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American States Water Co – ‘DEFR14A’ on 4/12/05

On:  Tuesday, 4/12/05, at 3:04pm ET   ·   Effective:  4/12/05   ·   Accession #:  1206774-5-573   ·   File #:  1-14431

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/12/05  American States Water Co          DEFR14A     4/12/05    1:704K                                   DG3/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEFR14A     Revised Definitive Proxy Solicitation Material      HTML    574K 

Amendment No. 1

Notice of the 2005 Annual Meeting of Shareholders
and the
2005 Proxy Statement

Table of Contents

Notice of the 2005 Annual Meeting of Shareholders

Agenda

The Board of Directors has nominated the following individuals for election as Class I directors: James L. Anderson, Anne M. Holloway and Floyd E. Wicks.

San Dimas, California
April 12, 2005

Information about Attending

We will hold the Annual Meeting at the Hilton Pasadena, 168 South Los Robles Avenue, Pasadena, California.

For shareholders of record, the detachable portion of your proxy form is your ticket to the Annual Meeting. Please present your ticket when you reach the registration area at the Annual Meeting.

For shareholders who hold shares through a brokerage firm, bank or other holder of record, your ticket is the copy of your latest account statement showing your American States Water Company investment. Please present your account statement to the Company representative at the Annual Meeting. You will not, however, be entitled to vote your shares at the Annual Meeting, unless you have obtained a legal proxy from your broker, bank or other shareholder of record. A copy of your account statement is not sufficient for this purpose.

Directions to the Pasadena Hilton

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April 12, 2005

2005 Proxy Statement

General Information

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of American States Water Company of proxies to be voted at the Annual Meeting of Shareholders of the Company and any adjournments thereof. This statement and the accompanying proxy are being sent to shareholders on or about April 12, 2005.

At the Annual Meeting, shareholders will be asked to elect three Class I directors to serve until the annual meeting of shareholders held in 2007 and until their successors are elected and qualified. Shareholders will also be asked to approve amendments to the 2003 Non-Employee Directors Stock Plan and an amendment to the 2000 Stock Incentive Plan. Shareholders may also be asked to ratify the appointment of PricewaterhouseCoopers LLP as independent auditors and to vote on any other matter which may properly come before the Annual Meeting or any adjournment thereof, including any proposal to adjourn the Annual Meeting. Whether or not you intend to be present at the Annual Meeting, you are urged to vote early using the mail, telephone or on-line methods.

Solicitation of Proxy and Revocability; Voting Securities

Date, Time and Place of Annual Meeting
The Annual Meeting will be held on May 17, 2005 at 10:00 a.m., Pacific Time, at the Hilton Pasadena, 168 South Los Robles Avenue, Pasadena, California.

Record Date and Voting Rights
Only holders of record of the Company’s voting securities at the close of business on March 25, 2005 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. At the Record Date, the Company had 16,763,744 Common Shares outstanding. Each Common Share is entitled to one vote.

Votes cast by proxy or in person at the Annual Meeting will be counted by an inspector of election appointed by the Board of Directors to act as an election inspector for the Annual Meeting. Shares represented by proxies that reflect abstentions will be treated as present and entitled to vote for purposes of determining the presence of a quorum. Abstentions, however, will not constitute a vote “for” or “against” any matter.

The inspector of election will treat shares referred to as “broker non-votes” (i.e., shares held by brokers or nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote and as to which the broker has physically indicated on the proxy that the broker or nominee does not have discretionary power to vote on a particular matter) as shares that are present and entitled to vote for purposes of determining the presence of a quorum. However, “broker non-votes” will not constitute a vote for or against any matter as to which the broker has physically indicated on the proxy that it does not have discretionary authority to vote (even though those shares are considered present for quorum purposes and may be entitled to vote on other matters). Any unmarked proxies, including those submitted by brokers or nominees, will be voted as indicated in the accompanying proxy card.

In the election of directors, the candidates for election receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected, will be elected. Votes cast against a candidate or votes withheld will have no legal effect. No shareholder will be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of Common Shares held of record by such shareholder) unless such candidate’s name has been placed in nomination prior to the voting and the shareholder has given notice at the meeting, prior to the voting, of the shareholder’s intention to cumulate the shareholder’s votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates who have been nominated. If voting for directors is conducted by cumulative voting, each share will be entitled to the number of votes equal to the number of directors authorized times the number of votes to which such share is otherwise entitled, which votes may be cast for a single candidate or may be distributed among two or more candidates in whatever proportion the shareholder may desire. The accompanying proxy card will grant the named proxies discretionary authority to vote cumulatively, if cumulative voting applies. In such event, unless otherwise instructed, the named proxies intend to vote equally FOR each of the three candidates for the office of

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director; provided, however, that if sufficient numbers of the Company’s shareholders exercise cumulative voting rights to elect one or more candidates, the named proxies will determine the number of directors they are entitled to elect, select such number from among the named candidates, cumulate their votes, and cast their votes for each candidate among the number they are entitled to elect. If voting is not conducted by cumulative voting, each Common Share will be entitled to one vote, and shareholders having a majority of the voting power exercised at the meeting will be able to elect all of the directors if they choose to do so. In that event, the other shareholders will be unable to elect any director or directors.

