENSIBILITY
AWR's management team follows a disciplined strategy to protect and increase the
value of the company, maintaining high standards on future growth in earnings.
AWR is focused on core operations and value-driven acquisitions with the
potential to increase shareholder returns and create a strategic match that adds
to the value of services provided to current and future customers.
To promote growth, resources are directed to new markets through acquisitions
such as those small "tuck in" acquisitions completed last year and privatization
of municipally-owned water, wastewater and electric assets. Although, the latter
strategy is developing slowly, AWR has realigned its workforce to focus on these
types of opportunities. In addition, the company continues to pursue
non-regulated markets that will increase its asset base and water and electric
customer base, expand geographic boundaries, and diversify operational factors
such as those resulting from varying weather patterns and regulatory oversight.
As part of the continued strategy to present AWR as a premier provider of
service contracts and acquisition options, American States Utility Services,
Inc. (ASUS) will be further developed as an operations and management company.
The company has expanded current service contracts and developed opportunities
to provide utility services such as billing, 24-hour customer service call
handling, meter reading, and other field service options. ASUS is developing
concession, operation and maintenance business with municipalities throughout
the western United States, and within the next five years, plans to enter into
longer term water transfer contracts, which will offer a potential solution to
supply challenges.
[1 graphic]
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[2 graphs, 3 photos]
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DURABILITY
The last year of the 20th century brought significant change in the water
industry as the pace of consolidations of public and private utilities
throughout California, the United States and the world accelerated. In addition,
deregulation of the electric industry in California continued. These changing
trends in the delivery of water and electricity, and, indeed the future of the
utility industry, will be driven by regulatory and infrastructure demands. These
demands force companies to strive for continuous improvement in operations and
efficiencies in service. American States Water Company (AWR) continues to
embrace and endure change, and to be a key player in the utility industry. The
company remains solidly positioned in the top ranks of the United States water
utility industry.
Financial strength, a committed management team, top-rated service and
operational standards, and reliable supplies of quality water position AWR as a
prime provider of services for water, wastewater and electric utilities faced
with current and future business challenges. Beginning in 1929 and continuing
through the changes of the last 70 years, AWR has successfully operated a
variety of water and electric systems meeting population, supply and
infrastructure and regulatory challenges.
The company's strategies to focus on core operations and supplement earnings
through non-regulated activities in order to increase long-term value, have
allowed AWR to weather the current wave of consolidations. Although current
share prices have reflected the effects of consolidations, AWR continues to grow
earnings from base operations at an average rate of approximately 5% annually
for the past five years. Non-regulated operations will increase this growth
rate.
AWR has the professionalism and durability that other utility operators look for
when they can no longer efficiently meet the needs of their customers. The
future changes in the utility industry present extensive opportunities due to
affordable options offered by AWR.
[1 graphic]
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[2 graphs, 1 photo]
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Page 8
[4 photos]
AWR's cost to serve the average residential customer for a day is approximately
$1.50, a monthly cost less than the average tank of gas for a large sport
utility vehicle. This efficient cost-of-service figure is due to cost control
measures currently in place, and additional improvements are planned for future
years. The company's economies of scale often not available to smaller and
municipally-owned water, wastewater and electric utilities also offers
affordable options to these smaller utilities struggling to maintain regulatory
compliance and preserve a high level of service to customers. That difficult
equation to solve for smaller and municipally-owned utilities is a challenging
situation at present, and one that will become increasingly complex in the
future. AWR's status as a leader in the industry positions the company to
continue to achieve higher earnings from a larger customer base while minimizing
the impact on those customers.
Contributing to economies of scale and operational efficiencies, is the
company's rate structure. The company's largest operating region, serving
portions the metropolitan Los Angeles area, functions under a single rate
enabling the company to offer the same high quality service at a uniform price.
By reducing the number of, and costs associated with, general rate case filings,
the savings are passed to the customer base.
The company filed an application with the California Public Utilities Commission
(CPUC) to combine tariff schedules into regional rates for the company's second
largest operating region serving portions of Orange, Imperial, Riverside and Los
Angeles counties. The draft decision supports the company's application. A final
decision from the CPUC is anticipated in the second quarter of 2000.
In the recent general rate case submitted to the CPUC, the company is requesting
regional rates for the third operating region serving customers in Northern and
Central California.
<PAGE> 12
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AFFORDABILITY
[1 graph, 1 graphic]
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Page 10
[4 photos]
In 1999, the company continued to increase total shareholder return. In fact,
$10,000 invested in December 1994, assuming reinvestment of all dividends, would
be worth $26,917(1) at the end of 1999.
However, management will not rest on past accomplishments. As discussed earlier,
consolidation in the water industry has driven up share prices considerably.
Future shareholder value depends upon continued growth in earnings and
dividends. Maintaining financial growth and value to shareholders is, at a
minimum, achieved by earning the CPUC-authorized rate of return on equity in
recently filed rate cases and generation of additional revenues through
non-regulated opportunities. This balance was met in 1999, and the company's
disciplined strategy is structured to maintain this balance in future years.
Drivers of AWR's future financial growth include customer base expansion,
investment in capital improvements and replacements, and the pursuit of
acquisitions and non-regulated activities. The company has extensive experience
and proven success in all of these areas and will aggressively pursue
value-driven opportunities.
Strong heritage and endurance, combined with the disciplined strategy to offer
investors value and to meet the service needs of a growing customer base,
demonstrates that AWR is the company reflecting the needs of a new age.
(1) Past performance is no guarantee of future results. Share values and returns
fluctuate and gain or loss may occur when shares are sold.
<PAGE> 14
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ACCOUNTABILITY
[2 graphs, one graphic]
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[Blank]
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MANAGEMENT'S DISCUSSION AND ANALYSIS
American States Water Company (AWR) is the parent company of Southern California
Water Company (SCW) and American States Utility Services, Inc. (ASUS). SCW is a
public utility engaged principally in the purchase, distribution and sale of
water as well as in the distribution of electricity in several mountain
communities. SCW is regulated by the California Public Utilities Commission
(CPUC) as to its water and electric business including properties, rates,
services, facilities and other matters. ASUS performs water and energy related
services and operations. AWR and ASUS are not regulated by the CPUC. Unless
specifically noted, the following discussion and analysis provides information
on the company's consolidated operations and assets.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report (including the documents incorporated
herein by reference) are forward-looking statements intended to qualify for the
"safe harbor" from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can generally be identified
as such because the context of the statement will include words such as the
company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the company's future plans, objectives,
estimates or goals are also forward-looking statements. Such statements address
future events and conditions concerning capital expenditures, earnings,
litigation, rates, water quality and other regulatory matters, adequacy of water
supplies, liquidity and capital resources, opportunities related to operations
of municipally-owned water systems and accounting matters. Actual results in
each case could differ materially from those currently anticipated in such
statements, by reason of factors such as utility restructuring, including
ongoing local, state and federal activities; future economic conditions,
including changes in customer demand; future climatic conditions; legislative,
regulatory and other circumstances affecting anticipated revenues and costs.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Basic earnings per Common Share in 1999 increased by 10.5% to $1.79 per share as
compared to $1.62 per share for the comparable period last year. The increase in
the recorded results primarily reflects higher revenues at the SCW unit during
1999 as is more fully discussed below.
Water operating revenues increased by 18.5% in 1999 to $159.7 million from the
$134.8 million reported in 1998. Water sales volumes in 1999 were 9.0% higher
than last year due primarily to the much drier and warmer weather conditions
throughout Southern California in 1999. Additional increases in revenues were
due to the general rate increases in six of the company's CSAs effective January
1, 1999, which were applicable to 65% of SCW's water customers.
Electric operating revenues of $13.3 million were 1.0% higher in 1999 as
compared to last year due to a 2.7% increase in kilowatt-hour sales, primarily
by industrial power users. The sales increase was partially offset by the lower
billing rates of industrial customers relative to residential customers.
Other revenues increased from $65,000 to $390,000 in 1999 due to increased
management fees resulting from new ASUS service contracts established in the
year and increased activities with existing contracts.
Purchased water costs in 1999 increased to $36.1 million as compared to $30.8
million in 1998 due to a 12.1% increase in volumes purchased. The increase also
reflects reduced reimbursements in 1999 from potentially responsible parties
related to groundwater contamination in SCW's Culver City CSA of approximately
$570,000, compared with reimbursements of $1.7 million in 1998.
Costs of power purchased for pumping increased by 5.5% to $7.4 million in 1999
chiefly as a result of an increase in pumped groundwater in SCW's water supply
mix due to increased sales volumes.
Costs of power purchased for resale in 1999 increased by 42.0% to $7.1 million
from the $5.0 million recorded in 1998 due primarily to additional energy demand
charges from the energy supplier serving SCW's Bear Valley
<PAGE> 17
Electric Service unit in 1999. As discussed below, most of this increase has
been included in the supply cost recovery account and will have to be recovered
in future rate increases.
Groundwater production assessments decreased by 5.3% to $7.2 million in 1999
from $7.6 million in 1998 due to reduced quantity rates in SCW's Metropolitan
and San Dimas customer service areas.
<PAGE> 18
Page 14
A positive entry for the provision for supply cost balancing accounts reflects
recovery of previously under-collected supply costs. Conversely, a negative
entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1999, recovery of
previously under-collected supply costs was lower than 1998 due to the
previously discussed increase in energy demand charges, the effect of which was
partially offset by new rates effective January 1999 authorized to implement new
supply costs and to increase collection of previously under-collected costs.
The balancing account mechanism insulates earnings from changes in the unit cost
of supply costs which are outside of the immediate control of the company.
However, the balancing account is not designed to insulate earnings against
changes in the actual supply mix as compared to that mix authorized for recovery
in rates. In 1999, SCW's overall supply mix improved favorably over that mix
authorized in rates resulting in additional income. There is no assurance that
the favorable mix can be sustained in future periods since actual results are
affected by availability and quality of water, both purchased and produced from
SCW's wells. See the section titled "Water Supply."
