Table of Contents
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
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x
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Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the fiscal
year ended December 31, 2009
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Or
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o
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Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition
period
from to
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Commission File
Number 0-8176
(Exact name of registrant as
specified in its charter)
Delaware
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95-1840947
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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One Wilshire
Building
624 South Grand
Avenue, Suite 2900
Los Angeles,
California 90017-3782
(Address of principal executive
offices, including zip code)
(213) 929-1800
(Registrants telephone, including
area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
x
Indicate by a check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
x
Indicate by check mark whether the registrant (1) 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 (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes
o
No
o
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 registrants 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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. (Check one):
Large
accelerated filer
o
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Accelerated
filer
x
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Non-Accelerated
filer
o
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Smaller
reporting company
o
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Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yes
o
No
x
The aggregate market value of the voting common equity held
by non-affiliates of the registrant was $137.1 million based on the
closing sale price of such common equity at June 30, 2009 as reported by
The NASDAQ Stock Market LLC. The registrant is unable to estimate the
aggregate market value of its preferred shares held by non-affiliates of the
registrant because there is no public market for such shares.
On March 31, 2010 there were 27,511,969 common shares
outstanding.
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of Contents
EXPLANATORY NOTE
This
Amendment No. 1 on Form 10-K/A (this Amendment) amends our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009,
originally filed with the Securities and Exchange Commission (the SEC) on March 15,
2010 (the Original Filing). We are filing this Amendment to include the
information required by Part III (and Part I for Executive Officers
of the Registrant as incorporated by reference) and not included in the
Original Filing as we will not file our definitive proxy statement within
120 days of the end of our fiscal year ended December 31, 2009. The
reference on the cover of the Original Filing to the incorporation by reference
of our definitive proxy statement into Part III of the Original Filing is
hereby deleted. In addition, as required by Rule 12b-15 under the
Securities Exchange Act of 1934, as amended (the Exchange Act), new
certifications by our principal executive officer and principal financial
officer are filed as exhibits to this Amendment No. 1 on Form 10-K/A
under Item 15 of Part IV hereof.
For
purposes of this Amendment No. 1 on Form 10-K/A, and in accordance
with Rule 12b-15 under the Exchange Act, Items 10 through 14 and 15(a)(3) of
our Original Filing have been amended and restated in their entirety. Except as
described above, no other changes have been made to the Original Filing. The
Original Filing continues to speak as of the date of the Original Filing, and
we have not updated the disclosures contained therein to reflect any events
which occurred at a date subsequent to the filing of the Original Filing.
Accordingly, this Amendment No. 1 on Form 10-K/A should be read in
conjunction with our filings with the SEC subsequent to the date of the
Original Filing.
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1. BUSINESS
Executive Officers
of the Registrant
On April 24, 2009, the Company appointed David Stanton,
the Chief Operating Officer of the Company, to the additional position of
interim Chief Financial Officer. Cheryl Clary, the Companys Chief Financial
Officer until April 24, 2009, was named Senior Vice President of Finance. Ms. Clary
resigned the position on July 3, 2009.
On May 1, 2009, the Company designated Ben Smith, the
Companys Vice President of Financial Services, as the principal accounting
officer of the Company.
On January 25, 2010, David B. Stantons employment with
the Company was terminated.
On
January 26, 2010, SouthWest Water Company appointed Ben Smith to the
position of Chief Financial Officer on an interim basis and designated him the
Companys principal financial officer.
On March 19, 2010, Mark Minter resigned as the Companys
Managing Director, O&M Services. On March 22, 2010, SouthWest Water
Company appointed Chris Malinowski to the position of Managing Director,
O&M Services.
The
following is a list of the names and ages of our executive officers, all
positions and offices held by each person and each persons principal
occupations or employment during the past five years. The officers were elected
by the Companys board of directors (the Board) and will hold office until the
next annual election of officers and their successors are elected and
qualified, or until their earlier resignation or removal by the Board. There
are no family relationships between any executive officers and directors.
Name
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Age
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Position
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Mark A. Swatek
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57
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President
and Chief Executive Officer
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Ben Smith
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39
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Chief
Financial Officer (Principal Financial and Accounting Officer)
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William K. Dix
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54
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Vice
President, General Counsel and Secretary
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Charles Profilet
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51
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Managing
Director, Texas Utilities
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Michael O. Quinn
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63
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Managing
Director, West Utilities
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Jim Brown
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61
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Managing
Director, Texas MUD Services
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Chris Malinowski
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45
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Managing
Director, O&M Services
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Mark A. SwatekPresident and Chief Executive
Officer
Mr. Swatek joined SouthWest Water as chief executive
officer in May 2006, at which time he was also appointed as director and
chairman of the board. He served in both
capacities until October 2009 when the roles of chairman and chief
executive officer were made separate, and he was named president and chief
executive officer. Mr. Swatek
brings executive management experience and expertise in the water and
wastewater industry, contract services, asset management and environmental
regulation to the SouthWest Water board. From 2005 until joining SouthWest
Water, he was president of MWH Municipal and State Services, the largest
operating division of MWH Global. From 2000 to 2005, he was president of MWH
Constructors, the design-build construction subsidiary of MWH Global. Mr. Swatek
also served as a member of the board of directors of MWH Global from 2003 to
2006, MWH Constructors from 2000 to 2006 and MWH Americas from 2005 to
2006. Since July 2008, he has
represented SouthWest Water as a member of the board of directors of California
Domestic Water Company, a private wholesale water provider, and Cadway Inc., a
private real estate holding company. Mr. Swatek
has also served as a director of the National Association of Water Companies, a
non-profit industry association, since October of 2008.
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Ben Smith Chief Financial Officer
Mr. Smith joined SouthWest Water in May 2006 as
Chief Financial Officer of the Services Group. He was promoted to Vice
President of Financial Services in January 2008 and appointed Principal
Accounting Officer in May 2009. He was appointed Chief Financial Officer
in January 2010. From January 2004 until joining SouthWest Water, Mr. Smith
served as Manager of Retail Power Accounting at Calpine Power America, a
provider of electricity to commercial and industrial customers in California
and Texas. His career also includes executive management positions with
Commerce Restructuring, LLC and Veras Investment Partners. Mr. Smith
is a Certified Public Accountant.
William K. DixVice President, General Counsel and Secretary
Mr. Dix joined the Company as Vice President, General
Counsel and Secretary in May 2007. From 2002 to May 2007, Mr. Dix
had a corporate transactional legal practice representing a variety of
companies in Southern California. From 2001 to 2002 Mr. Dix was Vice
President and General Counsel of Genetronics Biomedical Corporation.
Charles ProfiletManaging Director, Texas Utilities
Mr. Profilet joined SouthWest Water in February 2007
as Executive Vice President of the Services Group. He was promoted to Managing
Director, Texas Utilities in January 2008. Prior to joining SouthWest
Water, Mr. Profilet was Vice President of MWH Globals Houston Northeast
Water Purification Plant from 2004 to 2007, where he was responsible for the
design, construction, start-up, testing and operations of the 80-million-
gallon-per-day (MGD) surface water treatment facility. He joined MWH in 1985
and over his tenure there took on roles including Project Manager for water and
wastewater infrastructure projects, Operations Officer for new utility Asset
Management Services group, and led the companys Advanced Treatment Group,
which specializes in the design, construction and start-up of membrane
treatment facilities. Mr. Profilet is a registered professional engineer
in Texas and Florida.
Michael O. QuinnManaging Director, West Utilities
Mr. Quinn has been the Managing Director, West
Utilities since June 2008 and has been President of Suburban Water Systems
since 1996. From 1992 to 1996, he was Chief Operating Officer for Suburban
Water Systems. From 1985 to 1992, he was President of ECO Resources, Inc.,
and prior to that, was Controller/Treasurer at Suburban Water Systems. Among his
water industry affiliations, Mr. Quinn is past President of both the
California Water Association, and the National Association of Water Companies
and represents SouthWest Water as a member on the boards of the California
Domestic Water Company, Cadway Inc., a private real estate holding
company, and Covina Irrigating Company.
Jim BrownManaging Director, Texas MUD Services
Mr. Brown joined SouthWest Water in May 2004 as
Regional Vice President of ECO Resources. Mr. Brown was promoted to
Managing Director, Texas MUD in January 2008. From May 2003 until
joining SWWC, Mr. Brown was an independent consultant for Terramark
Development, a developer of commercial properties, where he was responsible for
creating a construction arm to build developments handled by Terramark. Prior
to that, he was an investor and advisor of EZ Talk Communications, a prepaid
reseller of local phone service.
Chris
MalinowskiManaging Director, O&M Services
Mr. Malinowski joined SouthWest Water in April 2007
as Vice President of Safety and Compliance and was promoted to Managing
Director, O&M Services in March 2010. Before joining SouthWest Water,
he was with PBS&J, a nationwide full-service engineering firm, where he was
division manager for water and wastewater activities in Texas from 2004 to
2007. He also spent 17 years with United Water and its parent company, Suez,
where he progressed through engineering, operations, and business development
roles throughout the United States, Puerto Rico, and France. Mr. Malinowski
earned a Bachelor of Science degree in civil engineering from Texas A&M
University and is a registered professional engineer in Texas, Colorado, and
Oklahoma.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Executive Officers
The
information required by this item regarding our executive officers is set forth
under the caption Executive Officers of the Registrant in Item 1 of Part I
of this Form 10-K, which information is incorporated herein by reference.
Directors
In
August 2009, the Board voted to amend our corporate governance guidelines
lowering the mandatory Board retirement age to 72, from the current 75.
Based on this guideline change, four incumbent directors will reach mandatory
retirement age by the time of the 2010 annual meeting of stockholders. Messrs Christie, Huennekens and Newman and Ms. Kindel
will not stand for re-election and will retire as of this years annual meeting
of stockholders. In addition, the Board
elected to separate the role of chairman and chief executive officer. Mr. Christie
was named Chairman of the Board after the 2009 annual meeting of
stockholders. Since Mr. Christie is
retiring at the 2010 annual meeting of stockholders, a new chairman will be
named immediately following the 2010 annual meeting of stockholders.
Our
Board is now de-classified and all directors will be elected for one-year terms
at each annual meeting of stockholders.
The following table and text set forth the names and ages of
all independent directors as of April 28, 2010. Information concerning Mr. Swatek
is contained in Item 1, Part 1. There are no family relationships among
our directors and executive officers. Also provided herein are brief
descriptions of the business experience of each director, executive officer and
advisor during the past five years and a list of directorships held by each
director in other companies subject to the reporting requirements under the
Federal securities laws.