A majority of the Company’s Common Shares present at the Annual Meeting in person or by proxy must vote in favor of the proposed changes to the 2003 Non-Employee Directors Stock Plan and the 2000 Stock Incentive Plan and the total vote cast on each proposal must represent over 50% in interest of all shares entitled to vote on the proposal in order for it to become effective. A majority of the Company’s Common Shares present at the Annual Meeting in person or by proxy must vote in favor of any proposal to adjourn the Annual Meeting.

Assuming the presence of a quorum, the shareholders present at the meeting may continue to do business until adjournment, notwithstanding the withdrawal of shareholders holding sufficient voting power to leave less than a quorum, if any action taken (other than adjournment) is approved by the requisite vote.

Voting By Proxy
Regardless of whether or not shareholders plan to attend the meeting in person, all shareholders of the Company are urged to use the enclosed proxy card to vote their shares. All proxies that are properly executed and returned, unless revoked, will be voted at the Annual Meeting or any adjournment thereof in accordance with the instructions indicated thereon or, if no direction is indicated FOR the election of the Board’s nominees as directors and FOR each of the proposals. The execution of a proxy will not affect the right to attend the Annual Meeting or any adjournment thereof and vote in person.

You may revoke a proxy that you have given at any time before it is exercised at the Annual Meeting by filing with the Company a written notice of revocation of the proxy bearing a later date or by attendance at the Annual Meeting and voting in person (or presenting at the meeting such written notice of the revocation of the proxy), provided that you have obtained a legal proxy if you hold your shares through a broker, bank or other shareholder of record. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

The proxies may also be voted for a substitute nominee or nominees in the event any one or more of the director nominees named under “Item 1—Election of Directors” will be unable to serve for any reason or be withdrawn from nomination, a contingency not now anticipated. Shares for which duly executed proxies are received will be voted according to the Board’s best judgment upon such matters as may properly come before the Annual Meeting or any adjournment thereof.

Voting by Mail
Shareholders may sign, date and return their proxy forms in the pre-addressed, postage-paid envelope provided.

Voting by Telephone
You may vote by proxy using the toll-free telephone number listed on the proxy form. Please have the proxy form in hand when calling.

Shareholders whose shares are held through a brokerage firm, bank or other holder of record may vote by telephone only if the holder of record (broker, bank or other holder of record) offers those options.

Voting by Internet
You may vote by proxy using the Internet. The Internet address is www.proxyvote.com and is also listed on the proxy form. Please have the proxy form in hand when going online.

Shareholders whose shares are held through a brokerage firm, bank or other holder of record may vote by Internet only if the holder of record (broker, bank or other holder of record) offers those options.

Adjournments
The Annual Meeting may be adjourned, even if a quorum is not present, by a majority of the votes of shareholders represented at the Annual Meeting in person or by proxy. In the absence of a quorum at the Annual Meeting, no other business may be transacted at the Annual Meeting.

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Notice of the adjournment of a meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting must also be given. Any business may be transacted at an adjourned meeting, which might have been transacted at the original meeting.

Solicitation of Proxies
The accompanying proxy relating to the Annual Meeting is being solicited by the Board of Directors of the Company for use at the Annual Meeting.

The Company will bear the entire cost of preparing, assembling, printing and mailing proxy statements, the proxies and any additional materials, which may be furnished by the Board to shareholders. The solicitation of proxies will be made by the use of the U.S. postal service and may also be made by telephone, or personally, by directors, officers and regular employees of the Company who will receive no extra compensation for such services.

In addition, the Company has retained Morrow & Co., a proxy distribution and solicitation firm, to assist in the distribution and solicitation of proxies for shares held in the names of banks, brokers and other nominees, for a fee of $7,500 plus reimbursement of reasonable out-of-pocket expenses.

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Proposal One
Election of Class I Directors

The Company’s Articles of Incorporation provide that classification of the Board will apply to every election of directors for so long as at least six directors are authorized under the Company’s Bylaws and the Company’s Common Shares are listed on the New York Stock Exchange. The Company’s Bylaws provide that the Board of Directors shall consist of not less than five and not more than nine directors, with the exact number of directors currently set at six. So long as the Board continues to consist of at least six, but less than nine, directors and the Company’s Common Shares are listed on the New York Stock Exchange, directors will serve for a term of two years, and one-half of the directors (or as near to one-half as practicable) will be elected each year.