Other operating expenses increased by 7.8% from the $14.5 million recorded in
1998 due to increased costs for water treatment, and a higher uncollectible
provisions as a result of increased revenues.
Administrative and general expenses increased by 30.0% to $28.6 million in 1999
from the $22.0 million recorded in 1998. The increase is due to costs associated
with various acquisition projects, increased employee benefit costs, and
additional amounts reserved for certain legal proceedings.
In 1999, maintenance expense increased to the $9.8 million level compared to the
recorded $7.3 million in 1998 due principally to increased maintenance on the
company's water supply sources, and costs incurred on main replacements. The wet
weather conditions during the first part of 1998 also hampered planned
maintenance activities, thereby reducing maintenance expense last year.
Depreciation expense in 1999 increased by 8.9% to $13.7 million reflecting the
effects of recording approximately $38.2 million in net plant additions during
1998, depreciation on which began in 1999.
Taxes on income increased by approximately 31.7% to $13.3 million in 1999 as
compared to the $10.1 million last year due to a 24.5% increase in pre-tax
income and a higher effective tax rate in 1999 resulting from the turn-around of
depreciation-related temporary differences, the benefits of which were
previously flowed-through for ratemaking purposes.
Property and other taxes increased by 7.2% in 1999 to $6.6 million due primarily
to increased franchise fees resulting from higher revenues, and increased
payroll taxes from higher wages and additional personnel.
Other income decreased by 30.8% in 1999 due primarily to the flow-through of tax
benefits related to refinancing of long-term debt in December 1998 for which
there were no similar benefits in 1999.
Interest expense increased by 15.5% to $12.9 million primarily due to the
issuance of $40 million in long-term debt in January 1999, partially offset by
the retirement of $10 million of 10.10% Notes in December 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Basic earnings per Common Share in 1998 increased by 3.8% to $1.62 per share as
compared to $1.56 per share in 1997. Although wet weather significantly impacted
revenues in 1998, lower supply costs and modest increases in other operating
expenses partially offset the decline in revenues.
Water operating revenues decreased by 4.3% in 1998 to $134.9 million from the
$141.0 million reported in 1997. Water sales volumes in 1998 were 9.9% lower
than last year due to extremely wet weather during the first half of the year.
The decrease in sales was partially offset by rate increases effective during
1998.
Electric operating revenues of $13.2 million were 3.4% higher in 1998 as
compared to 1997 due to the impact of a general rate increase effective January
1998, as well as a 2.0% increase in kilowatt-hour sales.
<PAGE> 19
Purchased water costs decreased in 1998 to $30.8 million as compared to $38.3
million in 1997 due to a 20.8% decrease in volumes purchased and refunds
received from the company's wholesale water supplier during 1998 of
approximately $1.4 million. Refunds of $2.0 million were received in 1997.
Costs of power purchased for pumping decreased by 7.2% to $7.0 million in 1998
chiefly as a result of reduced energy costs from the company's suppliers.
Costs of power purchased for resale in 1998 decreased by 3.4% to $5.0 million
from the $5.2 million recorded in 1997
<PAGE> 20
Page 15
due to reduced costs from the company's energy providers offset by the effects
of increased kilowatt-hour sales volumes recorded during the year.
Groundwater production assessments increased by 10.5% to $7.6 million in 1998
from $6.8 million in 1997 due to the increased amounts of pumped water in the
company's supply mix as well as additional assessments associated with increased
pumping in the company's Metropolitan and Orange County CSAs.
A positive entry for the provision for supply cost balancing accounts reflects
recovery of previously under-collected supply costs. Conversely, a negative
entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1998, recovery of
previously under-collected supply costs was lower than 1997 due to the
expiration, in January 1998, of a surcharge designed to recover those costs. The
new rates, effective January 1999, increased collection of these under-collected
costs. The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs which are outside of the immediate control of the
company. However, the balancing account is not designed to insulate earnings
against changes in supply mix, as occurred during the first eight months of
1997.
Other operating expenses increased by 10.6% from the $13.1 million recorded in
1997 due to employee time charged to this category. Reversals in 1997 of costs
associated with recovery of water quality expenditures through the CPUC's
memorandum account mechanism also contributed to the increase. There were no
such reversals of equal magnitude in 1998.
Administrative and general expenses decreased slightly by 0.7% to $22.0 million
in 1998 from the $22.1 million recorded in 1997. The decrease is due to
stability in costs associated with health insurance, post-retirement medical
benefits, pension and 401(k) plan costs and to a reduction of time charged by
employees to this category.
In 1998, maintenance expense remained at approximately the $7.3 million level
recorded in 1997 due principally to the wet weather conditions during the first
part of 1998 that hampered planned maintenance activity.
Depreciation expense in 1998 increased by 14.5% to $12.5 million reflecting the
effects of recording approximately $38 million in net plant additions during
1997, depreciation on which began in 1998. In addition, amortization of start-up
and organizational costs associated with the formation of AWR is reflected in
1998 and there were no similar amortization costs in 1997.
Taxes on income increased by approximately 3.1% to $10.1 million in 1998 as
compared to the $9.8 million in 1997 due to a 5.7% increase in operating income
partially offset by a lower effective tax rate.
Property and other taxes decreased by 2.5% in 1998 to $6.1 million due primarily
to reduced franchise tax payments directly attributable to reduced revenues.
Other income increased by 1.5% in 1998 due principally to the flow-through of
tax benefits related to refinancing of long-term debt which was partially offset
by an increase in reserves against costs associated with the company's
non-regulated joint venture.
Interest expense increased by 10.3% to $11.2 million primarily due to increased
short-term bank borrowing and the issuance of $15 million in long-term debt in
March 1998.
LIQUIDITY AND CAPITAL RESOURCES
AWR funds its operating expenses, dividends on its outstanding Common and
Preferred Shares, and makes its mandatory sinking fund payments, principally
through dividends from SCW. AWR has filed a Registration Statement with the
Securities and Exchange Commission (SEC) for issuance, from time to time, of up
to $60 million in Common Shares, Preferred Shares and/or debt securities. The
proceeds will be used primarily for investment in its subsidiaries. No
securities have been issued under this Registration Statement as of December 31,
1999.
<PAGE> 21
SCW funds the majority of its operating expenses, interest payments on its debt,
and dividends on its outstanding Common Shares through internal sources. SCW
continues to rely on external sources, including short-term bank borrowing,
contributions-in-aid-of-construction, advances for construction and
install-and-convey advances, to fund the majority of its construction
expenditures.
Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses. The aggregate short-term borrowing capacity available to SCW under its
three bank lines of credit was $47 million as of December 31, 1999, of which a
total of $21 million was outstanding. SCW routinely employs short-term bank
borrowing as an interim financing source prior to funding capital expenditures
on a long-term basis.
<PAGE> 22
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In 1998, SCW filed a Registration Statement with the SEC for issuance, from time
to time, of up to $60 million in long-term debt. In January 1999, SCW issued $40
million of long-term debt pursuant to this Registration Statement, leaving $20
million for issuance at a later date. The funds were used primarily to repay
short-term bank borrowings, after which construction expenditures were funded.
The company has no derivative financial instruments, financial instruments with
significant off-balance sheet risks or financial instruments with concentrations
of credit risk.
CONSTRUCTION PROGRAM
SCW's construction program is designed to ensure its customers' high quality
service. A program for water pipeline replacement is on-going throughout the 22
CSAs, based on priority of leaks detected, fire protection enhancements and
reflection of the underlying replacement schedule. In addition, general upgrades
in SCW's water supply facilities are anticipated to be on-going. SCW's board of
directors has approved anticipated net capital expenditures of $55.4 million in
2000. Neither AWR nor ASUS have material capital requirements.
REGULATORY MATTERS
SCW is subject to regulation by the CPUC, which has broad powers with respect to
service and facilities, rates, classifications of accounts, valuation of
properties, the purchase, disposition and mortgaging of properties necessary or
useful in rendering public utility service, the issuance of securities, the
granting of certificates of convenience and necessity as to the extension of
services and facilities and various other matters. AWR and ASUS are not
regulated by the CPUC. The CPUC does, however, regulate certain transactions
between SCW and its non-regulated affiliates.
The 22 CSAs of SCW are grouped into 16 water districts and one electric district
for ratemaking purposes. Water rates vary among the 16 ratemaking districts due
to differences in operating conditions and costs. SCW monitors operations on a
regional basis in each of these districts so that applications for rate changes
may be filed, when warranted. Under the CPUC's practices, rates may be increased
by three methods: general rate case increases (GRC), offsets for certain expense
increases and advice letter filings related to certain plant additions. GRCs are
typically for three-year periods, which include step increases for the second
and third year. Rates are based on a forecast of expenses and capital costs.
GRCs have a typical regulatory lag of one year. Offset rate increases typically
have a two to four month regulatory lag.
New water rates for six of SCW's customer service areas and recovery of costs
associated with SCW's general office functions were implemented in January 1999.
Step increases in rates for Arden-Cordova, Bay Point and Los Osos CSAs were also
effective in January 1999.
Applications to increase water rates were filed for four water ratemaking
districts in SCW's Region III in March 1999. A draft decision has been issued by
the Administrative Law Judge assigned to this matter that supports the
settlement on all issues reached between SCW and the CPUC Staff. SCW has also
filed an application with the CPUC to combine tariff schedules into regional
rates for the CSAs that make up SCW's Region III. The Administrative Law Judge
assigned to this matter has issued a draft decision that supports SCW's
application. A final decision from the CPUC on both issues is anticipated in the
second quarter of 2000.
The GRC step increase for the Metropolitan CSA and the General Office Allocation
step increases for Simi Valley, Arden-Cordova, Santa Maria and Bay Point, were
effective beginning January 2000. Attrition increases for Arden-Cordova and Bay
Point CSAs were effective beginning January 2000.