Name
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Age
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Position
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Kimberly Alexy
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39
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Director,
Chairman of the Compensation and Organization Committee
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H. Frederick
Christie
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76
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Director,
Chairman of the Board
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Bruce C. Edwards
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56
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Director,
Chairman of the Audit Committee
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Linda Griego
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62
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Director,
Chairman of the Nominating and Governance Committee
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Donovan D.
Huennekens
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73
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Director
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Thomas Iino
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67
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Director
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William D. Jones
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54
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Director
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Maureen Kindel
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72
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Director
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Richard G. Newman
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75
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Director
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Kimberly
AlexyDirector since August 2009
Kimberly
Alexy was appointed to SouthWest Water Companys Board in August 2009. She
serves as chair of the Companys Compensation and Organization Committee and is
a member of the Audit Committee. Ms. Alexy brings equity market, merger and
acquisition, financial and technology sector expertise to the SouthWest Water
Board. She has also served on two public company board of director compensation
committees, one as chair, as well as two nominating and governance committees,
two audit committee and one corporate development and strategy committees,
chair. A chartered financial analyst
(CFA), she is the Principal of Alexy Capital Management, a private investment
management firm she founded in 2005.
From 1998 to 2003, she was Senior Vice President and Managing Director
of equity research for Prudential Securities, where she served as the principal
technology hardware analyst for the firm. Prior to joining Prudential, she was
Vice President of equity research at Lehman Brothers. Ms. Alexy also serves on
the boards of Dot Hill Systems Corp., a provider of storage systems; CalAmp, a
wireless datacom and satellite products provider; and SMART Modular
Technologies, a manufacturer of memory modules and solid state drives. She has also served previously on the Board
of Maxtor Corporation prior to its sale to Seagate Corporation in 2006.
H. Frederick
ChristieDirector since 1996
Mr.
Christie served as Lead Director since May 2006 and was appointed Chairman of
the Board in October 2009. He was also
chairman of the Compensation and Organization committee until October of 2009.
An independent consultant, he retired in 1990 as President and Chief Executive Officer
of the Mission Group, a subsidiary of SCEcorp (now Edison International). From
1984 to 1987, he served as President of Southern California Edison Company, a
subsidiary of SCEcorp. Mr. Christie is a director of Dine Equity Corporation,
AECOM Technology Corporation and Ducommun Incorporated. He also serves on the boards of certain funds
in the American Funds Family managed by the Capital Research and Management
Company. Mr. Christie is Trustee
Emeritus and past chairman of the Natural History Museum of LA County and Vice
Chairman of Chadwick School in Palos Verdes.
Bruce C.
EdwardsDirector since August 2009
Bruce
C. Edwards was appointed to SouthWest Water Companys Board in August 2009. He serves as the chair of the Companys Audit
Committee and is a member of the Nominating and Governance Committee as well as
the Special Committee which was formed to explore strategic alternatives. Mr. Edwards
brings executive management experience and expertise in accounting, finance and
mergers and acquisitions to the SouthWest Water board. He has also served
previously as Executive Chairman of the Board of Powerwave Technologies, a
public company. Mr. Edwards has served on eight additional public company
boards, six audit committees, (including several as chair) and three
Compensation Committees. In November 2007,
he was appointed Executive Chairman Emeritus of Powerwave Technologies, Inc., a
leading supplier of antenna systems, base station subsystems and coverage
solutions to the wireless communications industry. Mr. Edwards served as
Executive Chairman of Powerwave Technologies from February 2005 through November
2007 and Chief Executive Officer and director from February 1996 through February
2005. Mr. Edwards previously held executive and financial positions at AST
Research, Inc., a personal computer company; AMDAX Corporation, a manufacturer
of RF modems; and Arthur Andersen and Co., a public accounting firm. He
currently serves as a board director for Emulex Corporation, a leader in converged
networking solutions for data centers, and Semtech Corporation, a leading
supplier of analog and mixed signal semiconductor products.
Linda
GriegoDirector since 2001
Linda
Griego serves as chair of the Companys Nominating and Governance Committee and
is a member of the compensation and organization committee. She served on the Board from December 2001
until May 2006, and then returned in December 2006 to fill a departing Board
members vacancy. Ms. Griego brings
executive management experience and expertise in government relations and
publically appointed positions to the SouthWest Water Board. She has also
served previously on three public company board of director governance
committees, two as chair, as well as on four audit committees and three
compensation committees. Ms. Griego is President and Chief Executive Officer of
Griego Enterprises, Inc., a business management company founded in 1986. She redeveloped and renovated a historical
landmark building that houses Engine Co. No 28, a prominent restaurant in
downtown Los Angeles she founded in 1988. From 1990 to 2000, Ms. Griego held a
number of government and public service appointments including deputy mayor of
Los Angeles, President and Chief Executive Officer of the Los Angeles Community
Development Bank and Rebuild LA. Ms. Griego currently serves as a director of
publicly-traded CBS Corporation since 2007, and AECOM Technology Corporation
since 2005. She is also a trustee of the David and Lucile Packard Foundation
and serves on the board of the
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Community
Development Technologies Center. During
the past five years, she was also a director of City National Corporation,
Granite Construction Incorporated and Blockbuster, Inc.
Donovan D.
HuennekensDirector since 1969
Mr.
Huennekens served as chairman of the Companys audit committee until October 2009. He has been a partner of HQT Homes, a real
estate development company, since its formation in 1993. He is also a private real estate investor,
and was a director and member of the compensation committee of Bixby Ranch
Company, a privately owned family company primarily in the business of developing,
managing and owning commercial real estate, from the mid-1980s until its
liquidation at the beginning of 2008.
Thomas
IinoDirector since 2007
Thomas
Iino is chair of the Companys Special Committee, which was formed to explore
strategic alternatives, and a member of the Audit Committee. Mr. Iino brings executive management
experience and expertise in accounting, finance and mergers and acquisitions to
the SouthWest Water Board. He has also served previously on one public company
board of director audit committees as well as on one governance committee and
one compensation committee. He is Chairman of the Board of Los Angeles-based
Pacific Commerce Bank, where hes served since February 2006. From 1983 until
he retired in May 2005, he served as partner-in-charge of Deloitte & Touche
LLCs international practice in southern California, focusing on audit,
strategic planning, merger and acquisitions and managing bottom-line
results. Since his retirement, Mr. Iino
has been active serving on several boards of directors including the Japanese
American Community Cultural Center since 1995, the Keiro Retirement Home,
Chairman of the Board of the US Japan Council and the Board of governors for
the Japanese American National Museum since 1998. He also previously served on the Board of
governors for the UCLA Foundation through 2007. He is a CPA and past president
of both the National Association of State Boards of Accountancy and the
California State Board of Accountancy. Mr.
Iino serves on the Mayors Trade Advisory Committee formed to stimulate
investments from foreign entities.
William D.
JonesDirector since 2004
William
Jones is a member of the Companys Special Committee, which was formed to
explore strategic alternatives, and a member of the Nominating and Governance
Committee. Mr. Jones brings executive management experience and expertise in
finance, government relations and land development to the SouthWest Water
Board. He has also served previously on three public company board of director
audit committees. He has been president, chief executive officer and owner of
CityLink Investment Corporation, a real estate investment, development and
asset management firm, since 1994 and City Scene Management Company, a property
management firm, since 2001. He has been a director of Sempra Energy since
1994, serves on the boards of certain funds in the American Funds Family
managed by the Capital Research and Management Company since 2006, and the
Federal Reserve Bank of San Francisco since 2008. He has also served on the San Diego Padres
board since 1998 and on the board of trustees of the Francis Parker School
since 2005.
Maureen A.
KindelDirector since 1997
Maureen
Kindel is a Principal at Kindel Gagan, a Public Affairs Advocacy firm recently
founded in January 2010. Kindel Gagan provides government relations, community
outreach, crisis management, relationship building, issue management and
strategic communications services to a wide variety of public agencies and
private clients. Until January of 2010, Ms. Kindel was Senior Managing Director
of Rose & Kindel, a consulting and public affairs firm she founded in 1987.
Ms Kindel, formerly the Commissioner of Public Works for the City of Los
Angeles and a founding member of the Pacific Council on Foreign Relations, is
currently chair of the LA Business Council Education Committee and serves on
the LA 84 Foundation Board, the repository of the 1984 Los Angeles Olympic
surplus. She also serves on the Executive Committee of the International
Foundation of Election Systems and the Executive Committee of the Los Angeles
Chamber of Commerce. She is a Regent of Loyola Marymount University in Los
Angeles and chairs the LMU School of Education Board of Visitors. Ms. Kindel is
a board member of the George Washington University School of Public Affairs in
Washington, DC. and the League of Women Voters Education Fund.
Richard G.
NewmanDirector since 1991
Mr.
Newman is the Chairman and founder of AECOM Technology Corporation, which
provides engineering and diversified professional, technical and management
support services throughout the world.
In addition to serving as Chairman since 1991, Mr. Newman also served as
President of AECOM from 1990 until 1991, President and CEO from 1992 to 2000,
and
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Chairman,
CEO from 2000 to 2005. He is a director
of Sempra Energy Company and serves on the boards of certain funds in the
American Funds Family managed by the Capital Research and Management Company.
Involvement in Certain Legal
Proceedings
At
December 31, 2009, no officer or director of the Company: (1) had any petition
filed, within the past five years, in Federal Bankruptcy or state insolvency
proceedings on such persons behalf or on behalf of any entity of which such
person was an officer or general partner within two years of filing; (2) had
been convicted in a criminal proceeding within the past five years or is
currently a named subject of a pending criminal proceeding; or (3) had been the
subject, within the past five years, of any order, judgment, decree or finding
(not subsequently reversed, suspended or vacated) of any court or regulatory
authority involving violation of securities or commodities laws, or barring,
suspending, enjoining or limiting any activity relating to securities,
commodities or other business practice.
Section 16(a) Beneficial
Ownership Reporting Compliance
Our
directors, executive officers and owners of more than 10 percent of our
securities are required under Section 16(a) of the Exchange Act, to file
reports of ownership and changes in ownership with the SEC. To facilitate
compliance, we prepare and file these reports on behalf of our directors and executive
officers. The Company is required to disclose in this Proxy Statement any late
filings or failures to file.
Based
upon a review of the filings made on their behalf during 2009, as well as an
examination of the SECs EDGAR system, Form 3, 4, and 5 filings and the Companys
records, there were no exceptions to report.