Under the Company’s Bylaws, the Board of Directors could increase the authorized number of directors to up to nine without obtaining shareholder approval. In the event that the number of directors increases during any period that the Company’s Common Shares are listed on the New York Stock Exchange, the increase will be apportioned by the Board between the classes of directors to make each class as nearly equal as possible. If the number of authorized directors is increased to at least nine during any period that the Company’s Common Shares are listed on the New York Stock Exchange, the directors will be apportioned by the Board among three classes, each consisting of one-third of the directors, directors will serve for a term of three years, and one-third of the directors will be elected each year. If the number of authorized directors is decreased to five, then the Board will cease to be classified, provided the decrease in the number of directors cannot shorten the term of any incumbent director. Vacancies in the Board, except those existing as a result of a removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected will hold office until the next annual meeting and until such director’s successor has been elected and qualified. The Company’s shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.

Pursuant to California law, members of the Board of Directors may be removed by the Board of Directors for cause (defined to be a felony conviction or court declaration of unsound mind), by the shareholders without cause or by court order for fraudulent or dishonest acts or gross abuse of authority or discretion. Generally, no director may be removed by the shareholders if the votes cast against such removal (or, if done by written consent, the votes eligible to be cast by the non-consenting shareholders) would have been sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected (the “Relevant Number of Directors”). The Relevant Number of Directors, in the case of classified boards, is the greater of (i) the number of directors elected at the most recent annual meeting of shareholders and (ii) the number sought to be removed.

Three directors have been nominated for election as Class I directors for a two-year term expiring at the end of the annual meeting of shareholders in 2007, or until their successors are elected and qualified. The terms of the remaining directors will continue as indicated below. The ages of the directors reported below are as of March 25, 2005.

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Nominees for Class I Directors with Terms Expiring in 2007

The Board of Directors recommends that shareholders vote FOR each of the nominees for Class I directors listed below.

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Class II Directors with Terms Expiring in 2006

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Security Ownership of Directors and Executive Officers

Information regarding the number of Common Shares beneficially owned by the directors and executive officers is shown in the following table.

The holdings include shares that the directors and officers will have the right to acquire as of May 31, 2005 through the exercise of stock options and stock units under the Company’s 2003 Non-Employee Directors Stock Plan and the 2000 Stock Incentive Plan.

Security Ownership Table

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Certain Relationships and Related Transactions

No director, or executive officer or any of his or her immediate family members had any indebtedness to the Company, any business relationship with the Company or any transaction or any proposed transaction with the Company in 2004 in excess of $60,000. No director, executive officer or any member of his or her immediate family, at any time during the past three years, has been employed by any entity, including a charitable organization that, has made payments to, or received payments or charitable contributions from the Company for property or services in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of the other entity’s consolidated gross revenues reported for that fiscal year. Smith Hayes Financial Service Corp. received $565 from the Company during 2004 for stock brokerage services to the Company. Mr. Kathol, a director of the Company, is an executive vice president of this firm.

Board Committees and Meetings

During 2004, directors met as a Board fourteen times. No director attended less than 75% of the meetings of the Board.

The Company has adopted a policy that each director should make every reasonable effort to attend each annual meeting of shareholders. At the 2004 annual meeting, all directors were present.

The Board of Directors has an Audit and Finance Committee, a Nominating and Governance Committee, and a Compensation Committee. Each of these committees operates under a charter, which identifies the purpose of the committee and its primary functions and responsibilities.

The Board of Directors may establish, from time-to-time, other committees on an ad hoc basis to address strategic or business related opportunities. There were two such committees in 2004, the Special Projects Committee and the ASUS Committee which replaced the Special Projects Committee at the end of 2004. Members of ad hoc committees are paid for their services in accordance with policies of the Board.

The Chairman of the Board is an ex-officio member of all committees of the Board and is the presiding director for non-management sessions of the Board. The Board has affirmatively determined that a majority of the Company’s directors and all of the members of the Audit and Finance Committee, Nominating and Governance Committee and Compensation Committee are independent directors under the corporate governance listing standards of the New York Stock Exchange. In making this determination, the Board of Directors took into account the stock brokerage services provided by Smith Hayes Financial Service Corp. and concluded that the provision of these services did not affect Mr. Kathol’s independence because the payments made by the Company to Smith Hayes Financial Service Corp. were de minimis and Mr. Kathol was not involved in providing any of these services to the Company.