In March 1998, the CPUC issued an Order Instituting Investigation (OII) to
regulated water utilities in California, including SCW. The purpose of the OII
is to determine whether existing standards and policies regarding drinking water
quality adequately protect the public health and whether those standards and
policies are being uniformly complied with by those water utilities. The OII
delineates the constitutional and statutory jurisdiction of the CPUC and the
Department of Health Services (DOHS) in establishing and enforcing adherence to
water quality standards. The CPUC's jurisdiction provides for the establishment
of rates which permit water utilities to provide water meeting the established
water quality standards at prices which are both affordable and allow the
utility to earn a
<PAGE> 23
reasonable return on its investment. SCW has provided its response to a series
of questions dealing with the adequacy of current drinking water standards,
compliance by water utilities with such standards, appropriate remedies for
failure to comply with drinking water standards and whether increased
enforcement and additional drinking water standards are necessary. The
Administrative
<PAGE> 24
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Law Judge assigned to the OII has issued a draft decision finding that water
utilities, including SCW, have complied with DOHS regulations and requirements.
SCW is unable to predict whether the draft decision will be approved in part or
in its entirety. SCW anticipates a final decision by the CPUC on this matter in
2000.
On April 22, 1999, the CPUC issued an order denying SCW's application seeking
approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement with a
value of approximately $9.5 million. SCW's investment in SWP is currently
included in Other Property and Investments. The remaining balance of the related
liability of approximately $7 million is recorded as other long-term debt. SCW
intends to recover its investment in SWP through contributions from developers
on a per-lot or other basis, and, failing that, sale of its 500 acre-foot
entitlement in SWP. SCW believes that its full investment and on-going costs
associated with its ownership will be fully recovered.
ENVIRONMENTAL MATTERS
The 1996 amendments to the Safe Drinking Water Act (SDWA) revised the 1986
amendments to the SDWA with a new process for selecting and regulating
contaminants. The Environmental Protection Agency (EPA) can only regulate
contaminants that may have adverse health effects, which are known or are likely
to occur at levels of public health concern, and, if regulated, the regulation
would provide "a meaningful opportunity for health risk reduction." The EPA has
published a list of contaminants for possible regulation and must update that
list every five years. In addition, every five years, the EPA must select at
least five contaminants on that list and determine whether to regulate them. The
new law allows the EPA to bypass the selection process and adopt interim
regulations for contaminants in order to address urgent health threats. Current
regulations, however, remain in place and are not subject to the new
standard-setting provisions. The DOHS, acting on behalf of the EPA, administers
the EPA's program in California.
The 1996 SDWA amendments allow the EPA, for the first time, to base primary
drinking water regulations on risk assessment and cost/benefit considerations
and on minimizing overall risk. The EPA must base regulations on the best
available, peer-reviewed science and data from best available methods. For
proposed regulations that involve the setting of maximum contaminant levels
(MCLs), the EPA must use, and seek public comment on, an analysis of
quantifiable and non-quantifiable risk-reduction benefits and cost for each MCL.
SCW currently tests its wells and water systems according to requirements listed
in the SDWA. Water from wells found to contain levels of contaminants above the
established MCLs is treated before it is delivered to customers.
Since the SDWA became effective, SCW has experienced increased operating costs
for testing to determine the levels, if any, of the constituents in SCW's
sources of supply and additional expense to lower the level of any such
contaminants in order to meet the MCL standards. Such costs and the costs of
controlling any other contaminants may cause SCW to experience additional
capital costs and increased operating costs. The ratemaking process provides SCW
with the opportunity to recover prudently incurred capital and operating costs
associated with water quality.
There have been no environmental matters that have materially affected or are
currently materially affecting SCW's Bear Valley Electric Service CSA. The
construction of a proposed 115kv line to serve the Bear Valley Electric CSA is
subject to an Environmental Impact Study (EIS). Delays in approval of the EIS
could impact service in the area. SCW has, however, taken other measures,
including some measures that will be enacted on an emergency basis, to meet load
growth and mitigate delay in approval of the EIS.
WATER SUPPLY
During 1999, the company supplied a total of 195,886 acre feet of water. Of this
amount, approximately 58.2% came from pumped sources and 40.2% was purchased
from others, principally the Metropolitan Water District of Southern California
(MWD). The remaining amount was supplied by the Bureau of Reclamation (the
Bureau) under a no-cost contract. During 1998, the company supplied 179,927 acre
feet of water, 60.7% of which came from pumped sources, 39.0% was purchased and
the remainder was supplied by the Bureau.
<PAGE> 25
The MWD is a water district organized under the laws of the State of California
for the purpose of delivering imported water to areas within its jurisdiction.
The company has 52 connections to the water distribution facilities of MWD and
<PAGE> 26
Page 18
other municipal water agencies. MWD imports water from two principal sources:
the Colorado River and the State Water Project (SWP). Available water supplies
from the Colorado River and the SWP have historically been sufficient to meet
most of MWD's requirements and MWD's supplies from these sources are anticipated
to remain adequate through 2000. MWD's import of water from the Colorado River
is expected to decrease in future years due to the requirements of the Central
Arizona Project. In response, MWD has taken a number of steps to secure
additional storage capacity and to increase available water supplies by
effecting transfers of water rights from other sources.
The company's water supply and revenues are significantly affected by changes in
meteorological conditions. Water sales volumes have been impacted during the
last two years by the El Nino/La Nina Southern Oscillation phenomena. El Nino
brings substantial rainfall to Southern California and the opposite, La Nina,
often means diminished rainfall. During the `80s and `90s, El Nino increased
precipitation as much as 250% of normal for some SCW service areas, while La
Nina decreased rain levels 30% to 50% of normal.
In 1999, after the 1997-1998 El Nino heavy rain season, La Nina moved rainfall
to the north and substantially reduced rainfall in SCW's service areas with some
systems experiencing less than 32% of normal rainfall.
In spite of the anticipated La Nina conditions, the 2000 water year supply
outlook remains adequate to meet SCW's needs. As of January 2000, California
reservoirs stand at 125% of average. This positive outlook is due to the fact
that reservoirs are still holding some of the El Nino surplus and groundwater
levels are usually not diminished by a single year of below normal
precipitation. Although overall groundwater conditions remain at adequate
levels, certain of SCW's groundwater supplies have been affected to varying
degrees by various forms of contamination which, in some cases, have caused
increased reliance on purchased water in its supply mix.
WATER-RELATED OPPORTUNITIES
In late 1998, ASUS was formed to pursue opportunities such as long-term leases,
and operation and maintenance contracts of government or municipally-owned water
and wastewater systems. Privatization opportunities in California have been few
to date and ASUS has focused its efforts on service contracts with
municipalities and others in order to build long-term relationships.
YEAR 2000 READINESS
The company has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no actual or anticipated effects or changes to
the company's operating trends or revenue patterns as a result of the transition
from December 1999 to January 2000.
SCW formally announced its 100% Y2K Ready status when it filed its compliance
report with the CPUC on November 1, 1999. The company's general process for
addressing the Y2K issue was (i) to inventory all systems that may have a
potential Y2K impact, (ii) to determine the materiality of these non-Y2K ready
systems, (iii) to replace and test, correct and test, or prepare for the failure
of material items that have been determined to be non-Y2K ready, and (iv) to
prepare contingency plans, which included, among other things, increased
staffing during critical periods, manual back-up for automated systems and the
use of portable generators capable of providing power during a black-out.
Not all Y2K problems were necessarily expected to surface in early 2000. The
company does not have, and may never fully have, sufficient information about
the Y2K exposure of third parties to adequately predict the risks posed by them
to the company. If the third parties later discover any Y2K problems that are
not remedied, resulting problems could include loss of utility services and
disruption of water supplies.
Costs incurred to address Y2K issues are estimated to be $7.5 million. The
company has incurred $4.8 million in costs associated with Y2K readiness at
January 2000, $4.0 million of which is in capital investments. The company
believes that these capital expenditures as well as the remaining Y2K-related
investments will be recovered through rates. See Note 13 - Year 2000 Readiness
Update for additional information.
ACCOUNTING STANDARDS
<PAGE> 27
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
accounting for derivative and hedging activities, and supersedes and amends a
number of existing standards. Adoption of this statement, with an extended
effective date for fiscal years beginning after December 15, 1999, will not have
a significant impact on financial position or results of operation.