Code of Ethics
Our
Code of Business Conduct and Ethics
for all employees and our Code of
Ethics for Directors and Executive Officers (Code of Ethics) can also
be found on our website
www.swwc.com
by clicking on Investor Relations
then Governance and Management. The Code
of Ethics is intended to comply with the requirements of the Sarbanes
Oxley Act of 2002 and applies to our directors and named executive officers,
including our Chief Executive Officer, senior financial officers and other
members of the Companys senior management team. We will provide without charge
to any person, by written or oral request, a copy of our Code of Ethics. Requests should be
directed to Shareholder Services, SouthWest Water Company, One Wilshire
Building, 624 South Grand Avenue, Suite 2900, Los Angeles, California 90017.
Nominations for the Board of
Directors
There
have been no material changes in the procedures by which security holders may
recommend nominees to our Board.
Audit Committee
The
Audit Committee consists of four independent directors, in compliance with the
listing standards of NASDAQ and the SEC rules. The Audit Committee operates
under a written charter adopted by the Board that sets forth its
responsibilities and authority, and met twelve times in 2009 in addition to
seven telephonic meetings. The Audit Committee Charter is available on
SouthWest Waters website at
www.swwc.com
.
The
Audit Committee has the duties prescribed in its charter and is responsible for
overseeing the Companys financial reporting and disclosure process on behalf
of the Board. It reviews, acts on and reports to the Board with respect to
(among other things) auditing performance and practices, accounting policies,
financial reporting, and disclosure practices of the Company.
From
January until October of 2009, the Audit Committee members included Don
Huennekens, as Chair, Fred Christie, Thomas Iino and William Jones. Directly following last years annual meeting
of stockholders, committee assignments were changed to include Bruce Edwards as
Chair, Don Huennekens, Kimberly Alexy and Thomas Iino.
The
Board has determined that each Audit Committee member has sufficient knowledge
in financial and auditing matters to serve on this Committee. In addition, the
Board has determined that at least one member of the Audit Committee, Bruce
Edwards, qualifies as an audit committee financial expert as defined by the
SEC rules. The Board has also determined
that each of the Audit Committee members satisfies the SEC rules regarding
independence and the NASDAQ requirements for Audit Committee membership
including financial sophistication. Stockholders should understand that the financial
expert designation is a disclosure requirement of the SEC related to Mr. Edwards
experience and understanding with respect to certain accounting and auditing
matters. The designation does not impose upon Mr.
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Edwards
any duties, obligations or liabilities that are greater than are generally
imposed on him as a member of the Audit Committee and the Board. The
designation of any director as an audit committee financial expert pursuant to
this SEC requirement does not affect the duties, obligations or liability of
any other member of the Audit Committee or the Board. The Audit Committee
reviews and evaluates annually its performance and charter.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
This
Compensation Discussion and Analysis describes how we compensated the persons
who served as the Companys Chief Executive Officer and Chief Financial Officer
and the other persons included in the Summary Compensation Table below in this
Item 11 during fiscal year 2009.
Collectively, this group of executive officers is referred to as the
named executive officers (the NEO or NEOs).
The
C&O Committee of our Board is responsible for determining the compensation
of the named executive officers and the other members of the Companys senior
management team. The C&O Committee
also reviews and oversees all long-term incentive and equity-based plans,
defined contribution plans, our deferred compensation plan and
change-of-control agreements.
Objectives
Our
executive compensation programs are designed with the intent of attracting,
motivating and retaining experienced executives and rewarding them for their
contributions to the Companys achievement of its annual and long-term
goals. We believe that in this way we
can align the interests of our executives with those of our stockholders. Historically, we have put a greater relative
emphasis on at risk, performance based incentives to increase the relationship
of pay to Company performance and offer greater compensation potential for
superior performance. However, in 2009
due to the ongoing restatement of our historical financial statements, we
elected not to grant any equity as part of the 2009 long term incentive plan.
Role of Executive Officers
in Compensation Decision
Our
Chief Executive Officer, other members of management and outside advisors may
be invited to attend C&O Committee meetings from time to time depending on
the matters to be discussed. The C&O
Committee may solicit the input of the Chief Executive Officer as it relates to
the compensation of other named executive officers. However, neither the Chief Executive Officer
nor any other member of management votes on items before the C&O Committee
or participates in discussions regarding his or her compensation.
Role of Compensation Consultant
From
2007 through the end of the third quarter of 2009, the C&O Committee
engaged Compensation Design Group (CDG) as an executive compensation
consultant. In 2009 the principal
consultant from CDG started his own compensation consulting firm, Veritas, LLC
(Veritas) which the C&O Committee continued to use for consulting
services through the third quarter of 2009.
At
various times over the last few years, CDG and Veritas have provided the
following services:
·
|
Review the Companys total
compensation philosophy, peer group and competitive positioning for
reasonableness and appropriateness;
|
|
|
·
|
Review the Companys total executive
compensation program and advise the C&O Committee of plans or practices
that might be changed to improve effectiveness;
|
|
|
·
|
Review director compensation
philosophy, peer group and competitive positioning for reasonableness and
appropriateness;
|
|
|
·
|
Advise the C&O Committee
and/or Chair on management proposals as requested;
|
|
|
·
|
Undertake special projects at the
request of the C&O Committee and/or Chair;
|
|
|
·
|
Review the Companys total
compensation philosophy, peer group and competitive positioning for
|
7
Table of Contents
|
reasonableness and
appropriateness;
|
|
|
·
|
Review the Companys total
executive compensation program and advise the C&O Committee of plans or
practices that might be changed to improve effectiveness;
|
|
|
·
|
Provide market data and
recommendations on CEO compensation without prior review by management except
for necessary fact checking;
|
|
|
·
|
Review the Compensation Discussion
and Analysis and related tables for the proxy statement;
|
|
|
·
|
Periodically review the C&O
Committees charter and recommend changes; and
|
|
|
·
|
Proactively advise the C&O
Committee on best practices for Board governance of executive compensation as
well as areas of concern and risk in the Companys program.
|
In
2009, as part of its ongoing services to the C&O Committee as described
above, Veritas worked on the following projects:
·
|
Advised the C&O Committee on
executive severance;
|
|
|
·
|
Advised the C&O Committee on
long term incentives to best align executive performance with stockholder
interests;
|
|
|
·
|
Reviewed proxy statement and
supported company on 280G calculations and summary compensation tables;
|
|
|
·
|
Advised on appropriate executive
performance goals and metrics;
|
|
|
·
|
Performed analysis on total
compensation for directors;
|
|
|
·
|
Conducted SouthWest Water peer
restricted stock award dividend study;
|
|
|
·
|
Provided guidance on restricted
stock awards dividend equivalent rights; and
|
|
|
·
|
Provided burn rate and overhang
analysis.
|
In
2009, the total amount of fees paid to Veritas did not exceed the SEC reporting
requirement amount. In addition, the
Company reimbursed Veritas for all reasonable travel and business expenses. Veritas does not perform any other consulting
services to SouthWest Water other than in the area of executive compensation.
In
the fourth quarter of 2009, the C&O Committee engaged Pearl Meyer &
Partners as an independent compensation consultant to conduct an analysis on
change of control payments and retention incentives. Fees paid to Pearl Meyer &
Partners, which does not provide any other consulting services to SouthWest
Water, did not exceed the SEC reporting requirement.
Setting Executive
Compensation
The
C&O Committee has structured base salary, non-equity incentive plan awards,
and long-term equity based incentive awards to motivate named executive
officers to achieve goals set by the Company and to reward achievement of those
goals. From time to time the C&O Committee engages independent compensation
consultants to assist with the review and development of the total compensation
provided to its named executive officers. For 2009, the C&O Committee did
not engage its compensation consultant to perform a review of total
compensation.
The
C&O Committee reviews the base salaries of each of our named executive
officers annually and the overall executive salary ranges periodically. The C&O Committee determines the base
salary of each named executive officer after considering the pay levels of our
peer group, the executives individual performance, his or her long-term
contributions, and the pay of others on the executive team. We target our executive base salary to be in
the 50th percentile of our peer group.
Adjustments may be made at the discretion of the C&O Committee due
to superior performance of the officer involved. Our peer group consisted of seven utility
companies and six service companies that provide services in a market similar
to that which we serve or to the same clients we serve. The peer companies are:
Utility
|
Services
|
·
American States Water Company
|
·
Hawkins, Inc.
|
·
Artesian Resources Corporation
|
·
Matrix Service Company
|
·
California Water Service Group
|
·
Michael Baker Company
|
·
SJW Corp.
|
·
TRC Companies
|
·
The Empire District Electric Co.
|
·
Insituform Technologies, Inc.
|
·
Middlesex Water Company
|
·
Layne Christensen Company
|
8
Table
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·
Connecticut Water Service, Inc.
|
|
Components of Executive
Compensation
The
basic elements of compensation for our named executive officers are:
·
|
Base salary;
|
·
|
Non-equity short term incentive plan
awards;
|
·
|
Long-term equity based incentive awards;
and
|
·
|
401(k), deferred compensation plan, and
other benefits.
|
Our
named executive officers are compensated with a mix of these key components of
compensation. The C&O Committee reviews each element separately and then considers
all elements together to ensure that the goals and objectives of our total
compensation philosophy are met.
Base Salary
Our
objectives in setting, reviewing and adjusting base salary are twofold: to
attract and retain executive talent and to meet competitive practices. Our base
salary is intended to provide reasonable and competitive pay for services to
the Company. The C&O Committee, after considering similarly situated
competitors and taking into consideration the performance history of the officers
involved, seeks to annually establish the base salary for such affected
officers. In using this methodology, the base salary adjustment has both
quantitative and qualitative components.
For 2009, each officers base salary was the subject of a discretionary
review by the C&O Committee taking into account the Companys financial
performance, the officers personal performance for the prior year and
factoring into consideration related cost of living adjustments. Based on the Companys performance, and
regional and national economic conditions, the C&O committee determined
that the NEOs would not receive an increase in 2009.
Non-Equity Short-Term Incentive Plan Awards
Our
objective in providing annual non-equity short-term incentive (STI) compensation
in the form of cash awards is to motivate executives to make improvements in
individual and Company performance and to align the executives compensation
with the Companys performance and objectives; the greater the improvement in
Company performance, the greater the incentive opportunity. We also believe annual non-equity STI
compensation is necessary to remain competitive with our peer group.
The
C&O Committee annually reviews non-equity incentives for executives
generally in the first quarter of the fiscal year to determine award payments
for the last completed fiscal year, as well as to set performance goals and
incentive targets for the current fiscal year. Non-equity incentives
(Short-Term Incentives or STI) are based on performance against both formulaic
financial objectives and discretionary non-financial individual goals. The
C&O Committee approves the incentive level for the Chief Executive Officer
and for each named executive officer taking into consideration the Chief
Executive Officers recommendations at the beginning of the year as performance
objectives are established. The performance objectives are a combination of
both financial objectives and non-financial objectives established individually
or collectively for the NEOs, and the weighting of each goal is established by
the C&O Committee taking into consideration Chief Executive Officer
recommendations. The financial objectives may include objectives relating to
EPS, EBIT, Profit before Taxes, Group or Division Income, or other financial
metric measures that are pertinent to the individuals span of control.