Audit and Finance Committee
The Audit and Finance Committee provides advice and assistance to the Board of Directors on accounting and financial reporting practices of the Company. The Committee reviews the scope of audit work and findings of the Company’s independent registered public accounting firm who serves as auditors of the Company and also monitors the work of the Company’s internal auditors. The Committee also reviews the qualifications of, and recommends to the Board of Directors, a registered public accounting firm and reviews and approves fees charged by this firm of independent auditors.

The Audit and Finance Committee conducts its responsibilities pursuant to its charter adopted by the Board of Directors. The Board of Directors has determined that the members of the Audit and Finance Committee are “independent” as determined under the standards of the New York Stock Exchange. The Board of Directors has also determined that Robert Kathol is an “audit committee financial expert” within the meaning of the federal securities laws. No Audit and Finance Committee members served on more than three public company boards.

During 2004, the Audit and Finance Committee, consisting of Robert F. Kathol - Chair, N.P. Dodge, Jr. and Anne M. Holloway, met six times to review and discuss with management, the internal auditor and the Company’s independent auditors, the interim financial statements, annual audited financial statements and certain other matters. The Committee has received disclosures from and discussed with the Company’s independent auditors, PricewaterhouseCoopers LLP, the auditors’ independence as required by Independence Standards Board Standard No. 1. No committee member attended less than 75% of the meetings of the Audit and Finance Committee.

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Nominating and Governance Committee
The Nominating and Governance Committee assesses qualifications of and makes recommendations as to candidates to fill vacancies on the Board of Directors. Nominees for director are selected on the basis of a number of qualifications, including:

You may submit the name of a person for election as a director either by submitting a recommendation to the Nominating and Governance Committee or by directly submitting a name at a shareholders meeting. In either event, you must submit the name of the nominee in writing to the Corporate Secretary of the Company at the Company’s corporate headquarters.  The Corporate Secretary must receive your recommendation or nomination between February 1 and February 16, 2006 in order for your nominee to be considered for election as a director. If the annual meeting date is changed by more than 30 days or a special meeting is held, you will have another opportunity to submit nominations. In this case, the Corporate Secretary must receive the nomination at the Company’s corporate headquarters no later than the close of business on the 10th day following the earlier of the date on which the meeting notice is mailed or public disclosure of the meeting date is made. The notice must contain all information that the Company would be required to disclose in its proxy statement about the nominee, a consent by the nominee to be named in the proxy statement and to serve as a director if elected, the name and address of the record and beneficial owner, if any, of the shares and the number of shares held. If you are submitting a name for consideration by the Nominating and Governance Committee, you should also be prepared to provide other information requested by the Company reasonably related to the recommended individual’s qualifications as a nominee and the person recommended should be able to, upon request and with reasonable advance notice, meet with one or more members of the Nominating and Governance Committee and/or the Board of Directors to inquire into the nominee’s qualifications and background and to otherwise be interviewed for purposes of the nomination. The manner in which the Nominating and Governance Committee evaluates a nominee will not differ based on whether the potential nominee is recommended by a shareholder. If you will be submitting the name directly for nomination as a director at the shareholders meeting, you must comply with all requirements of the Securities Exchange Act of 1934 in connection with soliciting shareholders to vote for your nominees.

There were no material changes to these procedures for the nomination of directors in 2004.

The Company did not pay any fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees for director at the Annual Meeting. The Company has not received any recommended nominee from a shareholder or from a group of shareholders.

During 2004, the Nominating and Governance Committee, consisting of Jean E. Auer - Chair, James L. Anderson and Anne M. Holloway, met four times. No committee member attended less than 75% of the meetings of the Nominating and Governance Committee.

Compensation Committee
The Compensation Committee reviews and makes recommendations to the Board of Directors as to appropriate compensation for the President and other executive officers of the Company and determines the awards to be made under the Company’s Annual Incentive Plan and the 2000 Stock Incentive Plan. The Compensation Committee also administers the 2003 Non-Employee Directors Stock Plan.

During 2004, the Compensation Committee, consisting of James L. Anderson - Chair, Jean E. Auer, N.P. Dodge, Jr., Anne M. Holloway and Robert F. Kathol met five times. No committee member attended less than 75% of the meetings of the Compensation Committee.

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Special Projects Committee
Prior to November 2004, the Special Projects Committee reviewed potential changes to the regulated and contract services operations of the Company. In November 2004 the Special Projects Committee was dissolved and the ASUS Committee was created. The ASUS Committee reviews the contract services operations of the Company and makes recommendations to the Board of Directors as to the financial and operational impact of changes in these services.

During 2004, the Special Projects Committee consisting of N.P. Dodge, Jr. – Chair, James L. Anderson and Robert F. Kathol met three times. All directors were present at these meetings. The ASUS Committee did not meet in 2004.