<PAGE> 28
Page 19
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST
Water $ 532,007 $ 482,989
Electric 36,349 35,171
--------- ---------
568,356 $ 518,160
Less - Accumulated depreciation (151,733) (138,423)
--------- ---------
416,623 379,737
Construction work in progress 32,972 35,016
--------- ---------
Net utility plant 449,595 414,753
--------- ---------
OTHER PROPERTY AND INVESTMENTS 10,583 1,077
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 2,189 620
Accounts receivable-customers, less reserves of $487 in 1999;
$403 in 1998 10,135 7,626
Other accounts receivable 4,347 5,301
Unbilled revenue 11,345 9,303
Materials and supplies, at average cost 1,153 994
Supply cost balancing accounts 4,774 4,300
Prepayments 4,851 5,988
Accumulated deferred income taxes - net 5,546 5,156
--------- ---------
Total current assets 44,340 39,288
--------- ---------
DEFERRED CHARGES
Unamortized debt expense and redemption premium 6,811 6,635
Regulatory tax-related assets 19,941 21,506
Other 1,911 1,412
--------- ---------
Total deferred charges 28,663 29,553
--------- ---------
TOTAL ASSETS $ 533,181 $ 484,671
========= =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Shareholders' equity $ 158,846 $ 154,299
Preferred Shares 1,600 1,600
Preferred Shares - mandatory redemption 360 400
Long-term debt 167,363 120,809
--------- ---------
Total capitalization 328,169 277,108
--------- ---------
CURRENT LIABILITIES
Notes payable to banks 21,000 38,000
Long-term debt and Preferred Shares - current 340 260
Accounts payable 13,777 10,218
Taxes payable 5,432 5,900
Accrued interest 1,584 1,405
Other 12,832 7,985
--------- ---------
Total current liabilities 54,965 63,768
--------- ---------
OTHER CREDITS
Advances for construction 57,485 54,743
Contributions in aid of construction 38,895 36,530
Accumulated deferred income taxes - net 48,302 46,902
Unamortized investment tax credits 3,064 3,155
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
Regulatory tax-related liability 1,861 1,906
Other 440 559
--------- ---------
Total other credits 150,047 143,795
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $ 533,181 $ 484,671
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 30
Page 20
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ---------
( in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $2.50 stated value--
Authorized 30,000,000 shares
Outstanding 8,957,671 in 1999 and 1998 $ 22,394 $ 22,394
Additional paid-in capital 74,937 74,937
Earnings reinvested in the business 61,515 56,968
--------- ---------
158,846 154,299
--------- ---------
PREFERRED SHARES: $25 PAR VALUE
Authorized 64,000 shares
Outstanding 32,000 shares, 4% Series 800 800
Outstanding 32,000 shares, 4 1/4% Series 800 800
--------- ---------
1,600 1,600
--------- ---------
PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
Requirements: $25 par value
Authorized and outstanding 16,000 shares in 1999 and 17,600
shares in 1998, 5% Series 400 440
Less: Preferred Shares to be redeemed within one year (40) (40)
--------- ---------
360 400
--------- ---------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,798 1,882
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 650 630
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 --
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 7,028 --
Other 587 917
--------- ---------
167,663 121,029
Less: Current maturities (300) (220)
--------- ---------
167,363 120,809
--------- ---------
TOTAL CAPITALIZATION $ 328,169 $ 277,108
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 31
Page 21
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES
Water $ 159,693 $ 134,794 $ 140,988
Electric 13,338 13,201 12,767
Other 390 65 --
--------- --------- ---------
Total operating revenues 173,421 148,060 153,755
--------- --------- ---------
OPERATING EXPENSES
Water purchased 36,143 30,833 38,318
Power purchased for resale 7,119 5,013 5,188
Power purchased for pumping 7,394 7,009 7,554
Groundwater production assessment 7,170 7,567 6,847
Supply cost balancing accounts (473) 28 2,813
Other operating expenses 15,594 14,459 13,074
Administrative and general expenses 28,600 21,987 22,138
Depreciation and amortization 13,650 12,538 10,952
Maintenance 9,799 7,311 7,301
Taxes on income 13,345 10,130 9,830
Property and other taxes 6,566 6,124 6,282
--------- --------- ---------
Total operating expenses 144,907 122,999 130,297
--------- --------- ---------
OPERATING INCOME 28,514 25,061 23,458
--------- --------- ---------
OTHER INCOME
Total other income - net 532 769 758
--------- --------- ---------
Income before interest charges 29,046 25,830 24,216
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 11,294 9,612 8,821
Other interest and amortization of debt expense 1,651 1,595 1,336
--------- --------- ---------
Total interest charges 12,945 11,207 10,157
--------- --------- ---------
NET INCOME 16,101 14,623 14,059
Dividends on Preferred Shares (88) (90) (92)
--------- --------- ---------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 16,013 $ 14,533 $ 13,967
BASIC EARNINGS PER COMMON SHARE $ 1.79 $ 1.62 $ 1.56
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,958 8,958 8,957
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 32
Page 22
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Earnings
----------------------- Additional Reinvested
Number Paid-in in the
of Shares Amount Capital Business
-------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 8,886 $22,215 $73,645 $50,906
Add:
Net Income 14,059
Issuance of Common Shares for public offering 72 179 1,292
Deduct:
Dividends on Preferred Shares 92
Dividends on Common Shares - $1.245 per share 11,151
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 8,958 $22,394 $74,937 $53,722
Add:
Net Income 14,623
Deduct:
Dividends on Preferred Shares 90
Dividends on Common Shares - $1.26 per share 11,287
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 8,958 $22,394 $74,937 $56,968
Add:
Net Income 16,101
Deduct:
Dividends on Preferred Shares 88
Dividends on Common Shares - $1.28 per share 11,466
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1999 8,958 $22,394 $74,937 $61,515
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 33
Page 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,101 $ 14,623 $ 14,059
Adjustments for non-cash items:
Depreciation and amortization 14,364 15,368 11,170
Deferred income taxes and investment tax credits 2,440 5,241 826
Other - net 1,066 1,394 873
Changes in assets and liabilities:
Customer receivables (1,555) 918 (673)
Supply cost balancing accounts (474) (14) 1,987
Accounts payable 3,559 (1,552) (1,095)
Taxes payable (468) (3,215) 3,338
Other - net 3,977 438 341
-------- -------- --------
Net cash provided 39,010 33,201 30,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (57,823) (43,623) (36,799)
-------- -------- --------
Net cash used (57,823) (43,623) (36,799)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- -- 1,472
Issuance of long-term debt and lease obligations 47,028 15,000 8,000
Receipt of advances for and contributions in aid of
construction 5,300 3,381 1,302
Refunds on advances for construction (2,957) (2,651) (2,957)
Retirement or repayments of long-term debt and
redemption of Preferred Shares - net (435) (9,488) (198)
Net change in notes payable to banks (17,000) 12,000 10,000
Common and Preferred dividends paid (11,554) (11,386) (11,243)
-------- -------- --------
Net cash provided 20,382 6,856 6,376
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,569 (3,566) 403
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 620 4,186 3,783
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,189 $ 620 $ 4,186
-------- -------- --------
TAXES AND INTEREST PAID:
Income taxes paid $ 12,137 $ 5,430 $ 6,338
Interest paid 11,834 11,391 9,451
-------- -------- --------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
company $ 4,096 $ 1,797 $ 2,082
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 34
Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American States Water Company (AWR) is the parent company of Southern California
Water Company (SCW) and American States Utility Services, Inc. (ASUS). SCW is a
public utility engaged principally in the purchase, production, distribution and
sale of water as well as in the distribution of electricity in several mountain
communities. SCW is regulated by the California Public Utilities Commission
(CPUC) as to its water and electric business including properties, rates,
services, facilities and other matters. ASUS performs non-regulated, water
related services and operations on a contract basis. The consolidated financial
statements include the accounts of AWR, SCW and ASUS . Virtually all of AWR's
assets and revenues are those of SCW.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of AWR and its
wholly-owned subsidiaries, SCW and ASUS, collectively referred to as the
company. Inter-company transactions and balances have been eliminated.
The accounting records for SCW are maintained in accordance with the Uniform
System of Accounts prescribed by the CPUC. The preparation of these financial
statements required the use of certain estimates by management in determining
the company's assets, liabilities, revenues and expenses.
Property and Depreciation: The company capitalizes, as utility plant, the cost
of additions and replacements of retirement units. Such cost includes labor,
material and certain indirect charges. Depreciation is computed on the
straight-line, remaining-life basis. For the years 1999, 1998 and 1997 the
aggregate provisions for depreciation approximated 2.91%, 2.79%, and 2.77% of
the beginning of the year depreciable plant, respectively.
Interest: Interest is generally not capitalized for financial reporting purposes
as such procedure is usually not followed for rate-making purposes.
Revenues: Revenues include amounts billed to customers and an amount of unbilled
revenue representing amounts to be billed for usage from the last meter reading
date to the end of the accounting period.
Basic Earnings Per Common Share: Basic Earnings per Common Share are based upon
the weighted average number of Common Shares outstanding and net income after
deducting preferred dividend requirements. There are no dilutive securities.
Accordingly, diluted earnings per share is not calculated.
Supply Cost Balancing Accounts: As permitted by the CPUC, the company maintains
water and electric supply cost balancing accounts to account for
under-collections and over-collections of revenues designed to recover such
costs. Recoverability of such costs is recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
reversed when such costs are recovered through rate adjustments. The company
accrues interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper.
Debt Issue Expense and Redemption Premiums: Original debt issue expenses are
amortized over the lives of the respective issues. Premiums paid on the early
redemption of debt which is reacquired through refunding are deferred and
amortized over the life of the debt issued to finance the refunding. The
redemption premium on debt reacquired without refunding is amortized over the
remaining period the debt would have been outstanding.
Other Credits: Advances for construction represent amounts advanced by
developers which are generally refundable at either a rate of 22% of the revenue
received from the installations for which funds were advanced or in equal annual
installments over a 40-year period. Contributions-in-aid-of-construction are
similar to advances, but require no refunding and are amortized over the useful
lives of the related property.
Cash and Cash Equivalents: For purposes of the Statements of Cash Flows, cash
and cash equivalents include short-term cash investments with an original
maturity of three months or less.
Financial Instrument Risk: The company does not carry any financial instruments
with off-balance sheet risk nor do its operations result in concentrations of
credit risk.
<PAGE> 35
Page 25
Fair Value of Financial Instruments: The table below estimates the fair value of
each represented class of financial instrument. For cash and cash equivalents,
accounts receivable and short-term debt, the carrying amount is used. Otherwise,
rates available to the company at December 31, 1999 and 1998 for debt with
similar terms and remaining maturities were used to estimate fair value for
long-term debt. Changes in the assumptions will produce differing results.
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
(in thousands) CARRYING AMOUNT FAIR VALUE Carrying amount Fair value
--------------- ---------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 2,189 $ 2,189 $ 620 $ 620
Accounts receivable 25,827 25,827 22,230 22,230
Financial liabilities:
Short-term debt $ 21,000 $ 21,000 $ 38,000 $ 38,000
Long-term debt $167,663 $161,843 $120,809 $135,092
-------- -------- -------- --------
</TABLE>
NOTE 2 - CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 1999, are
redeemable at the option of the company. At December 31, 1999, the redemption
price per share for each series of $25 Preferred Shares was $27.00, $26.50 and
$25.25 for the 4%, 4 _% and 5% Series, respectively. To each of the redemption
prices must be added accrued and unpaid dividends to the redemption date.
The $25 Preferred Shares, 5% Series, are subject to mandatory redemption
provisions of 1,600 shares per year. The annual aggregate mandatory redemption
requirements for this Series for the five years subsequent to December 31, 1999
is $40,000 each year.