Non-financial goals are established to assure focus on activities that help the
Company achieve its strategic incentives, such as critical acquisitions or
realignment of individual operations. Individual operational performance
achievement levels are determined at the discretion of the C&O Committee,
which is familiar with the individual performance that is expected for each
unique job in question. When these
targets are met, the awards are paid in cash.
For
the 2009 STI plan, the C&O Committee established threshold, target and
maximum awards for plan participants that were based on a percentage of base
salary as follows:
NEO
|
Threshold Award
|
Target Award
|
Maximum Award
|
CEO,
COO
|
25%
|
50%
|
100%
|
CFO,
Managing
Directors
|
20%
|
40%
|
80%
|
9
Table of Contents
Each
NEO shared a total Company EBIT goal for 2009.
The goal was established at threshold, target, and maximum performance
levels based on the Companys approved 2009 budget. All other performance objectives were
tailored to each NEO and his or her specific objectives for 2009 and
performance against these goals are summarized below.
Mr. Swatek
·
|
Non-GAAP EBIT
SouthWest Water Goal $11,764,000 excluding New Mexico (25% weighting)
: The Company did not achieve the goal.
|
·
|
EPS SouthWest
Water Goal $0.30 excluding New Mexico (25% weighting)
: The
Company did not achieve the goal.
|
·
|
Non-Financial
Objective (30% weighting)
:
Establish a new investor relations campaign to increase interest in
SouthWest Water as an investment of choice.
Mr. Swatek achieved this goal.
|
·
|
Operational
Objective (10% weighting)
:
Assure company borrowings are controlled to prevent default and to
conserve adequate borrowing capacity on current credit lines. Mr. Swatek achieved this goal.
|
·
|
Personal
Development (10% weighting):
Broaden knowledge and experience of director best practices through
attendance at training programs or other avenues. Mr. Swatek achieved this Goal.
|
·
|
Because overall financial
performance of the Company did not meet threshold performance levels, Mr.
Swatek did not receive a STI award for 2009.
|
Mr. Stanton
·
|
Mr. Stanton separated from the
Company prior to evaluation of performance for the short term incentives for
2009 and therefore did not receive a STI award for 2009.
|
Ms. Clary
·
|
Ms. Clary separated from the
Company prior to evaluation of performance for the short term incentives for
2009 and therefore did not receive a STI award for 2009.
|
Mr. Profilet
·
|
Non-GAAP EBIT
SouthWest Water Goal $11,764,000 excluding New Mexico (30% weighting):
The Company did not achieve the goal.
|
·
|
Texas Utilities
EBIT Goal (prior to corporate allocation) of $9,503,000 (40% weighting):
Mr.
Profilet exceeded maximum performance levels for this goal.
|
|
|
·
|
Texas Utilities
EBIT Margin (Total EBIT unallocated/Total Revenue) of 36.0% (15% weighting):
Mr. Profilet did not achieve this goal.
|
·
|
Lost Time
Incident Rate
Safety Objectives (7.5%
weighting)
: Mr. Profilet exceeded
threshold performance levels for this goal.
|
·
|
Recordable
Incident Rate
Safety Objectives (7.5%
weighting)
: Mr. Profilet did not
achieve this goal.
|
Mr. Quinn
·
|
Non-GAAP EBIT
SouthWest Water Goal $11,764,000 excluding New Mexico (30% weighting)
: The Company did not achieve this goal.
|
·
|
Western Utility
EBIT Goal prior to corporate allocation of $21,218,000 excluding New Mexico
(40% weighting)
:
Mr. Quinn did not achieve this goal.
|
·
|
Western Utility
EBIT Margin (Total EBIT unallocated/Total Revenue) of 38.0% (15% weighting)
: Mr. Quinn did not achieve this goal.
|
·
|
Lost Time
Incident Rate
Safety Objectives (7.5%
weighting)
: Mr. Quinns operation had no lost time incidents in 2009 and
thus met maximum objectives of this goal.
|
·
|
Recordable
Incident Rate Safety Objectives (7.5% weighting)
: Mr. Quinn did not achieve this goal.
|
Mr.
Profilet and Mr. Quinn did not receive an STI award for 2009. However, in 2010
the C&O Committee approved a discretionary cash bonus for fiscal year 2009
to Mr. Profilet and Mr. Quinn of $45,000 and $20,000, respectively.
Any
non-equity incentive awards granted to the named executive officers are
detailed in the Grants of Plan-Based Awards table below in this Item 11.
Long-Term Incentive Awards
In 2009, the C & O Committee did not grant any long term
incentive awards.
10
Table of Contents
The
Company believes that stock-based long-term incentive awards align the
interests of executives with those of stockholders. Both wish to see an
increase in value. In addition, we believe stock ownership encourages executives
to take a more entrepreneurial and longer term view of the Company and its
business. In 2008 the C&O Committee
established a multi-year long term incentive plan for the NEOs and other
management using non-qualified stock options and restricted stock awards as the
form of long-term incentive as permitted under the Equity Incentive Plan. The
amount of the option and stock awards were based on rewarding individual
contributions and a target of competitive total compensation relative to our
peers. The NEO awards were based on
analysis and guidance from Veritas on market practices of our peer and industry
group on long term incentives in relationship to total compensation market
practices. Long term target values were
set in accordance with the Companys compensation strategy and based on results
of an extensive compensation study by Veritas. For 2009, the C&O Committee
did not award any long term incentives.
In
February 2010, the C&O Committee approved the elimination of dividend
payments on any future grants of performance contingent restricted stock
awards.
Long
term incentives include performance accelerated stock options (PASOs),
performance contingent restricted stock (PCRS) and performance shares.
PASOs
Performance Accelerated Stock Options
PASOs are options to buy SouthWest Water stock at a future
date, at the closing fair market value the stock is trading at on the grant
date. PASOs fully vest five years from
the grant date, however, they may vest earlier in the five-year period, based on
meeting specific performance objectives. Vesting may be accelerated if
SouthWest Water shares reach and maintain the target price thresholds listed in
the table below for a minimum of 10 consecutive trading days.
Share Price Threshold
|
Accelerated Vesting %
|
$15.00
|
25%
|
$18.00
|
25%
|
$21.00
|
25%
|
$24.00
|
25%
|
There is no limit on accelerated vesting in any plan year,
provided that share price targets are met and held. If performance objectives are not met, stock
option awards vest five years from the date of award based on continued
employment. Vesting can be accelerated
to an earlier date based on meeting pre-established and stated performance
objectives.
PASOs are issued at fair market value and the participant
is entitled only to the appreciation in the value of the PASO from the date of
the grant to the date of exercise. The
initial grant of options to individual participants is based on a gain
multiplier (i.e., a multiple of a base salary that is derived from competitive
practices and used to determine the target long-term incentive value for each
participant) of base salary and an option pricing valuation. PASOs provide long-term focus on share-price
performance and align the interests of participants with those of the Company.
The PASO performance objective is based on the Companys
stock maintaining the threshold price for a minimum of ten (10) consecutive
trading days, at which point 25% of the options will undergo accelerated
vesting. There are four such share price
thresholds, and there is no limit on the number of accelerated vesting
occurrences in one year, provided that share price targets are met and
held. Un-accelerated options will vest
fully five years after the grant date and have a term of seven years from the
grant date. The exercise price used was
the final after-hours trading price of the Companys stock on the date of
grant. In the event of a change in control, such as that contemplated by the
merger agreement, the vesting for all PASOs will accelerate.
During 2009, no thresholds were reached and therefore no
acceleration of vesting occurred.
PCRS
Performance Contingent Restricted Stock
PCRS are shares of SouthWest Water stock with
performance-contingent vesting restrictions.
They have an initial value equal to the closing price of SouthWest Water
stock on the grant date. Any unvested
awards, (i.e., where performance was not achieved) will be forfeited at the end
of the five year performance period.
Vesting occurs if the Company achieves four quarter trailing pre-tax earnings
objectives, as noted below. Once a
vesting target is achieved, the four quarter period is reset and the objective
will become the next lowest vesting target.
11
Table
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Since shares are restricted, participants will not own the
shares until they vest. However,
participants will receive dividends and have voting rights on unvested
shares. Effective February of 2010, the
C&O Committee approved the elimination of dividend payments on any future
grants of performance contingent restricted stock awards.
Pre-Tax Earnings
Objectives
|
Accelerated Vesting %
|
|
|
$19,778,000
|
25%
|
$25,765,000
|
25%
|
$30,046,000
|
25%
|
$38,319,000
|
25%
|
PCRS are restricted stock awards that are an at-risk form
of compensation. Vesting is entirely
performance based with the potential for shares to be forfeited if the
established objectives are not met over a five year performance period following
the grant date. The valuation of shares
is based on fair market value at the time of grant. The participant is entitled to the full value
of the share, including the appreciation or gain in stock value over the
original grant price, at the time of vesting.
The initial grant of shares to individual participants is based on a gain
multiplier of base salary. During the
restriction period, the participant receives dividends, if any, and can vote
the shares. As restrictions lapse, the
participant receives unrestricted shares which may be sold, transferred or
pledged. PCRS provides long-term focus
on share price and Company performance and aligns the interests of participants
with those of the Company.
PCRS requires the Companys pre-tax earnings to be above a
specified four-quarter total value at the end of the 4-quarter period (not
necessarily in a single fiscal year), at which point 25% of the restricted
stock will undergo accelerated vesting and the four-quarter period is reset. Any unvested restricted stock is forfeited at
the end of the five year performance period.
In the event of a change of control, such as that contemplated by the
merger agreement, the vesting for all PCRS will accelerate.
During 2009, no pre-tax earnings objectives were met and
therefore no vesting or acceleration of vesting occurred.
Performance Shares
Performance shares are phantom stock designed to link to
specific balance sheet performance of the Company. They have a three year term and give a
participant the right to receive a cash award at the end of three years, based
on the achievement of predetermined performance objectives. Performance share value is variable, and may
payout at, above, or below target. In
the event of poor performance, if the minimum goals are not achieved, the
performance shares will not have any value or payout.