Remuneration for Directors
All directors (except Mr. Wicks) were paid an annual retainer of $15,000 in 2004, payable in equal monthly installments. The annual retainer has been increased to $20,000 for services rendered in 2005. In addition, each non-employee director received a $1,200 fee in 2004 for each meeting attended, which was reduced to $600 for telephonic meetings attended. The regular and organizational meetings of the board are counted as one meeting for purposes of the per meeting fee. In addition, each outside director who was a member of the Compensation Committee, Nominating and Governance Committee, Special Projects Committee (the ASUS Committee in 2005) or the Audit and Finance Committee, other than the chair of the committee, received a $1,200 fee in 2004 for each meeting attended, which was reduced to $600 for telephonic meetings attended. These fees are unchanged for services rendered in 2005.

In 2004, the chair of the Compensation Committee, Nominating and Governance Committee, and Special Projects Committee received a fee of $2,400 for each committee meeting attended, which was reduced to $1,200 for telephonic meetings attended. The chair of the Audit and Finance Committee, in 2004, received a fee of $3,600, which was reduced to $1,800 for telephonic meetings attended. In 2005, the chair of the Audit and Finance Committee, the Compensation Committee, the ASUS Committee and the Nominating and Governance Committee will receive an additional annual retainer of $15,000, $7,500, $7,500 and $5,000, respectively. In addition, the chair of each of these committees will receive a $1,200 fee in 2005 for each meeting, which will be reduced to $600 for telephonic meetings.

Chairman of the Board Mr. Ross earned an additional $74,583 as chair for the year 2004 which has been increased to $80,000 in 2005. Mr. Wicks did not receive any separate compensation as a director or a member of the ASUS Committee.

Each of the non-employee directors also received a stock option for 1,000 Common Shares pursuant to the terms of the 2003 Non-Employee Directors Stock Plan which is described in more detail below. Each non-employee director also had stock units credited to his or her account in 2004 with respect to services provided as a director in 2004 in the amount set forth below pursuant to the terms of the 2003 Non-Employee Directors Stock Plan:

Each director is also reimbursed for reasonable and necessary travel, lodging and other expenses incurred in the performance of his or her duties.

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Section 16(a) Beneficial Ownership Reporting Compliance

The Company has adopted procedures to assist its directors and executive officers in complying with Section 16(a) of the Securities Exchange Act of 1934, as amended, which includes assisting in the preparation of forms for filing.

An award of stock options to Robert J. Sprowls, an executive officer of the Company, for 12,075 Common Shares on June 30, 2004, was inadvertently not reported timely. This award has subsequently been reported on Form 4.

An award of 38 Common Shares to Patrick R. Scanlon, an executive officer of the Company, on February 19, 2004, for 25 years of service with the Company, was inadvertently not reported timely. This award has subsequently been reported on Form 5.

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Executive Officers

Executive Experience
Information regarding the identities and business experience of the executive officers of the Company and its subsidiaries is set forth below. Mr. Wicks and Mr. Sprowls are executive officers of the Company and each of its subsidiaries. Each of the other officers are executive officers of a subsidiary or subsidiaries of the Company only.

Executive Experience Table

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Executive Compensation
The following table sets forth information on compensation of the Company’s Chief Executive Officer and the four highest compensated executive officers or named executive officers for the three most recent calendar years.

Executive Compensation Table

Annual Incentive Plan
The Company has adopted an Annual Incentive Plan or AIP for executive officers and managers of the Company. The purpose of the AIP is to compensate eligible participants of the Company for increasing shareholder value and supporting future growth of the Company. Under the terms of the AIP, awards may be granted annually to an eligible participant in accordance with the terms of the AIP. If an award is granted to an eligible participant, a target award will be established for that eligible participant by the Compensation Committee based upon a percentage of that eligible participant’s base salary, exclusive of overtime and bonuses, for the preceding calendar year. The target award to be paid to that eligible participant may be adjusted by (i) a factor reflecting the Company’s financial performance for the preceding calendar year and (ii) a factor reflecting certain strategic performance initiatives for the preceding calendar year, both of which would be multiplied times the target award for that eligible participant. The financial performance component is based on the Company’s actual return on rate base as a percentage of authorized return on rate base, less a maintenance adjustment, if maintenance costs are significantly less than estimated for rate of return. The strategic adjustment factor is based upon achieving certain strategic goals established by the Compensation Committee.

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The Compensation Committee established the financial performance component for the year 2004 based on a schedule ranging from a financial performance percentage of 120% or greater at the Compensation Committee’s discretion if the actual return on rate base was greater than 120% of authorized return on rate base to 0% if the actual return on rate base was less than 100%. The Compensation Committee established the strategic adjustment component for the year 2004 on the basis of a schedule ranging from 25% if there was an increase in Company operating revenues as a result of acquisitions of more than 33%, to 0% if there was an increase in Company operating revenues as a result of acquisitions of less than 10%.