In 1996, the company issued 1,000,000 Common Shares through a secondary public
offering. In January 1997, the company issued 71,500 Common Shares through a
secondary public offering. The net proceeds from this sale were used to repay a
portion of short-term debt then outstanding.
For the years ended December 31, 1999, December 31, 1998 and December 31, 1997,
all shares issued under the company's Common Share Purchase and Dividend
Reinvestment Plan (DRP) and the 401(k) Plan were purchased on the open market.
There were 500,000 and 571,408 Common Shares reserved for issuance under the DRP
and the 401(k) Plan, respectively, at December 31, 1999. Shares reserved for the
401(k) Plan are in relation to company matching contributions and for investment
purposes by participants.
As of December 31, 1999 there were no retained earnings restricted under any of
the company's debt instruments, as to the payment of cash dividends on Common
Shares.
In 1998, the board of directors adopted a Shareholder Rights Plan (Rights Plan)
and authorized a dividend distribution of one right (a Right) to purchase
1/1000th of a Junior Participating Preferred Share for each outstanding Common
Share. The Rights Plan became effective in September 1998 and will expire in
September 2008. The Rights Plan is designed to provide shareholders' protection
and to maximize shareholder value by encouraging a prospective acquirer to
negotiate with the board.
Each Right represents a right to purchase 1/1000th of Junior Participating
Preferred Share at the price of $120, subject to adjustment (the Purchase
Price). Each Junior Participating Preferred Share is entitled to receive a
dividend equal to 1000 times any dividend paid on Common Shares and 100 votes
per share in any shareholder election. The Rights become exercisable upon
occurrence of a Distribution Date. A Distribution Date event occurs if (i) any
person accumulates 15% of the then outstanding Common Share, (ii) any person
presents a tender offer which caused the person's ownership level to exceed 15%
and the board determines the tender offer not to be fair to AWR's shareholders,
or (iii) the board determines that a shareholder maintaining a 15% interest in
the Common Shares could have an adverse impact on AWR or could attempt to
pressure AWR to repurchase the holder's shares at a premium.
<PAGE> 36
Until the occurrence of a Distribution Date, each Right trades with the Common
Share and is not separately transferable. When a Distribution Date occurs, AWR
would distribute separately Rights Certificates to Common Shareholders and the
Rights would subsequently trade separate from the Common Shares and each holder
of a Right, other than the acquiring person whose Rights will thereafter be
void, will have the right to receive upon exercise at its then current Purchase
Price that number of Common Shares having a market value of two times the
Purchase Price of the Right. If AWR merges into the acquiring person or enters
<PAGE> 37
Page 26
into any transaction that unfairly favors the acquiring person or disfavors
AWR's other shareholders, the Right becomes a right to purchase Common Shares of
the acquiring person having market value of two times the Purchase Price.
The board of directors may determine that in certain circumstances a proposal
which would cause a Distribution Date is in the best interest of AWR's
shareholders. Therefore, the Board of Directors may, at its option, redeem the
Rights at a redemption price of $0.01 per Right.
NOTE 3 - COMPENSATING BALANCES AND BANK DEBT
At December 31, 1999, SCW maintained $47 million in aggregate borrowing capacity
with three commercial banks with no compensating balances required. Of this
amount, $21 million was outstanding at year-end. Loans can be obtained at the
option of SCW and bear interest at rates based on floating prime borrowing rates
or at money market rates.
Short-term borrowing activities for the last three years were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
(in thousands, except percent)
<S> <C> <C> <C>
Balance outstanding at December 31, $21,000 $38,000 $26,000
Interest rate at December 31, 7.35% 5.86% 6.39%
Average amount outstanding 8,775 19,309 $15,678
Weighted average annual interest rate 5.11% 6.78% 6.27%
Maximum amount outstanding $21,000 $39,000 $32,000
------- ------- -------
</TABLE>
NOTE 4 - LONG-TERM DEBT
In March 1998, SCW sold the remaining $15 million under its Series B Medium Term
Note Program and in December 1998, SCW redeemed all of its outstanding 10.10%
Notes. In January 1999, $40 million of Series C Medium Term Notes were sold. The
funds were used initially to repay short-term bank borrowings and, after that,
to fund construction expenditures. The company has no mortgage debt, and leases
and other similar financial arrangements are not material.
SCW has posted an Irrevocable Letter of Credit, which expires July 31, 2000, in
the amount of $646,631 as security for its self-insured workers' compensation
plan. SCW has also provided an Irrevocable Letter of Credit, which expires July
31, 2001, in the amount of $6,296,000 to a trustee with respect to the variable
rate obligation issued by the Three Valleys Municipal Water District.
Annual maturities of all long-term debt, including capitalized leases, amount to
$303,356, $231,559, $246,528, $262,036 and $278,644 for the five years ending
December 31, 2000 through 2004, respectively.
NOTE 5 - TAXES ON INCOME
The company provides deferred income taxes for temporary differences under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109), for certain transactions which are recognized for income
tax purposes in a period different from that in which they are reported in the
financial statements. The most significant items are the tax effects of
accelerated depreciation, the supply cost balancing accounts and advances for
and contributions-in-aid-of-construction. SFAS No. 109 also requires that
rate-regulated enterprises record deferred income taxes for temporary
differences accorded flow-through treatment at the direction of a regulatory
commission. The resulting deferred tax assets and liabilities are recorded at
the expected cash flow to be reflected in future rates. Since the CPUC has
consistently permitted the recovery of previously flowed-through tax effects,
SCW has established regulatory liabilities and assets offsetting such deferred
tax assets and liabilities.
<PAGE> 38
Page 27
Deferred investment tax credits are being amortized to other income ratably over
the lives of the property giving rise to the credits.
The significant components of deferred tax assets and deferred tax liabilities,
as reflected in the balance sheets, and the accumulated net deferred income tax
liabilities at December 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Balancing accounts $ (175) $ 33
State tax effect 5,721 5,123
-------- --------
5,546 5,156
-------- --------
Deferred tax liabilities
Depreciation (44,939) (43,442)
Advances and contributions 15,862 16,694
Other property related (10,007) (11,488)
Other non-property related (9,218) (8,666)
-------- --------
(48,302) (46,902)
-------- --------
Accumulated deferred income taxes - net $(42,756) $(41,746)
-------- --------
</TABLE>
The current and deferred components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
-----------=-------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 9,360 $ 5,219 $ 7,205
State 2,799 1,727 2,287
-------- -------- --------
Total current tax expense 12,159 6,946 9,492
-------- -------- --------
Deferred - Federal and State:
Accelerated depreciation 3,405 3,319 2,996
Balancing accounts (207) 6 (871)
Advances and contributions -- -- (210)
California privilege year franchise tax (970) (544) (617)
Other (664) (398) (566)
-------- -------- --------
Total deferred tax expense 1,564 2,383 732
-------- -------- --------
Total income tax expense 13,723 9,329 10,224
-------- -------- --------
Income taxes included in operating expenses 13,345 10,130 9,830
Income taxes included in other income and
expenses - net 378 (801) 394
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
</TABLE>
Additional information regarding taxes on income is set forth in the following
table:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except percent)
<S> <C> <C> <C>
Federal taxes on pre-tax income at statutory rates $ 10,438 $ 8,470 $ 8,451
Increase (decrease) in taxes resulting from:
State income tax expense 2,605 1,654 1,864
Depreciation 1,184 944 853
Federal benefit of state taxes (912) (579) (652)
Adjustments to prior years' provisions 433 (97) (143)
Payment of premium on redemption 66 (813) --
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Other - net (91) (250) (149)
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
Pre-tax income $ 29,824 $ 23,952 $ 24,145
-------- -------- --------
Effective income tax rate 46.0% 38.9% 42.3%
-------- -------- --------
</TABLE>
<PAGE> 40
NOTE 6 - EMPLOYEE BENEFIT PLANS
The company maintains a pension plan (the Plan) which provides eligible
employees (those age 21 and older, with one year of service) monthly benefits
upon retirement based on average salaries and length of service. The normal
retirement benefit is equal to 2% of the five highest consecutive years average
earnings multiplied by the number of years of credited service, up to a maximum
of 40 years, reduced by a percentage of primary social security benefits. There
is also an early retirement option. Annual contributions are made to the Plan
which comply with the funding requirements of the Employee Retirement Income
Security Act (ERISA). At December 31, 1999, the company had 713 participants in
the Plan, 54 of these are employees covered by collective bargaining agreements,
the earliest of which expires in 2001.
The company also provides all active employees medical, dental and vision care
benefits through a medical insurance plan. Eligible employees who retired prior
to age 65, and/or their spouses, were able to retain the benefits under the
active plan until reaching age 65. Eligible employees, upon reaching age 65, and
those employees retiring at or after age 65, and/or their spouses, receive
coverage through a Medicare supplemental insurance policy paid for by the
company subject to an annual cap limit.
The CPUC has issued a decision which provides for the recovery in rates of
tax-deductible contributions made to a separately trusteed fund. In accordance
with that decision,
<PAGE> 41
Page 28
SCW established two separate trusts in 1995, one for those retirees who were
subject to a collective bargaining agreement and another for all other retirees.
The company's funding policy is to contribute annually an amount at least equal
to the revenues authorized to be collected through rates for post-retirement
benefit costs. Post-retirement benefit costs for 1993, 1994 and 1995 were
estimated at a total of $1.6 million and have been recorded as a regulatory
asset for recovery over a 20 year period. The unamortized balance at December
31, 1999 was approximately $610,000.