Performance Share value will be measured at the end of the
performance period based on improvement in the Companys Return on Invested
Capital (ROIC) as compared to 2007 levels. Plan participants will be paid cash at the end
of 2010 based on improvement in ROIC over the 2008-2010 plan percent as
forecasted by the Companys 2007 long range plan. If successful, the Company
will improve its ROIC by the end of 2010 by 73% from 2007 year end levels and,
if this level of improvement is achieved, the plan participants will be
entitled to 100% of the target Performance Share award. Actual awards will be made on the basis of
the relative percentage of the achieved improvement. If ROIC is improved by 50% over 2007 year end
levels, then the plan participants will receive 50/73 or 68% of the target
award. Conversely, if ROIC improves by
100% over the 2007 year end levels, plan participants will receive 100/73 or
137% of the target award. The target
Performance Share award to individual participants is based on a multiplier of
base salary. Payments will be made in
cash. Performance shares provide
long-term focus on specific financial/operational performance and aligns the
interests of participants with those of the Company. During 2009, the Company did not meet its
target for ROIC. In the event of a change of control, such as that contemplated
by the merger agreement, the vesting of all of the performance shares will
accelerate. However, based on expected
performance, the Company believes that the stated performance metrics will not
meet minimum goals and, therefore, the performance shares will have no value.
Most
of the long-term incentive awards are made to named executive officers during
the first quarter of the year. These awards are referred to as in-cycle
awards. The process for these awards is
structured. The Chief Executive Officer
reviews the performance of the named executive officers and management against
long-term goals of the organization,
12
Table of Contents
strategic
initiatives and the role each individual may have in moving the Company toward
those goals and initiatives. The Chief
Executive Officer recommends long-term incentive awards to the C&O
Committee after discussion and review, approves final awards.
Occasionally,
out-of-cycle long-term incentives are made to named executive officers. The
most typical out-of-cycle awards are made when an executive is first hired or
is promoted. These out-of-cycle long-term incentive awards are made effective
as of the date of hire or promotion. The C&O Committee has delegated to the
Chief Executive Officer the authority to make out-of-cycle long-term incentive
awards of non-qualified stock options up to 2,500 shares, with the provision
that the C&O Committee is informed of the award at the next C&O
Committee meeting. The Chief Executive
Officer did not make any out-of-cycle awards in 2009.
All
options or restricted shares are granted at fair market value of the stock on
the date of grant. Fair market value is determined as the closing price of the
Companys stock on the NASDAQ on the grant date.
Compensation and Risk
The
C&O Committee is aware of the ongoing economic conditions and the
consequences to companies that have not appropriately balanced risk and reward
in executive compensation. The C&O Committee believes that the emphasis on
long-term performance in its approach to the overall compensation program does
not reward excessive risk-taking for the Company. Historically, the Companys executive
compensation strategy is focused on mitigating risk by emphasizing long-term
compensation and financial performance measures that correlate with growing
stockholder value rather than rewarding shorter performance periods and
payouts. The C&O Committee believes
the Companys executive compensation and overall compensation practices and
policies do not have a material effect on the Companys risk profile or its
ability to manage risks.
The
C&O Committee notes the following:
·
|
The C&O Committee is responsible for considering risk
related to its compensation policies for executive officers, and the
management team for all non-executive officers and the risk mitigation
policies in place (i.e., mix of long term and short term incentives, etc.).
|
·
|
All
employees are reviewed on an annual basis for a merit review. The merit is
based on budget and business performance.
In 2009, the Company did not award merit increases.
|
·
|
Variable
compensation is part of our ongoing compensation program and is not only for
executive management. Its an important element of compensation for our
employees in the field operating lines of business as well as office support
functions.
|
·
|
The
Company does have a short term annual incentive plan for certain management
and key contributor roles across all business units and support functions.
The incentives are based on Company performance, business unit objectives and
individual objectives. Any bonus pool
is approved by the C&O Committee.
For 2009, the C&O Committee approved a bonus pool for the annual
short term incentive for certain management and key contributors in field
operating units and office support functions.
|
·
|
The
Companys executive compensation approach is to balance both short and long
term incentives.
|
·
|
The
use of both quantitative and qualitative finance metrics are significant
factors in the C&O Committees decision in making payments to executive
management.
|
·
|
The
LTIs long term focus on share based compensation over a multi-year period
mitigates risks over short term goals that could be potentially detrimental
to the stockholders.
|
·
|
Long
term incentive awards under the 2008 LTIP are intended to promote
accomplishment of long term focus on specific financial/operational goals
that align the interests of the Company and plan participants.
|
As a matter of best practice, we will continue to manage our
executive compensation and general compensation program that aligns the
interests of our employees and stockholders while avoiding unnecessary or
excessive risk.
Retirement and Other Benefits
·
|
Profit Sharing/Savings Plans.
All employees, including named executive
officers, may participate in one of two 401(k) Plans depending on the
subsidiary in which they work. The contract services business employees
typically participate in the Profit Sharing 401(k) Plan, established in 1988
and the owned utility business employees typically participate in the 401(k)
Retirement and Savings Plan, established in 1994.
|
|
|
|
In
both plans, employees may elect to make before-tax contributions of up to 60%
of their base salary, subject to current Internal Revenue Service limits.
Neither 401(k) Plan permits an investment in our stock. The Company
|
13
Table of Contents
|
matches
employee contributions up to a set percentage of the employees contribution
depending on the specific plan and the Company contributed portion has a
specific vesting period. For the Profit Sharing 401(k) Plan, the Company
matches 50% of the first 2% of the employees contribution. The Companys contribution
vests 100% after one year of service. For the 401(k) Retirement and Savings
Plan, the Company matches 100% of the first 2% of the employees contribution
and 50% of the next 4%. The Company match vests at a graduated rate over 6
years.
|
|
|
·
|
Employee Stock Purchase Plan.
All employees, including named executive
officers, may participate in the Employee Stock Purchase Plan (the ESPP),
established in 1989, when they meet the eligibility requirements. Eligible employees are those who work more
than 20 hours a week and are employed at least 90 days. The ESPP provides
eligible employees an option to purchase the Company stock at a discounted
price at the end of a set offering period. Our offering period is quarterly.
The discount in the ESPP is 10% off the lesser of the Companys stock price
based on the average of the high and low price for the last or first three
(3) days of the offering period. Employees can participate through payroll
deduction and there is a 1,000 share limit per purchase, as well as an annual
Internal Revenue Service limit of $25,000 in value of stock that can be
purchased through the ESPP. In
November of 2008, the Company temporarily suspended the Employee Stock
Purchase Plan due to our ineligibility to use registration statements on Form
S-8 until we became current in all SEC filings. The Company reinstated the ESPP on October
1, 2009. In accordance with the
provisions of the merger agreement, the ESPP was suspended after March 31,
2010.
|
|
|
·
|
Deferred Compensation Plan.
The Company offers highly compensated
employees and directors an opportunity to participate in a nonqualified,
unfunded Deferred Compensation Plan, established in 2002. In 2009, ten
employees elected to participate in the Deferred Compensation Plan. The named
executive officers who participated in the Deferred Compensation Plan are
identified in the Nonqualified Deferred Compensation Table. In the Summary
Compensation Table and the Director Compensation Table, the base salary,
non-equity plan award or fees to each named executive officer and director
who participated in the Deferred Compensation Plan have not been reduced by
the amount of their deferral. In other words, base salary is base salary
before any deferrals. Director fees
reflect fees before any deferrals.
|
|
|
·
|
Pension Plan.
The Company does not provide a pension plan
for any of the named executives as outlined in the Pension Benefits section
on below in this Item 11.
|
Health and Welfare Benefits
All
full-time employees, including our NEOs, may participate in our health and
welfare benefit programs, including medical and dental coverage, disability
insurance, life insurance and long-term care. All employees may elect to
purchase additional life and disability insurance through payroll deductions. The
additional benefit of the Company paid premium is taxable income and is
included in the employees W-2.
Perquisites
We
provide additional benefits to named executive officers that match competitive
market practice or are relevant to the business we conduct. All such payments
are reflected in the Summary Compensation Table below. Our Chief Executive
Officer and certain named executive officers receive a car allowance, which is
included as taxable income in the NEOs salary.
Additionally, the Company pays the monthly parking fees for named
executive officers located in downtown Los Angeles.
The
Chief Executive Officer is reimbursed for tax preparation up to an annual
maximum of $5,000.
Club
membership is provided or reimbursed for the Chief Executive Officer. The club
to which the Chief Executive Officer belongs benefits the Company in the
conduct of our business, through establishing or maintaining business
connections and the conducting of business meetings.
Severance Agreements; Change
of Control Agreements
Businesses
face a number of risks, including the risk of losing executive talent when a
new Chief Executive Officer joins the Company or there is a change in ownership
of the Company. We believe that severance arrangements and change of control agreements
with certain of our named executive officers has helped us attract and retain
our executives.
The
Company has a Change of Control Severance Agreement (CCSA) into which certain
named executive officers and other key executive officers have entered. All except one of these agreements have a
term of 2.99 years subject to
14
Table
of Contents
automatic
renewal for three-year terms, unless a 90-day notice of non-renewal is given
prior to the expiration of a current term. One agreement was entered into in
1999 and has no expiration or renewal date.
The CCSA ends if a named executive officers employment has terminated
before the change of control has occurred, as in the case of Mr. Stanton and Ms.
Clary. Other named executive officers
who have entered into CCSAs are Messrs. Swatek, Quinn and Profilet. Additionally, three other executive officers
have CCSAs with similar terms as those for the named executive officers.
The
CCSA provides that the executive officer will, upon a change of control as
defined in the CCSA agreement, be entitled for a period of two years after the
change of control, to a severance payment if the executive officers employment
is terminated by the Company for other than Cause or the employee elects to
terminate for Good Reason, as defined in the CCSA. The severance consists of
up to 2.99 times the sum of the executives most recent base salary plus the
average bonus (or Non-Equity STI Plan compensation) for the prior three full
years. The severance benefits may also include an acceleration of vesting of
previously granted stock options or non-vested restricted shares held as of the
date of the change of control. Total benefits may not exceed the limits imposed
by Section 280G of the Internal Revenue Code. The consummation of the merger
would result in a change of control for purposes of the CCSA. Details on the payments that each of the
above named executive officers would receive in the event their employment
terminates are shown on the Potential Payments Upon Post Termination tables
specific to each named executive officer below in this Item 11.
Stock Ownership Guidelines
Stock
ownership guidelines have not been implemented by the C&O Committee for our
named executive officers. We will
continue to periodically review and evaluate our position with respect to stock
ownership guidelines for executive officers.