If the awards are less than 20% of the eligible participant’s annual wages, the award will be paid in cash. If the awards are 20% or more of the eligible participant’s annual wages, the awards may be paid in restricted stock pursuant to the terms of the 2000 Incentive Stock Plan. The restrictions applicable to the restricted stock will lapse in a series of three successive annual installments commencing on the first anniversary date after the end of the plan year for which the award was granted unless the Compensation Committee provides otherwise. Payment of the awards under the AIP will be accelerated upon a change in control of the Company, as defined in the 2000 Incentive Stock Plan.

Based on the performance measurements in the AIP for the year ended December 31, 2004, none of the officers of the Company were entitled to pay-outs with respect to operating results for 2004.

Equity Compensation Plan Information
The following table sets forth information regarding the Company’s equity compensation plans as of December 31, 2004 pursuant to which Common Shares of the Company were authorized for issuance. This table does not include Common Shares that may be issued under the Company’s 401(k) plan.

Equity Compensation Plan Table

As of March 25, 2005, the number of securities to be issued upon exercise of outstanding options, warrants and rights under all equity compensation plans of the Company is 699,965, including 26,920 stock units. These outstanding options, warrants and rights have a weighted average exercise price of $23.30 per share and a weighted average remaining term of 8.03 years. As of March 25, 2005, there are no restricted shares granted. The number of securities remaining for issuance under all of the Company’s equity compensation plans is 293,234.

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Option Grants in Last Year
The following table sets forth information with respect to all options granted to the named executive officers during 2004.

Option Grants in Last Year Table

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Option Exercises and Holdings
The following table sets forth information concerning the aggregate value of exercised and unexercised options held by the named executive officers of the Company at December 31, 2004. Value is measured as the difference between the exercise price and fair market value on December 31, 2004.

Aggregated Option Exercises and Holdings Table

Employment Contracts, Termination and Change-in-Control Arrangements
The Company is an at-will employer and none of the executive officers has an employment contract with the Company.

Each of the Company’s named executive officers is a party to a change in control agreement which provides for certain benefits in the event of a change in control of the Company if the executive officer’s employment with the Company or Southern California Water Company is terminated other than for cause or disability or the executive terminates employment for good reason. A change in control under these agreements will generally include (i) an acquisition by certain persons of more than 50% of the voting securities of the Company or Southern California Water Company, (ii) certain changes in a majority of the Board of Directors of the Company or Southern California Water Company, (iii) certain dissolutions or liquidations of the Company or Southern California Water Company, or (iv) certain mergers or consolidations or sales of all or substantially all of the assets of the Company or Southern California Water Company, in any case involving more than a 50% change in ownership. An executive may terminate his or her employment for good reason if the executive is assigned duties inconsistent in any respect with the executive’s position or the executive is not re-appointed to the same position following the change in control, the executive’s salary or benefits are reduced or the executive is located at an office that increases the distance from the executive’s home by more than 35 miles. Under the change in control agreements, each executive will be entitled to the following benefits: a cash payment equal to 2.99 times the executive’s highest annual base salary during the preceding three years and an amount equal to the difference between the single sum actuarial equivalent of the executive’s accrued benefits under the Company’s Pension Plan and Pension Restoration Plan and the single sum actuarial equivalent of the executive’s accrued benefits under such plans if the executive was credited with two additional years of service at the executive’s highest annual rate of compensation during the three years preceding the date of termination. Coverage under the Company’s health and welfare benefit plans would also be extended to these executives for a period of 24 months after termination. The agreements also provide for a gross-up payment if any executive officer is required to pay an excise tax under Section 4999 of the Internal Revenue Code.

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Pension Plan

Southern California Water Company maintains a noncontributory, defined benefit pension plan. Benefits are determined under a formula applied uniformly to all employees, regardless of position, and amounts depend on length of service at the average of the five highest consecutive years of compensation earned. For purposes of pension calculations, compensation includes salary and all other compensation but excludes bonuses, lump sum payments, and the value of personal use of Company vehicles and other perquisites. An employee who terminates employment after having at least five years of service with the Company has a vested interest in the Plan.

Benefits payable at retirement (at age 55 or beyond) are reduced by a percentage of primary social security benefits based upon years of credited service and are payable monthly. The following table illustrates the estimated annual benefits payable upon retirement, at age 65, for persons in the earnings classifications with years of service as shown, excluding social security deductions, for employees in the Southern California Water Company Pension Plan.