The following table sets forth the Plan's funded status and amounts recognized
in the company's balance sheets and the components of net pension cost and
accrued post-retirement liability at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
1999 1998 1999 1998
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 38,572 $ 33,410 $ 4,363 $ 4,503
Service cost 1,963 1,597 125 112
Interest cost 2,538 2,278 305 283
Actuarial loss/(gain) (6,255) 2,514 (171) (368)
Benefits paid (1,305) (1,227) (191) (167)
-------- -------- ------- -------
Benefit obligation at end of year $ 35,513 $ 38,572 $ 4,431 $ 4,363
CHANGES IN PLAN ASSETS:
Fair value of plan assets at beginning
of year $ 39,541 $ 33,433 $ 1,442 $ 1,104
Actual return of plan assets 8,277 6,051 25 44
Employer contributions 1,264 1,284 484 461
Benefits paid (1,306) (1,227) (191) (167)
-------- -------- ------- -------
Fair value of plan assets at end of year $ 47,776 $ 39,541 $ 1,760 $ 1,442
RECONCILIATION OF FUNDED STATUS:
Funded status $ 12,263 $ 969 $(2,671) $(2,921)
Unrecognized transition obligation 57 114 6,288 6,707
Unrecognized net loss/(gain) (10,683) 677 (1,869) (1,860)
Unrecognized prior service cost 355 400 (3,228) (3,427)
-------- -------- ------- -------
Prepaid/(accrued) pension cost $ 1,992 $ 2,160 $(1,480) $(1,501)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount rate 7.75% 6.50% 7.75% 6.50%
Long-term rate of return 8.00% 8.00% 8.00% 8.00%
Salary assumption 4.00% 4.00% -- --
</TABLE>
A sliding scale for assumed health care cost increases was used for both
periods, starting at 8% in 1999 and then remaining at 6% thereafter.
The components of net periodic post-retirement benefits costs for 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- -------------------
1999 1998 1999 1998
------- ------- ----- -----
(in thousands)
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFITS COST
Service cost $ 1,963 $ 1,597 $ 125 $ 112
Interest cost 2,538 2,278 305 283
Actual return on plan assets (8,277) (6,051) (25) (44)
Net amortization 5,207 3,476 58 67
------- ------- ----- -----
Net periodic pension cost $ 1,431 $ 1,300 $ 463 $ 418
</TABLE>
<PAGE> 42
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage-Point 1-PERCENTAGE-POINT
Increase DECREASE
------------------ ------------------
(in thousands)
<S> <C> <C>
Effect on total of service and interest cost components $ 13 $ (12)
Effect on postretirement benefit obligation 177 (156)
</TABLE>
The company has a 401(k) Investment Incentive Program under which employees may
invest a percentage of their pay, up to a maximum investment prescribed by law,
in an investment program managed by an outside investment manager. Company
contributions to the 401(k) are based upon a percentage of individual employee
contributions and, for 1999, 1998 and 1997, totaled $920,340, $874,113, and
$785,687, respectively.
NOTE 7 - BUSINESS RISKS AND CONCENTRATION OF SALES
The company's utility operations are engaged in supplying water and electric
service to the public. SCW is required to provide service and grant credit to
customers within its defined service areas. Although the company has a
diversified base of residential, industrial and other customers, revenues
derived from commercial and residential water customers accounted for
approximately 90% of total water revenues in 1999 and 91%
<PAGE> 43
Page 29
in 1998. The company faces additional risks associated with weather conditions,
adequacy and quality of water supplies, regulatory decisions, pronouncements and
laws, water-related litigation, general business conditions and condemnation .
Approximately 40% of the SCW's water supply is purchased from wholesalers of
imported water, with the remainder produced from company wells. The long-term
availability of imported water supplies is dependent upon, among other things,
drought conditions throughout the state, increases in population, water quality
standards and legislation that may potentially reduce water supplies. SCW does
not anticipate any constraints on its imported water supplies in 2000.
NOTE 8 - CONTINGENCIES
In 1998, ASUS was formed to pursue non-regulated opportunities such as long-term
leases, and operation and maintenance contracts of governmentally-owned water
and wastewater systems. In 1999, the company terminated its Golden State Water
Company joint venture. The company expensed approximately $336,000 against
future losses and capital account adjustments in 1998. There was no significant
financial impact in 1999 associated with the termination.
On April 22, 1999, the CPUC issued an order denying SCW's application seeking
approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement with a
value of approximately $9.5 million. SCW's investment in SWP is currently
included in Other Property and Investments. The remaining balance of the related
liability of approximately $7 million is recorded as other long-term debt. SCW
intends to recover its investment in SWP through contributions from developers
on a per-lot or other basis, and, failing that, sale of its 500 acre-foot
entitlement in SWP. SCW believes that its full investment and on-going costs
associated with its ownership will be fully recovered.
SCW has been named as a defendant in 11 lawsuits which allege that SCW delivered
contaminated water to its customers. Plaintiffs in these actions seek damages,
including general, special, and punitive damages, according to proof of trial,
as well as attorney's fees on certain causes of action, costs of suit, and other
unspecified relief. Nine of the lawsuits involve CSAs located in Los Angeles
county in the southern portion of California; two of the lawsuits involve a CSA
located in Sacramento county in Northern California. On September 1, 1999, the
Court of Appeal in San Francisco held that the CPUC had preemptive jurisdiction
over regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of 11 lawsuits against SCW had been ordered for dismissal by the state Court
of Appeal. On October 11, 1999, one group of plaintiffs appealed the decision to
the California Supreme Court which has accepted the case. Management is unable
to predict the outcome of this proceeding but, in any event, does not anticipate
a decision prior to 2001.
In light of the breadth of plaintiff's claims, the lack of factual information
regarding plaintiff's claims and injuries, if any, the fact that no discovery
has yet been completed, SCW is unable to determine at this time what, if any,
potential liability it may have with respect to these claims. SCW intends to
vigorously defend itself against these allegations. Management can not predict
the outcome of these proceedings and if SCW is found liable, SCW would pursue
recovery through its insurance coverage providers.
In response to those lawsuits and similar actions, in March 1998 the CPUC issued
an Order Instituting Investigation (OII) directed to all Class A and B water
utilities in California, including SCW, into whether existing standards and
policies regarding drinking water quality adequately protect the public health
and whether those standards and policies are being uniformly complied with by
those water utilities. The OII notes the constitutional and statutory
jurisdiction of the CPUC and the DOHS to establish and enforce adherence to
water quality standards for water delivered by utilities to their customers and,
in the case of the CPUC, to establish rates which permit water utilities to
furnish water that meets the established water quality standards at prices which
are both affordable and that allow the utility to earn a reasonable return on
its investment. SCW has made its filing in this proceeding on a series of
questions dealing with current drinking water standards, compliance by water
utilities with such standards, appropriate remedies for failure to comply with
drinking standards and whether stricter or additional drinking water standards
are required. The Water Division of the CPUC has issued its report based on
these filings by the utilities.
<PAGE> 44
A final decision in the OII is anticipated in 2000. The OII leaves open the
possibility of evidentiary hearings and further action by the
<PAGE> 45
Page 30
CPUC. The Administrative Law Judge assigned to the OII has issued a draft
decision finding that water utilities, including SCW, have complied with DOHS
regulations and requirements. SCW is unable to predict whether the draft
decision will be approved in part or in its entirety by the CPUC.
Management believes that proper insurance coverage and reserves are in place to
insure against anticipated property, general liability and workers' compensation
claims.
NOTE 9 - CONSTRUCTION PROGRAM
SCW's 2000 construction budget provides for gross expenditures of approximately
$59 million, $3.6 million of which is anticipated to be obtained from developers
and others. AWR and ASUS have no material capital expenditure programs.
NOTE 10 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The table below presents SCW's provision for doubtful accounts charged to
expense and accounts written off, net of recoveries for the last three years.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
----- ----- -----
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 403 $ 466 $ 387
Provision charged to expense 852 631 707
Accounts written off, net of recoveries (768) (694) (628)
----- ----- -----
Balance at end of year $ 487 $ 403 $ 466
----- ----- -----
</TABLE>
Neither AWR nor ASUS have established any provision for doubtful accounts.
NOTE 11 - BUSINESS SEGMENTS
The company has two principal business units: a water and electric distribution
unit, through its SCW subsidiary, and a non-regulated activity unit through the
ASUS subsidiary. All activities currently are geographically located within
California, except for one contract providing customer service and billing
services to a utility located in Arizona. SCW is a regulated utility which
operates both water and electric systems. AWR has no material operations other
than its SCW subsidiary. On a stand alone basis, AWR has no material assets
other than its investments in its subsidiaries. The tables below set forth
information relating to SCW's operating segments. SCW manages its operations on
a regional basis using the five categories below as broad-level measures of
profitability. Included in the amounts set forth, certain assets have been
allocated. The identifiable assets are net of respective accumulated provisions
for depreciation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
WATER
-----------------------------------------
REGION I REGION II REGION III ELECTRIC
-------- --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Operating revenues $ 27,221 $ 70,770 $ 61,692 $13,348
Operating income before income
taxes 6,567 15,841 16,022 3,821
Identifiable assets 108,675 140,175 177,457 25,725
Depreciation expense 2,736 4,041 5,395 1,344
Capital additions $ 12,966 $ 21,926 $ 14,513 $ 2,173
-------- -------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric
-------- --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Operating revenues $ 24,927 $ 57,273 $ 52,582 $13,211
Operating income before income
taxes 6,799 11,732 13,143 3,847
Identifiable assets 97,463 123,044 169,264 24,981
Depreciation expense 2,551 3,378 4,701 1,640
Capital additions $ 13,302 $ 14,452 $ 15,795 $ 1,720
-------- -------- -------- -------
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric
-------- --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Operating revenues $ 24,340 61,085 55,551 $12,779
Operating income before income
taxes 5,897 9,593 13,709 4,089
Identifiable assets 87,039 112,556 158,934 25,095
Depreciation expense 2,306 3,042 4,604 1,001
Capital additions $ 10,007 $ 15,431 $ 11,671 $ 2,116
-------- -------- -------- -------
</TABLE>
<PAGE> 47
Page 31
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The business
of the company is of a seasonal nature and it is management's opinion that
comparisons of earnings for the quarter periods do not reflect overall trends
and changes in the company's operations.