Tax and Accounting Considerations of Executive
Compensation
Section
162(m) of the Internal Revenue Code limits the deductibility of compensation in
excess of $1 million paid by a public company to its chief executive officer
and four other highest-paid executive officers unless certain specific and
detailed criteria are satisfied. The
C&O Committee takes into consideration the economic effect on the Company
of compensation, which would not be deductible under Section 162(m) or
otherwise and therefore considers the anticipated tax treatment to the Company
and our executive officers when we review and establish compensation programs
and payments. In the future, compensation may be set, for competitive or other
reasons, which will not be fully deductible. The Company believes that for
fiscal year 2009 there were no compensation amounts paid to any named executive
officer, which were not deductible by reason of Section 162(m).
15
Table of
Contents
SUMMARY COMPENSATION TABLE
|
The following table summarizes the compensation paid or
earned by each of the named executive officers for the fiscal year ended December 31,
2009.
|
|
Name and Principal
Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
|
Stock
Awards
($)
(2)
|
Option
Awards
($)
(2)
|
Non-Equity
Incentive
Plan
Compen-
sation
($)
(3)
|
Change of
Pension Value &
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compen-
sation
($)
|
Total
($)
|
Mark A
Swatek,
|
2009
|
467,308
|
|
|
|
|
|
55,391
|
522, 699
|
Pres,
Chief
|
2008
|
450,000
|
|
1,495,826
|
310,700
|
|
|
41,241
|
2,297,767
|
Executive
Officer
(4)
|
2007
|
435,077
|
|
127,600
|
105,250
|
|
|
305,552
|
973,479
|
David
Stanton,
|
2009
|
336,538
|
|
|
|
|
|
38,180
|
374,718
|
Former
COO &
|
2008
|
300,000
|
|
1,010,002
|
259,838
|
|
|
24,475
|
1,594,315
|
CFO
(5)
|
2007
|
270,200
|
|
|
42,100
|
60,000
|
|
|
372,300
|
Cheryl
L Clary,
|
2009
|
141,375
|
|
|
|
|
24,793
|
157,216
|
323,384
|
Former
CFO
(6)
|
2008
|
253,500
|
|
204,167
|
127,936
|
|
22,567
|
21,769
|
629,939
|
|
2007
|
262,485
|
|
63,800
|
63,150
|
55,000
|
17,309
|
|
461,744
|
Chuck
Profilet,
|
2009
|
253,383
|
45,000
|
|
|
|
211
|
22,934
|
321,528
|
Managing
Director,
|
2008
|
249,780
|
|
159,998
|
100,261
|
39,200
|
|
23,258
|
572,497
|
Texas
Utilities
(7)
|
|
|
|
|
|
|
|
|
|
Michael O
Quinn,
|
2009
|
263,250
|
20,000
|
|
|
|
13,506
|
20,718
|
317,474
|
Managing
Director,
|
2008
|
253,500
|
|
122,500
|
76,760
|
|
11,448
|
71,566
|
535,774
|
Western
Utilities
(8)
|
2007
|
255,723
|
|
63,800
|
63,150
|
45,000
|
10,051
|
|
437,724
|
(1) Any non-qualified deferred compensation
amounts are included under Salary and footnoted below for the two named
executive officers who deferred a portion of their salary. Earnings on
non-qualified deferred compensation are reflected under Change of Pension
Value & Non-qualified Deferred Compensation Earnings. Amounts shown under Salary before 2008
include car allowances for the named executive officers. In 2008, car allowances are reflected under
All Other Compensation. Salary in 2009
reflects 27 pay periods instead of 26.
(2)
Figures reflect the grant date fair value calculated in accordance with FASB
ASC Topic 718. No awards were granted in
fiscal 2009. 2008 stock awards include
performance contingent restricted stock, performance shares, and
non-performance-based restricted stock.
2008 option awards include performance-accelerated stock options and
non-performance-based stock options.
2007 awards include non-performance-based restricted stock and stock
options. For additional information on
valuation assumptions, refer to Note 13 to our Consolidated Financial
Statements included in Part II, Item 8, Financial Statements and
Supplementary Data.
(3)
The amounts reported in this column reflect cash incentive compensation based
on performance in the respective year, and was determined by the C&O
Committee and Board in March of the following year and paid shortly
thereafter. A more detailed discussion
of our non-equity incentive plan awards, including the criteria used to
determine such awards, may be found under Compensation Discussion and Analysis
above.
(4) All
other compensation for Mr. Swatek includes $1,400 for tax preparation;
$12,461 in car allowance, $3,751 for Group Term Life, $2,066 in LTD, $10,300 in
Company 401(k) matching, $4,830 in club memberships, $1,332 in discounted
ESPP purchases, $2,400 in Company paid parking and $16,851 in dividends on
restricted stock awards.
(5)
All other compensation for Mr. Stanton includes $12,462 in car allowance,
$872 for Group Term Life, $10,300 in Company 401(k) matching, $1,021 in
discounted ESPP purchases, $2,400 in Company paid parking and $11,126 in
dividends on restricted stock awards.
Effective April 24, 2009, Mr. Stanton was appointed Chief
Financial Officer of the Company. His
employment with the Company terminated January 25, 2010 at which time all
unvested stock options and unvested restricted stock awards were canceled.
(6)
All other compensation for Ms. Clary includes $5,169 in car allowance,
$1,190 for Group Term Life, $602 in LTD, $6,495 in Company
401(k) matching, $1,200 in Company paid parking and $1,268 in dividends on
restricted stock awards. Effective
April 24, 2009, Ms. Clary no longer served as Chief Financial
Officer, and her employment with the Company terminated July 3, 2009.
16
Table
of Contents
(7)
All other compensation for Mr. Profilet includes $10,200 in car allowance,
$1,932 for Group Term Life, $1,079 in LTD, $8,632 in Company 401(k) matching,
$204 in discounted ESPP purchases and $887 in dividends on restricted stock
awards. Mr. Profilet was not a
named executive officer in 2007.
(8)
All other compensation for Mr. Quinn includes $2,027 in car allowance,
$5,757 for Group Term Life, $1,162 in LTD, $10,300 in Company
401(k) matching, $204 in discounted ESPP purchases and $1,268 in dividends
on restricted stock awards. He deferred
$8,044 of his compensation which is included in his salary shown above.
GRANTS OF PLAN BASED AWARDS
There were no grants made to any of the Named Executive
Officers during 2009.
OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END
The following table provides information for each of the
Companys Named Executive Officers regarding outstanding stock options and unvested
stock awards held by the officers as of December 31, 2009. Market values are presented as of the end of
2009 (based on the closing price of SouthWest Water stock on December 31,
2009 of $5.89) for outstanding stock awards, which include all prior year
grants. Market values are not presented
for stock options. The accumulated
equity holdings reflect our long-term incentive structure, Company performance
and an executives length of service.
performance shares, which are cash-based, are not presented in this
table.
17
Table
of Contents
EQUITY INCENTIVE PLAN AWARDS
|
Option Awards
|
Unvested Restricted Stock Awards
|
|
|
Number of Securities Underlying Unexercised
Options (#)
|
Service-Based
Awards
|
Performance-Based
Awards
|
Named Executive
Officer
|
Unexercised
Options (#)
Exercisable
|
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
|
Number of
Unearned
Shares,
Units or
Other
Rights Not
Vested (#)
|
Market or
Payout
Value of
Unearned
Shares, Units or
Other
Rights Not
Vested ($)
|
Mark Swatek
Equity Awards
Stock Options
|
16,666
(2)
75,000
(3)
|
91,923
(1)
8,334
(2)
|
11.28
12.76
13.20
|
1/29/2015
3/14/2014
6/3/2013
|
106,639
(6)
|
628,104
|
21,978
(7)
|
129,450
|
Cheryl
Clary
Equity Awards
Stock Options
|
10,000
(2)
|
37,851
(1)
5,000
(2)
20,000
(4)
21,000
(4)
13,230
(4)
|
11.28
12.76
17.75
11.39
11.02
|
1/29/2015
3/14/2014
3/8/2013
3/9/2012
10/26/2011
|
|
|
|
|
David
Stanton
Equity Awards
Stock Options
|
10,000
(5)
6,666
(2)
25,000
(2)
|
48,202
(1)
20,000
(5)
3,334
(2)
|
11.28
11.04
12.76
12.04
|
1/29/2015
1/22/2015
3/14/2011
11/10/2013
|
77,479
(9)
|
456,351
|
11,525
(7)
|
67,882
|
Charles
Profilet
Equity Awards
Stock Options
|
6,000
(4)
|
29,663
(1)
9,000
(4)
|
11.28
12.88
|
1/29/2015
2/17/2014
|
|
|
7,092
(7)
|
41,772
|
Michael Quinn
Equity Awards
Stock Options
|
10,000
(2)
15,000
(4)
16,800
(4)
16,537
(4)
|
22,710
(1)
5,000
(2)
10,000
(4)
4,200
(4)
|
11.28
12.76
17.75
11.39
12.97
|
1/29/2015
3/14/2014
3/8/2013
3/9/2012
2/12/2011
|
1,666
(10)
|
9,813
|
5,430
(7)
|
31,983
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Vesting
can be accomplished based on a performance objective of the Company stock
maintaining set threshold prices, at which point 25% of the options will
undergo accelerated vesting. There are four such share price thresholds: $15,
$18, $21 and $24/share. Un-accelerated options will fully vest five years
after the grant date. As of December 31, 2009, none of the targets have
been met.
|
(2)
|
These
stock options vest 33 1/3% each year over three years.
|
(3)
|
On
June 2, 2006, 75,000 stock options were awarded to Mr. Swatek.
These options vest 50% each year over two years.
|
(4)
|
These
stock options vest 20% each year over five years.
|
(5)
|
On
January 22, 2008, 30,000 stock options were awarded to Mr. Stanton
in connection with his promotion to COO. These options would have vested 33
1/3% each year over three years until fully vested on January 22, 2011,
however all options canceled upon the termination of Mr. Stantons
employment.
|
(6)
|
On
October 17, 2008, Mr. Swatek was granted a 103,306 restricted stock
award which will fully vest at three years, or earlier upon involuntary
termination for any reason other than cause. On March 13, 2008,
Mr. Swatek was awarded 10,000 shares of restricted stock, which he
declined, and which were immediately canceled. On March 14, 2007, Mr. Swatek
was awarded 10,000 shares of restricted stock which vests 33 1/3% per year
over three years.
|
(7)
|
The
performance contingent restricted stock awards have five years in which to
reach performance targets, and will vest 25% upon reaching each goal of
pre-tax earnings of $19,778,000; $25,765,000; $30,046,000; and $38,319,000.