Pension Plan Table

The named executive officers of the Company have the following credited years of service under the pension plan:

The Plan provides a special early retirement option for those employees for whom the sum of age and number of years of service, at retirement, equals at least 80.

The Southern California Water Company Pension Restoration Plan supplements retirement benefits payable to certain participants in the Southern California Water Company Pension Plan by making up benefits, which are reduced by virtue of Section 415 (a)(17) of the Internal Revenue Code of 1986, as amended.

Deferred Compensation Plan for Directors

Under the Company’s Deferred Compensation Plan for Directors, directors are entitled to defer a portion of their compensation until specified times after the deferral. Interest accrues on amounts deferred under this plan. None of the directors or nominees has currently deferred any income under the Deferred Compensation Plan for Directors.

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Report of the Audit and Finance Committee

The Audit and Finance Committee operates under a written charter adopted by the Board of Directors and is composed of three directors – N.P. Dodge, Jr., Anne M. Holloway and Robert F. Kathol. Lloyd E. Ross, Chairman of the Company’s Board of Directors is an ex-officio member of the Committee.

General
The Committee reviews the overall scope and plans for the respective audits of the internal and independent auditors. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluation of the internal controls and the overall quality of the Company’s financial reporting. The Committee oversees the Company’s financial reporting processes on behalf of the Board of Directors. Management has primary responsibility for the Company’s financial statements, internal controls, disclosure controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The Committee’s responsibility is to monitor and oversee these processes. The independent auditors report directly to the Committee and the Board of Directors.

Communication with Audit Committee
In this context, the Committee has met and held discussions with management and the independent accountants. Management represented to the Committee that the Company’s internal controls have no material weakness and that the consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent accountants. The Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61.

Independence Discussions with Audit Committee
The Company’s independent accountants also provided to the Committee the written disclosures required by Independence Standards Board Standard No. 1 and the Committee discussed with the independent accountants that firm’s independence.

Recommendation for Inclusion in Form 10-K
Based upon the Committee’s discussions with management and the independent accountants, the Committee’s review of the representations of management, and the report of the independent accountants to the Committee, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission.

Audit Committee
Robert F. Kathol – Chair
N.P. Dodge, Jr.
Anne M. Holloway

Report of the Compensation Committee

The Compensation Committee operates under a written charter adopted by the Board of Directors. The Committee is composed of four independent directors – James L. Anderson, N.P. Dodge, Jr., Anne M. Holloway, and Robert F. Kathol. Ms. Jean Auer also served as a member of the Committee in 2004. Lloyd E. Ross, Chairman of the Corporation’s Board of Directors, is an ex-officio member of the Committee.

The primary responsibility of the Compensation Committee is to review and make recommendations to the Board of Directors as to the appropriate level of compensation for the executive officers of the Company, including the Chief Executive Officer.

General Philosophy
In general, the executive compensation program is designed to reward, motivate and retain the skilled management necessary to achieve the Company’s goals of increasing shareholder value and maintaining a leadership position within the industry. The Committee has established as its objective the design and implementation of a compensation program for executives that will (i) provide fair, equitable and reasonable compensation, (ii) reward excellent team and individual job performance and abilities, and (iii) attract, retain and

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motivate talented and experienced executives. In making its recommendations to the Board, the Compensation Committee takes into account the fact that both the California Public Utilities Commission and the Arizona Corporation Commission review executive salaries of regulated public utilities for reasonableness. Moreover, the Committee recognizes that, as a holding company of regulated public utilities, financial performance of the Company is constrained by and dependent upon not only the regulatory process but also a number of other factors beyond the Company’s immediate control, such as weather, water quality and water supply. As a result, executive compensation is based on a number of subjective and objective factors beyond the recent financial performance of the Company.

Executive Compensation Program
In determining individual compensation, the Committee considered the executive officer’s duties, the quality of his or her performance of those duties, the importance of the position, the contribution that each individual has made to the Company’s overall performance and its strategic positioning for the future. The Committee also considered whether an executive officer’s duties have expanded or otherwise materially changed from the previous year, the officer’s experience and value to the Company and the extent and frequency of prior adjustments to that officer’s salary. The Committee reviewed a consultant’s report reviewing the proposed base salary and incentives to be paid to executives in comparison with the goal of giving annual compensation between the 60th and 75th percentiles of compensation for comparable positions at comparable companies within the utility industry (the “Competitive Target Level”). For executives other than the Chief Executive Officer, the Committee also considered recommendations made by the Chief Executive Officer.

Total compensation consists of three components (i) base salary, (ii) short-term incentives in the form of cash bonuses and dividend equivalent rights, and (iii) long-term incentives in the form of stock options. Adjustment to base salaries, after consideration of all relevant factors, allow for annual adjustments and avoid wide fluctuations in compensation from year to year. Salary ranges are set by periodic comparison to rates of pay for comparable positions within the utility industry and individual salaries are adjusted based on external salary levels, individual performance and changes in responsibilities.