<TABLE>
<CAPTION>
Operating Revenues Operating Income Net Income Earnings per Share
---------------------- ---------------------- ---------------------- ----------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter $ 36,132 $ 29,955 $ 5,854 $ 4,382 $ 2,977 $ 1,843 $ 0.33 $ 0.20
Second quarter 42,116 35,001 7,251 5,586 4,406 2,767 0.49 0.31
Third quarter 51,597 47,002 10,266 9,432 6,690 6,374 0.74 0.71
Fourth quarter 43,576 36,102 5,143 5,661 2,028 3,639 0.23 0.40
-------- -------- -------- -------- -------- -------- -------- --------
Year $173,421 $148,060 $ 28,514 $ 25,061 $ 16,101 $ 14,623 $ 1.79 $ 1.62
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
NOTE 13 - YEAR 2000 READINESS UPDATE
The company has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no effects or changes to the company's
operating trends or revenue patterns as a result of the millennium turnover.
SCW formally announced its 100% Y2K Ready status when it filed its compliance
report with the CPUC on November 1, 1999. SCW will be submitting the last CPUC
report on this issue by March 1, 2000.
The company's general process for addressing the Y2K issue was (i) to inventory
all systems that may have a potential Y2K impact, (ii) to determine the
materiality of these non-Y2K ready systems, (iii) to replace and test, correct
and test, or prepare for the failure of material items that have been determined
to be non-Y2K ready, and (iv) to prepare contingency plans.
The company is significantly dependent on third party suppliers, such as energy
and telecommunication companies and wholesale water suppliers. In order to
conduct its business, the company initiated due diligence with certain of its
major service providers to address their Y2K readiness. In the event that such
suppliers might be adversely affected by Y2K, the company prepared its
contingency plan which included, among other things, increased staffing during
critical periods, manual back-up for automated systems and the use of portable
generators capable of providing power during a black-out. Several "dry runs"
were exercised in 1999, which simulated Y2K situations that implemented the
company's contingency plan. The dry runs proved to be effective exercises that
identified areas of strength and weakness, and provided real-life experience
from which to make informed decisions about Y2K preparation and contingency
planning.
Not all Y2K problems were necessarily expected to surface in early 2000. The
company does not have, and may never fully have, sufficient information about
the Y2K exposure of these third parties to adequately predict the risks posed by
them to the company. If the third parties later discover any Y2K problems that
are not remedied, resulting problems could include loss of utility services and
disruption of water supplies.
On September 2, 1999, the CPUC issued an order denying regulated water utilities
the authority to create memorandum accounts for Y2K expenses. The order,
however, provides that after January 1, 2000, regulated water utilities may file
for recovery of capital investment, not otherwise included in current rates,
associated with Y2K mitigation efforts. Y2K final expenditures have been
estimated at approximately $7.5 million. The company has spent $4.8 million at
January, 2000, $4.0 million of which is in capital investments. The company
believes that these capital expenditures as well as the remaining Y2K-related
investments will be recovered through rates.
<PAGE> 48
Page 32
REPORT OF MANAGEMENT
The consolidated financial statements contained in this annual report were
prepared by the management of American States Water Company, which is
responsible for their integrity and objectivity. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and include, where necessary, amounts based upon management's best
estimates and judgments. All other financial information in the annual report is
consistent with the consolidated financial statements and is also the
responsibility of management.
The company maintains systems of internal control which are designed to help
safeguard the assets of the company and provide reasonable assurance that
accounting and financial records can be relied upon to generate accurate
financial statements. These systems include the hiring and training of qualified
personnel, appropriate segregation of duties, delegation of authority and an
internal audit function which has reporting responsibility to the Audit
Committee of the board of directors.
The Audit Committee, composed of three outside directors, exercises oversight of
management's discharge of its responsibilities regarding the systems of internal
control and financial reporting. The committee periodically meets with
management, the internal auditor and the independent accountants to review the
work and findings of each. The committee also reviews the qualifications of, and
recommends to the board of directors, a firm of independent accountants.
The independent accountants, Arthur Andersen LLP, have performed an audit of the
consolidated financial statements in accordance with generally accepted auditing
standards. Their audit gave consideration to the company's system of internal
accounting control as a basis for establishing the nature, timing and scope of
their work. The result of their work is expressed in their Report of Independent
Public Accountants.
[Signatures of Floyd E. Wicks and McClellan Harris III]
Floyd E. Wicks McClellan Harris III
President, Chief Executive Officer Chief Financial Officer,
Vice President - Finance,
Treasurer and Corporate Secretary
February 10, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of American States Water Company:
We have audited the consolidated balance sheets and consolidated statements of
capitalization of American States Water Company (a California corporation) as of
December 31, 1999 and 1998 and the related consolidated statements of income,
changes in common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
<PAGE> 49
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American States
Water Company as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
[Signature of Arthur Andersen LLP]
Arthur Andersen LLP
Los Angeles, California
February 10, 2000
<PAGE> 50
Page 33
SHAREHOLDER INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
All shareholders are invited to attend the Annual Meeting of Shareholders which
will be held on Tuesday, May 2, 2000, beginning at 9:00 am, at the Industry
Hills Sheraton, One Industry Hills Parkway, City of Industry, California 91744.
Notice of meeting and proxy materials will be mailed.
STOCK LISTING
Common Shares of American States Water Company are traded on the New York Stock
Exchange under the symbol AWR. The high and low NYSE prices and the dividends
paid on the Common Shares for the past two years were:
<TABLE>
<CAPTION>
1999 HIGH LOW DIVIDENDS PAID
- -------------- -------- -------- --------------
<S> <C> <C> <C>
First quarter $ 30 $23 9/16 $ 0.32
Second quarter 29 1/4 22 3/16 0.32
Third quarter 37 1/8 28 3/8 0.32
Fourth quarter 39 3/4 31 3/4 0.32
-------- -------- --------
$ 1.28
</TABLE>
<TABLE>
<CAPTION>
1998 High Low Dividends Paid
- -------------- -------- -------- --------------
<S> <C> <C> <C>
First quarter $ 26 $23 1/16 $ 0.315
Second quarter 27 1/8 21 1/8 0.315
Third quarter 27 23 1/4 0.315
Fourth quarter 29 1/4 24 7/8 0.315
-------- -------- --------
$ 1.260
</TABLE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Arthur Andersen LLP
633 West Fifth Street
Los Angeles, CA 90071
CORPORATE REPORTS
Shareholders with questions, or who wish to obtain a copy of the company's
reports to the Securities and Exchange Commission without charge, should
contact:
American States Water Company
Attn: Corporate Secretary
630 East Foothill Boulevard
San Dimas, CA 91773
Phone: (909) 394-3600
Fax: (909) 394-1382
SHAREHOLDER ASSISTANCE
Shareholders with questions about replacement of dividend checks, transferring
stock, replacing lost or stolen certificates or other matters related to their
ownership of stock, should contact:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(888) 816-6998
http://[email protected]
<PAGE> 51
COMMON SHARE PURCHASE AND DIVIDEND REINVESTMENT PLAN
The company has a Common Shares Purchase and Dividend Reinvestment Plan ("Plan")
that is sponsored and administered by The Chase Manhattan Bank. The Plan
provides a simple and cost-effective method for current and potential
shareholders to build ownership in the company through the direct purchase of
Common Shares from the company and the reinvestment of their cash dividends. A
Prospectus and enrollment form may be obtained from ChaseMellon Shareholder
Services, L.L.C. at (800) 842-7629 or from the company at (877) 463-6297
(INFOAWR).