If goals are not reached, awards cancel at five years. As of
December 31, 2009, none of the targets have been met.
|
(8)
|
On
March 14, 2007, Ms. Clary was awarded 5,000 shares of restricted
stock which vests 33 1/3% per year over three years. This Restricted Stock
Award was 2/3 vested at the time of her resignation. The unvested balance was
canceled.
|
(9)
|
On
October 17, 2008, Mr. Stanton was granted 77,479 shares of
restricted stock which would have fully vested at three years, or earlier
upon involuntary termination for any reason other than cause. This Restricted
Stock Award was canceled upon the termination of Mr. Stantons
employment.
|
18
Table
of Contents
(10)
|
On
March 14, 2007, Mr. Quinn was awarded a 5,000 share Restricted
Stock Award which vests 33 1/3% per year over three years.
|
OPTION EXERCISES AND STOCK VESTED
The following table shows information on stock options
exercised, stock awards vested, and the value realized from options exercised
or awards vested during 2009.
|
Option Awards
|
Stock Awards
|
Name and Principal Position
|
Number of Securities Acquired on Exercise(#)
|
Value Realized
on Exercise($)
|
Number of Shares
Acquired on Vesting(#)
|
Value Realized on Vesting($)
|
Mark A.
Swatek, Chief Executive Officer
|
|
|
3,333
|
$14,999
|
Cheryl L.
Clary, Former Chief Financial Officer
|
|
|
1,667
|
7,502
|
David
Stanton, Former Chief Operating Officer & CFO
|
|
|
|
|
Michael O.
Quinn, Managing Director, Western Utilities
|
|
|
1,667
|
7,502
|
Charles
Profilet, Managing Director, Texas Utilities
|
|
|
|
|
PENSION BENEFITS
The
SouthWest Water Company Supplemental Executive Retirement Plan (the SERP) was
adopted by the Company effective May 8, 2000. None of the current executives are
participants or have accumulated any benefits under the plan.
NONQUALIFIED DEFERRED COMPENSATION
The Nonqualified Deferred Compensation Plan was implemented January 2002.
The purpose of the Plan is to provide benefits to a select group of management
or highly compensated employees and directors who contribute materially to the
continued growth, development and success of the Company.
Participants in the Deferred Compensation Plan annually may
elect to defer up to 50% of their base annual salary and up to 100% of their
bonus, commission or director fees. The Deferred Compensation Plan provides for
a fixed rate of interest on amounts deferred. The interest is determined
annually and is referred to as the preferred crediting rate. The preferred
crediting rate is 120% of the crediting rate which is based on the average
corporate bond yield published in the Merchant Bond Record as the Corporate
Bond Yield Average AV Corp for the previous September. A participant in
the plan earns the preferred crediting rate after five years of plan
participation. Should the participant not participate for five years, then she
or he will only earn the crediting rate on amounts deferred. All earnings are
based on the preferred crediting rate. In 2009, the preferred crediting rate
was 6.47% and the crediting rate was 5.61%.
19
Table
of Contents
The following table summarizes the nonqualified deferred
compensation paid or earned by each of the named executive officers for the
fiscal year ended December 31, 2009.
Name
and
Principal Position
|
Executive
Contribution in
Last FY($)
(1)
|
Registrant
Contributions
in Last FY($)
|
Aggregate
Earnings
in Last FY($)
|
Aggregate
Withdrawals/
Distributions($)
|
Aggregate
Balance at
Last FYE($)
|
Mark A. Swatek,
Chief Executive Officer
|
|
|
|
|
|
Cheryl L. Clary,
Former Chief Financial Officer
|
|
|
24,793
(2)
|
|
$339,753
|
David Stanton,
Former Chief Operating Officer & Chief Financial Officer
|
|
|
|
|
|
Charles Profilet,
Managing Director, Texas Utilities
|
2,700
(3)
|
|
211
|
|
2,911
|
Michael O.
Quinn,
Managing Director, Western Utilities
|
8,044
(4)
|
|
13,506
|
|
186,660
|
(1)
|
Amounts disclosed are included in
the Summary Compensation Table on above under Salary and noted in the
footnotes to each named executive officer who participated in the Deferred
Compensation Plan in 2009.
|
|
|
(2)
|
Ms. Clary did not defer any of
her earnings in 2009. In 2008, Ms. Clary deferred $51,395 and acquired
aggregate earnings of $22,567. In 2007, Ms. Clary deferred $138,800 and
acquired aggregate earnings of $26,207.
|
|
|
(3)
|
Mr. Profilet did not
participate in the Deferred Compensation Plan prior to 2009.
|
|
|
(4)
|
Mr. Quinn deferred $7,598 in
2008 and acquired aggregate earnings of $11,448. In 2007, Mr. Quinn
deferred $7,329 and acquired aggregate earnings of $10,051.
|
POTENTIAL PAYMENTS UPON TERMINATION
OR CHANGE OF CONTROL
The following tables reflect the
amount of compensation which would be paid or has been paid to each of the
named executive officers in the event of a termination of their
employment. The amount of compensation
payable to each named executive officer upon voluntary termination or
retirement, involuntary not-for-cause termination, for cause termination,
termination following a change of control and in the event of disability or
death of the executive is shown. Unless the executive officer has actually
terminated, the amounts shown assume that the termination was effective as of December 31,
2009, and thus includes amounts earned through that time and are estimates of
the amounts which would be paid to the executives upon termination. The actual amounts to be paid can only be
determined at the time of the executives separation from the Company. However,
the Merger Consideration of $11.00 included in the Merger Agreement detailed in
Item 1 under the caption Definitive Merger Agreement is considerably higher
than the common stock closing price of $5.89 on December 31, 2009.
Payments
Made Upon Termination
Regardless of the manner in which a named executive officers
employment terminates, he or she may be entitled to receive amounts earned
during his or her employment. Such amounts include:
|
·
|
shares
awarded under the Companys Equity Incentive Plan;
|
|
|
|
|
·
|
amounts
contributed under the 401(k) Plan and the Deferred Compensation Plan;
and
|
|
|
|
|
·
|
unused
vacation pay (vacation entitlement);
|
Payments
Made Upon Change of Control
The Company has entered into Change of Control Severance
Agreements with certain named executive officers. Pursuant to these agreements,
if an executives employment is terminated within two years following a change
of control
20
Table
of Contents
(other than termination by the Company for cause or by
reason of death or disability) or if the executive terminates his or her
employment in certain circumstances defined in the agreement which constitute good
reason, in addition to the benefits listed under the heading Payments Made
Upon Termination:
|
·
|
the
named executive officer will receive a lump sum severance payment ranging
from 1.5 to 2.99 times the sum of the executives base salary and the
average annual bonus, either discretionary or performance-based (as reflected
in the Bonus and Non-Equity Incentive Plan Compensation columns of the
Summary Compensation Table, respectively), earned by the executive pursuant to incentive compensation plans
maintained by the Company in the three prior fiscal years;
|
|
|
|
|
·
|
all
stock options held by the executive will automatically vest and become
exercisable; and
|
|
|
|
|
·
|
the
Nonqualified Deferred Compensation Plan benefits for the named executive
officer are determined using the preferred crediting rate regardless of years
of plan participation.
|
Generally, pursuant to the agreements, a change of control
is deemed to occur:
(1)
|
if
any person or group acquires 50% or more of the Companys voting securities
(other than securities acquired directly from the Company or its affiliates);
|
|
|
(2)
|
if
a majority of the directors as of the date of the agreement are replaced
other than in specific circumstances;
|
|
|
(3)
|
in
the event of a merger or other reorganization or business combination in
which voting control of the Company changes hands, or if there is a sale of
all or substantially all of the Companys assets; or
|
|
|
(4)
|
in
the event of a liquidation or dissolution of the Company.
|
The
completion of the merger would constitute a change of control under these
agreements, and therefore, if the named executive officers employment is
terminated under the circumstances described above within two years of the
completion of the merger, then the named executive officer would be entitled to
the lump sum severance payment and other benefits described above.