The Committee determines executive compensation not only on base salary, but believes that executives should have the opportunity to earn a significant amount of variable pay based on the short and long-term performance of the Company. The Committee believes that stock-based incentives promote the success of the Company by attracting, motivating, rewarding, retaining and aligning the interests of executive officers with those of shareholders generally. Including all forms of compensation, an executive’s total annual compensation opportunity is such that at maximum performance levels, base salary, plus bonus awards under the Company’s existing Annual Incentive Plan and the 2000 Stock Incentive Plan, are intended to yield annual compensation at the Competitive Target Level. Long-term incentives are provided through stock-based awards.

CEO Compensation
Floyd E. Wicks has been President and Chief Executive Officer of the Company since 1992. As with the compensation of the Company’s other executive officers, the Committee has chosen not to adopt a direct formula approach to determining Mr. Wicks’ base salary. Rather, the Committee reviewed a number of objective and subjective measures including the Competitive Target Level for Mr. Wicks’ position as well as the performance of the Company as a whole and his effectiveness in addressing local, industry-wide issues and specific issues facing the Company. Business development, the Company’s immediate and long-term financial health and the performance of the Company’s stock price were also taken into consideration. In addition the Committee reviewed a consultant’s report that reviewed Mr. Wicks’ compensation package (along with other executives) in comparison with the Competitive Target Level. After the Committee’s deliberations and review, the Committee recommended and the Board of Directors authorized that Mr. Wicks’ base salary be established as $395,000 for 2004. The Committee determined that, including base salary, maximum payouts under the Annual Incentive Plan and options granted under the 2000 Stock Incentive Plan would place Mr. Wicks’ total compensation within the Competitive Target Level.

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Section 162(m) Limitation
The Committee has reviewed the Company’s compensation structure in light of Section 162(m) of the Internal Revenue Code which limits, subject to limited exceptions; the amount of compensation that the Company may deduct from its taxable income for any year to $1,000,000 for any of its five most highly compensated executives. In 2004, no executive officer’s compensation exceeded the limitation set by Section 162(m), and therefore such limitation is presently inapplicable to the Company. The Committee will address this limitation when and if it becomes meaningful.

Compensation Committee
James L. Anderson - Chair
N.P. Dodge, Jr.
Anne M. Holloway
Robert F. Kathol

Compensation Committee Interlocks and Insider Participation

Mr. Ross, as Chairman of the Board, serves as an ex-officio member of the Compensation Committee. The Compensation Committee recommends Mr. Ross’ compensation as Chairman of the Board. The Board of Directors determines Mr. Ross’ compensation.

No member of this Committee is a current or former officer or employee of the Company or any of its subsidiaries or affiliates. None of the executive officers of the Company is a member of the board of directors or the compensation committee of any company on which any of the Company’s directors serve as an executive officer, director or member of the compensation committee.

Smith Hayes Financial Service Corp. received $565 from the Company during 2004 for stock brokerage services to the Company. Mr. Kathol, a member of the Compensation Committee, is an executive vice president of this firm. The Company no longer obtains these services from Smith Hayes Financial Service Corp.

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Proposal Two
Amendment of the 2003 Non-Employee Directors Stock Plan

Amendments to the 2003 Non-Employee Directors Stock Plan
The Board of Directors has amended the 2003 Non-Employee Directors Stock Plan, subject to shareholder approval, to increase the maximum number of options granted annually under the 2003 Non-Employee Directors Stock Plan to each director on the date of each annual meeting during the term of the 2003 Non-Employee Directors Stock Plan from 1,000 to 3,000 and to limit the number of stock units that may be credited to non-employee directors to 118,000. The maximum number of Common Shares available for issuance under the 2003 Non-Employee Directors Stock Plan on March 31, 2005 is 205,328.68. The 2003 Non-Employee Directors Stock Plan has not been amended to increase the maximum number of Common Shares that may be issued under the Plan.

The Board has approved the amendments to the 2003 Non-Employee Directors Stock Plan and believes them to be in the best interests of the Company and the shareholders. All non-employee directors are eligible to receive awards under the Non-Employee Directors Stock Plan and thus have a personal interest in its approval.

The Board of Directors recommends that shareholders vote FOR these amendments to the 2003 Non-Employee Directors Stock Plan.

Specific Benefits
The following chart represents the benefits or amounts that will be received by or allocated to each of the following groups for each year during the term of the 2003 Non-Employee Directors Stock Plan to the extent that these benefits or amounts are determinable:

2003 Non-Employee Directors Stock Plan