2000 DIVIDEND SCHEDULE
The following schedule shows the anticipated Common and Preferred Share record
and payment dates for 2000:
<TABLE>
<CAPTION>
Record Dates Payment Dates
- ----------- --------------
<S> <C>
February 7 March 1
May 5 June 1
August 8 September 1
November 7 December 1
</TABLE>
INTERNET ADDRESS
http://www.aswater.com
<PAGE> 52
Page 34
STATISTICAL REVIEW
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- -------- -------- --------
(in thousands, except per share and per customer amounts)
<S> <C> <C> <C> <C>
FINANCIAL INFORMATION
Revenues by Classification
Residential and Commercial $144,273 $123,271 $131,007 $126,456
Industrial 2,278 1,917 1,998 1,847
Fire Service 1,374 1,329 1,319 1,269
Other - Water 11,768 8,277 6,664 10,425
Total Water Revenue 159,693 134,794 140,988 139,997
Electric Revenue 13,338 13,201 12,767 11,532
Other Revenue 390 65 -- --
Total Operation Revenues 173,421 148,060 153,755 151,529
Net Income 16,101 14,623 14,059 13,460
Earnings Available for Common Shareholders 16,013 14,533 13,967 13,366
Earnings per Common Share 1.79 1.62 1.56 1.69
Dividends Declared per Common Share 1.28 1.26 1.25 1.23
Book Value per Common Share 17.73 17.23 16.86 16.52
Total Assets 533,181 484,671 457,074 430,922
Net Utility Plant 449,595 414,753 383,623 357,776
Capital Additions 51,578 45,269 39,226 34,374
Long-term Debt (Net) 167,363 120,809 115,286 107,190
Preferred Shares 1,600 1,600 1,600 1,600
Preferred Shares -- Mandatory Redemption 360 400 440 480
Investment per Customer $ 2,267 $ 2,099 $ 1,900 $ 1,808
OPERATION INFORMATION
Water Sold by Classification (mg)
Residential and Commercial 53,742 49,302 54,623 52,843
Industrial 853 832 899 828
Fire Service 411 649 417 831
Other 4,828 4,124 5,070 4,932
Total Water 59,834 54,907 61,009 59,434
Total Electric Sales (mwh) 127,584 123,791 121,315 117,139
Customers by Classification
Residential and Commercial 238,511 237,157 236,270 235,244
Industrial 328 332 331 333
Fire Service 3,140 3,112 2,964 2,925
Other 2,107 2,033 2,016 2,046
Total Water 244, 086 242,634 241,581 240,548
Electric 21,181 20,865 20,698 20,437
Total Company 265,267 263,499 262,279 260,985
Water Production by Source (mg)
Purchased 25,647 22,885 28,894 27,147
Pumped -- Electric 36,969 35,596 34,531 35,216
Pumped -- Gas 179 75 316 40
Gravity and Surface 1,035 74 1,147 932
Total Supply 63,830 58,630 64,888 63,335
Miles of Main in Service 2,742 2,654 2,638 2,603
Number of Employees 492 470 467 463
-------- -------- -------- --------
</TABLE>
mg=Millions of Gallons mwh=Mega-Watt Hours
<PAGE> 53
Page 35
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
(in thousands, except per share and per customer amounts)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION
Revenues by Classification
Residential and Commercial $106,480 $100,796 $ 86,918 $ 82,112 $ 68,063 $ 69,161
Industrial 1,674 1,459 1,134 1,110 1,019 1,021
Fire Service 1,211 1,181 1,149 1,067 927 954
Other 9,557 8,651 8,954 6,336 8,273 5,150
Total Water 118,922 112,087 98,155 90,625 78,282 76,286
Electric 10,891 10,588 10,351 10,035 12,378 11,054
Other -- -- -- -- -- --
Total Operation Revenues 129,813 122,675 108,506 100,660 90,660 87,340
Net Income 12,165 11,338 12,026 12,142 15,363 8,907
Earnings Available for Common
Shareholders 12,069 11,240 11,926 12,040 15,259 8,801
Earnings per Common Share 1.54 1.43 1.66 1.82 2.34 1.40
Dividends Declared per Common Share 1.21 1.20 1.19 1.15 1.10 1.08
Book Value per Common Share 15.50 15.16 14.92 13.28 12.59 11.31
Total Assets 406,255 383,627 358,533 312,491 293,444 268,028
Net Utility Plant 334,968 317,879 294,990 277,525 258,558 235,713
Capital Additions 28,761 30,307 28,626 26,975 32,472 27,078
Long-term Debt 107,455 92,891 84,621 84,195 82,634 67,246
Preferred Shares 1,600 1,600 1,600 1,600 1,600 1,600
Preferred Shares -- Mandatory
Redemption 520 560 600 640 680 720
Investment per Customer $ 1,688 $ 1,578 $ 1,480 $ 1,388 $ 1,297 $ 1,213
OPERATION INFORMATION
Water Sold by Classification (mg)
Residential and Commercial 49,641 51,084 48,033 47,541 44,528 51,696
Industrial 802 818 679 699 737 937
Fire Service 130 308 33 23 11 50
Other 4,706 4,537 4,019 3,890 3,807 4,511
Total Water 55,279 56,747 52,764 52,153 49,083 57,194
Total Electric Sales (mwh) 111,519 110,234 106,234 105,346 101,923 103,376
Customers by Classification
Residential and Commercial 233,920 232,879 231,966 230,956 230,175 221,888
Industrial 326 323 322 330 347 376
Fire Service 2,909 2,896 2,877 2,846 2,779 2,610
Other 1,807 1,807 1,820 1,795 1,812 1,819
Total Water 238,962 237,905 236,985 235,927 235,113 226,693
Electric 20,475 20,331 20,131 20,039 19,780 19,559
Total Company 259,437 258,236 257,116 255,966 254,893 246,252
Water Production by Source (mg)
Purchased 24,356 25,940 25,156 24,377 23,221 31,021
Pumped -- Electric 34,105 33,337 32,056 30,406 28,640 28,923
Pumped -- Gas 218 198 195 177 245 270
Gravity and Surface 979 967 658 1,249 1,046 1,255
Total Supply 59,658 60,442 58,065 56,209 53,152 61,469
Miles of Main in Service 2,587 2,567 2,560 2,549 2,535 2,517
Number of Employees 448 467 486 445 422 410
-------- -------- -------- -------- -------- --------
</TABLE>
<PAGE> 54
Page 36
CUSTOMER SERVICE AREAS SERVED BY SOUTHERN CALIFORNIA WATER COMPANY
NUMBER OF CUSTOMERS
<TABLE>
<S> <C>
REGION I
Northern District
Arden-Cordova 13,835
Bay Point 4,879
Clearlake 2,110
Coastal District
Los Osos 3,137
Ojai 2,782
Santa Maria 12,690
Simi Valley 12,683
REGION II
Central District
Central Basin East 19,681
Central Basin West 19,359
Culver City 9,340
Southwest District 49,444
REGION III
Foothill District
Claremont 10,458
San Dimas 15,674
San Gabriel Valley 11,751
Mountain/Desert District
Apple Valley 2,350
Barstow 8,430
Calipatria 1,152
Morongo Valley 837
Wrightwood 2,540
Orange County District
Los Alamitos 26,361
Placentia 14,593
TOTAL WATER 244,086
BEAR VALLEY ELECTRIC SERVICE 21,181
-------
TOTAL SCWCUSTOMERS 265,267
</TABLE>
[map of California showing service areas]
<PAGE> 55
Inside Back Cover
CORPORATE INFORMATION
BOARD OF DIRECTORS OF AMERICAN STATES WATER COMPANY, SOUTHERN CALIFORNIA WATER
COMPANY AND AMERICAN STATES UTILITY SERVICES, INC.
Lloyd E. Ross (58,4)
(Chairman of the Board of Directors)
Managing Partner, Invermex L.P.
Irvine, California
Floyd E. Wicks (56,10) (c)
President and Chief Executive Officer
James L. Anderson (56,3) (a,c)
(Chairman of the company's Compensation Committee)
Senior Vice President
Americo Life Inc.
Austin, Texas
Jean E. Auer (63,4) (a,c)
(Chairperson of the company's Nominating and Governance Committee)
Consultant to the San Francisco Estuary Project
and member of the Board of Directors
of the Water Education Foundation
Council Member of the Town of
Hillsborough, California
N. P. Dodge, Jr. (62,9) (a,b)
President, N.P. Dodge Company
Omaha, Nebraska
Anne M. Holloway (47,2) (a,b)
Vice President, Navigant Consulting Inc.
Atherton, California
Robert F. Kathol (58,4) (a,b)
(Chairman of the company's Audit and Finance Committee)
Executive Vice President
Kirkpatrick, Pettis, Smith, Polian Inc.
Omaha, Nebraska
ELECTED OFFICERS
Lloyd E. Ross (58,1) (d)
Chairman of the Board
Floyd E. Wicks (56,12) (d)
President, Chief Executive Officer
McClellan Harris III (48,9) (d)
Chief Financial Officer, Vice President-Finance,
Treasurer and Corporate Secretary
Joel A. Dickson (47,9) (e)
<PAGE> 56
Vice President-Business Development
Donald K. Saddoris (56,32) (f)
Vice President-Customer Service, Region I
Joseph F. Young (54,22) (f)
Vice President-Customer Service, Region II
James B. Gallagher (45,12) (f)
Vice President-Customer Service, Region III
Denise L. Kruger (35,7) (f)
Vice President-Water Quality
Susan L. Conway (38,11) (f)
Vice President-Regulatory Affairs
(age, years of service)
(a) Member - Compensation Committee
(b) Member - Audit and Finance Committee
(c) Member - Nominating and Governance Committee
(d) Holds same title in American States Water Company, Southern California
Water Company and American States Utility Services, Inc.
(e) Holds same title in American States Water Company, American States Utility
Services, Inc. and holds title of Vice President - Customer and Operations
Support in Southern California Water Company
(f) Officer of Southern California Water Company only
[photo of board of directors]
<PAGE> 57
Back Cover
American States Water Company
630 E. Foothill Boulevard, San Dimas, California 91773-1212
(909) 394-3600
www.aswater.com
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated February 10, 2000 included in this Annual Report
on Form 10-K into the following American States Water Company and Southern
California Water Company registration statements:
<TABLE>
<CAPTION>
Registration Form Registration No. Effective Date
<S> <C> <C>
S - 8 33-71226 November 4, 1993
S - 3 333-68201 December 16, 1998
S - 3 333-68299 December 22, 1998
S - 3 333-88979 October 26, 1999
</TABLE>
It should be noted that we have performed no audit procedures subsequent to
February 10, 2000, the date of our report, except with respect to Note 14 as to
which the date is March 10, 2000. Furthermore, we have not audited any financial
statements of the Company as of any date or for any period subsequent to
December 31, 1999.
Los Angeles, California
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND INCOME STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED
HEREWITH.
</LEGEND>
<CIK> 0000092116
<NAME> SOUTHERN CALIFORNIA WATER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 449,595
<OTHER-PROPERTY-AND-INVEST> 10,583
<TOTAL-CURRENT-ASSETS> 44,340
<TOTAL-DEFERRED-CHARGES> 28,663
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 533,181
<COMMON> 22,394
<CAPITAL-SURPLUS-PAID-IN> 74,937
<RETAINED-EARNINGS> 61,515
<TOTAL-COMMON-STOCKHOLDERS-EQ> 158,846
400
1,600
<LONG-TERM-DEBT-NET> 167,076
<SHORT-TERM-NOTES> 21,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 175
40
<CAPITAL-LEASE-OBLIGATIONS> 587
<LEASES-CURRENT> 125
<OTHER-ITEMS-CAPITAL-AND-LIAB> 184,012
<TOT-CAPITALIZATION-AND-LIAB> 533,181
<GROSS-OPERATING-REVENUE> 173,421
<INCOME-TAX-EXPENSE> 13,345
<OTHER-OPERATING-EXPENSES> 131,562
<TOTAL-OPERATING-EXPENSES> 144,907
<OPERATING-INCOME-LOSS> 28,514
<OTHER-INCOME-NET> 532
<INCOME-BEFORE-INTEREST-EXPEN> 29,046
<TOTAL-INTEREST-EXPENSE> 12,945
<NET-INCOME> 16,101
88
<EARNINGS-AVAILABLE-FOR-COMM> 16,013
<COMMON-STOCK-DIVIDENDS> 11,466
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 39,010
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.79
</TABLE>