POTENTIAL PAYMENTS UPON POST TERMINATION
AS OF DECEMBER 31, 2009
|
|
|
|
|
|
Mark A. Swatek, President and Chief Executive
Officer
|
|
|
|
|
|
|
|
|
Executive
Payments & Benefits Upon
Termination/COC:
|
|
|
|
|
|
Change-of-Control
|
Termination
|
Death
|
Disability
|
Severance
(1)
|
$1,345,500
|
|
|
|
Vested and Unvested
Stock Options
(2)
|
|
|
|
|
Unvested Restricted
Stock
(3)
|
757,554
|
|
|
|
Supplemental Executive
Retirement Plan
|
|
|
|
|
Deferred Compensation
Plan
|
|
|
|
|
Disability Benefit Plan
(4)
|
|
|
|
$112,500
|
Death Benefit Plan
(Insured Benefits)
(5)
|
|
|
$750,000
|
|
401(k) Plan Company
Contributions
|
38,427
|
$38,427
|
38,427
|
38,427
|
Vacation Entitlement
|
45,876
|
45,876
|
45,876
|
45,876
|
280G Scaleback
(6)
|
(119,363)
|
|
|
|
Total
|
$2,067,994
|
$84,303
|
$834,303
|
$196,803
|
|
|
|
|
|
21
Table of Contents
Cheryl Clary, Former Chief Financial Officer
|
|
|
|
|
|
|
|
|
Executive Payments & Benefits
Upon
Termination/COC:
|
|
|
|
|
|
Change-of-
Control
(7)
|
Termination
(8)
|
Death
|
Disability
|
Severance
(1)
|
$682,801
|
$273,500
|
|
|
Cobra
benefits for one year
|
|
21,073
|
|
|
Vested and
Unvested Stock Options
(2)
|
|
|
|
|
Unvested
Restricted Stock
(3)
|
|
|
|
|
Supplemental
Executive Retirement Plan
|
|
|
|
|
Deferred
Compensation Plan
|
|
325,486
|
|
|
Disability
Benefit Plan
(4)
|
|
|
|
|
Death
Benefit Plan (Insured Benefits)
(5)
|
|
|
|
|
401(k) Plan
Company Contributions
|
|
26,913
|
|
|
Vacation
Entitlement
|
|
29,238
|
|
|
280G
Scaleback
(6)
|
|
|
|
|
Total
|
$682,801
|
$676,210
|
|
|
|
|
|
|
|
David Stanton, Former Chief Operating Officer and CFO
|
|
|
|
|
|
|
|
|
Executive Payments & Benefits
Upon
Termination/COC:
|
|
|
|
|
|
Change-of-Control
|
Termination
(9)
|
Death
|
Disability
|
Severance
(1)
|
|
|
|
|
Vested and
Unvested Stock Options
(2)
|
|
|
|
|
Unvested
Restricted Stock
(3)
|
|
|
|
|
Supplemental
Executive Retirement Plan
|
|
|
|
|
Deferred
Compensation Plan
|
|
|
|
|
Disability
Benefit Plan
(4)
|
|
|
|
|
Death
Benefit Plan (Insured Benefits)
(5)
|
|
|
|
|
401(k) Plan
Company Contributions
|
|
$29,072
|
|
|
Vacation
Entitlement
|
|
31,052
|
|
|
280G
Scaleback
(6)
|
|
|
|
|
Total
|
|
$60,124
|
|
|
Charles Profilet, Managing Director, Texas Utilities
|
|
|
|
|
|
|
|
|
Executive Payments & Benefits
Upon
Termination/COC:
|
|
|
|
|
|
Change-of-Control
|
Termination
|
Death
|
Disability
|
Severance
(1)
|
$385,598
|
|
|
|
Vested and
Unvested Stock Options
(2)
|
|
|
|
|
Unvested
Restricted Stock
(3)
|
41,772
|
|
|
|
Supplemental
Executive Retirement Plan
|
|
|
|
|
Deferred
Compensation Plan
|
2,911
|
$2,911
|
$2,911
|
$2,911
|
Disability
Benefit Plan
(4)
|
|
|
|
63,346
|
Death
Benefit Plan (Insured Benefits)
(5)
|
|
|
750,000
|
|
401(k) Plan
Company Contributions
|
26,429
|
26,429
|
26,429
|
26,429
|
Vacation
Entitlement
|
18,149
|
18,149
|
18,149
|
18,149
|
280G
Scaleback
(6)
|
|
|
|
|
Total
|
$474,859
|
$47,489
|
$797,489
|
$110,835
|
|
|
|
|
|
22
Table of Contents
Michael O. Quinn, Managing Director, Western Utilities
|
|
|
|
|
|
|
|
|
Executive Payments & Benefits
Upon
Termination/COC:
|
|
|
|
|
|
Change-of-Control
|
Termination
|
Death
|
Disability
|
Severance
(1)
|
$802,815
|
|
|
|
Vested and
Unvested Stock Options
(2)
|
|
|
|
|
Unvested
Restricted Stock
(3)
|
41,795
|
|
|
|
Supplemental
Executive Retirement Plan
|
|
|
|
|
Deferred
Compensation Plan
|
186,660
|
$186,660
|
$186,660
|
$186,660
|
Disability
Benefit Plan
(4)
|
|
|
|
63,375
|
Death
Benefit Plan (Insured Benefits)
(5)
|
|
|
750,000
|
|
401(k) Plan
Company Contributions
|
87,852
|
87,852
|
87,852
|
87,852
|
Vacation
Entitlement
|
52,647
|
146,331
|
146,331
|
146,331
|
280G
Scaleback
(6)
|
(166,080)
|
|
|
|
Total
|
$1,005,690
|
$420,843
|
$1,170,843
|
$484,218
|
|
|
|
|
|
Footnotes:
(1)
|
NEO will receive a lump sum
severance payment ranging from 1.5 to 2.99 times the sum of the
executives base salary plus the average annual bonus earned by the executive
pursuant to corporate incentive compensation plans in the three prior fiscal
years.
|
(2)
|
Options are assumed cashed out at
each options intrinsic value assuming SouthWest Waters stock closing price
of $5.89 on December 31, 2009. Since all NEO outstanding options are
under water at this price (i.e., the strike price is greater than the market
price), the value at December 31, 2009 is zero.
|
(3)
|
Represents full value of restricted
shares at the Companys stock closing price of $5.89 on December 31,
2009. However, using the per share value of $11.00 Merger Consideration
included in the Merger Agreement detailed in Item 1 under the caption
Definitive Merger Agreement, the value of the unvested restricted stock on
December 31, 2009 for Messrs. Swatek, Profilet and Quinn would equate
to $1,414,787, $78,012, and $78,056, respectively. Restricted shares may or
may not vest at the discretion of the C&O Committee.
|
(4)
|
Represents payments by the Company
of 90 days of salary prior to disability insurance coverage.
|
(5)
|
Payout of Company-paid life
insurance of 5 times annual base salary up to $750,000.
|
(6)
|
Under the executives Change of
Control Severance Agreement, if payments are subject to excise taxes imposed
under IRC Section 4999, the executives Change of Control Payments and other
severance benefits under this Agreement shall be reduced by this amount.
|
(7)
|
Change of Control Payment would
only be payable to Ms. Clary if a change of control transaction is
completed by one year from her termination date, or July 3, 2010.
|
(8)
|
Effective April 24, 2009,
Ms. Clary no longer served as Chief Financial Officer and resigned from
the Company effective July 3, 2009.
|
(9)
|
Effective January 25, 2010,
Mr. Stantons employment with the Company terminated.
|
23
Table of Contents
DIRECTOR COMPENSATION
The following table provides information on SouthWest Waters
the non-employee directors compensation who served during fiscal year ended December 31,
2009.
Name
(1)
|
Fees Earned
or Paid
in Cash ($)
(2)
|
Stock
Awards
($)
(3)(4)
|
Option
Awards
($)
(3)(4)
|
Non-Equity
Incentive Plan
Compen-
sation
($)
|
Change of Pension
Value &
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compen-
sation
(5)
($)
|
Total ($)
|
|
|
|
|
|
|
|
|
Kimberly
Alexy
(6)
|
22,295
|
|
44,300
|
|
|
|
66,595
|
H.
Frederick Christie
(7)
|
102,750
|
|
|
|
|
345
|
103,095
|
Bruce C. Edwards
(8)
|
22,087
|
|
44,300
|
|
|
|
66,387
|
Linda Griego
(9)
|
64,500
|
|
|
|
|
345
|
64,845
|
Donovan D.Huennekens
(10)
|
104,500
|
|
|
|
22,116
|
345
|
126,961
|
Thomas
Iino
(11)
|
90,750
|
|
|
|
|
345
|
91,095
|
William D.
Jones
(12)
|
95,375
|
|
|
|
|
345
|
95,720
|
Geoffrey
Ketcham
(13)
|
3,000
|
|
|
|
|
|
3,000
|
Maureen
A. Kindel
(14)
|
59,000
|
|
|
|
|
345
|
59,345
|
Richard G.
Newman
(15)
|
55,750
|
|
|
|
|
345
|
56,095
|
(1)
|
Mark A.
Swatek, the Companys Chief Executive Officer and President, is not included
in this table because he is an employee of the Company and receives no
compensation for his service as a director.
|
(2)
|
The
fees for non-employee directors include: (a) an annual retainer of
$24,000; (b) a fee of $1,500 per Board meeting; $1,000 per Compensation
and Organization, Nominating and Governance, and Special Committee meetings;
and $1,500 per Audit Committee meeting; (c) annual retainer of $5,000
for the chair of both the Compensation and Organization, and the Nominating
and Governance Committees and $10,000 for the chair of the Audit Committee;
(d) an annual fee of $12,000 for the Lead Director received (in
October 2009, the Lead Director position was changed to Chairman of the
Board and received an annual fee of $25,000); and (e) the chair of the
Special Committee received a one-time retainer of $5,000 and each committee
member received a one-time retainer $2,500.
|
(3)
|
A
non-employee director receives an initial option grant of 10,000 shares of
the Companys common stock when he or she becomes a director. In 2008, each
director additionally received a Restricted Stock Award for 2,756 shares,
which vests 50% per year over 2 years. Fair market value is determined as the
closing price of the Companys stock on the NASDAQ on the date of grant, if
not otherwise determined by the C&O Committee. In 2009, the two new
directors, Kimberly Alexy and Bruce Edwards, received only the initial stock
option grant of 10,000 shares. None of the directors was awarded restricted
stock in 2009.
|
(4)
|
Figures
reflect the grant date fair value calculated in accordance with FASB ASC
Topic 718. For more detailed information, including valuation assumptions,
refer to our Consolidated Financial Statements included in Part II,
Item 8, Financial Statements and Supplementary Data.
|
(5)
|
Represents
dividends paid.
|
(6)
|
As
of December 31, 2009, Ms. Alexy had a total of 10,000 outstanding
stock options. Ms. Alexy joined the Board in August 2009.
|
(7)
|
In
October, 2009, Mr. Christie was appointed Chairman of the Board. As of
December 31, 2009, Mr. Christie had a total of 51,925 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
(8)
|
As
of December 31, 2009, Mr. Edwards had a total of 10,000 outstanding
stock options. Mr. Edwards joined the Board in August 2009.
|
(9)
|
As
of December 31, 2009, Ms. Griego had a total of 22,025 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
(10)
|
As
of December 31, 2009, Mr. Huennekens had a total of 51,925
outstanding stock options and 1,378 unvested shares from restricted stock
awards.
|
(11)
|
As
of December 31, 2009, Mr. Iino had a total of 10,000 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
(12)
|
As
of December 31, 2009, Mr. Jones had a total of 44,575 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
(13)
|
As
of December 31, 2009, Mr. Ketcham had no outstanding stock options
or restricted stock awards. Mr. Ketcham served on our Board from
October 2008 until his resignation for personal reasons in
January 2009.
|
(14)
|
As
of December 31, 2009, Ms. Kindel had a total of 51,925 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
(15)
|
As
of December 31, 2009, Mr. Newman had a total of 51,925 outstanding
stock options and 1,378 unvested shares from restricted stock awards.
|
24
Table of Contents
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation and Organization
Committee are, or have been, an employee or officer of the Company. During
fiscal 2009, no member of the Compensation Committee had any relationship with
us requiring disclosure under Item 404 of Regulation S-K. During
fiscal 2009, none of our executive officers served on the Compensation
Committee (or equivalent) or board of another entity whose executive officer(s) served
on our Compensation Committee or Board.
COMPENSATION
COMMITTEE REPORT
The C&O Committee of the Company has reviewed and
discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussions,
the C&O Committee recommended to the Board that the Compensation Discussion
and Analysis be included in this Annual Report on Form 10-K.
THE COMPENSATION
AND ORGANIZATION COMMITTEE
Kimberly Alexy, Chairperson
H. Frederick Christie
Linda Griego
Donovan D. Huennekens
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION
PLAN INFORMATION
The following information is as of December 31, 2009
and shows plans under which shares of SouthWest Waters common stock may be
issued.
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
available for future
issuance
under equity
compensation plans
|
Equity
Incentive Plan approved by Stockholders (the EIP)
|
|
1,360,782
|
|
$11.59
|
|
798,263
|
Employee
Stock Purchase Plan approved by stockholders (the ESPP)
|
|
|
|
|
|
585,062
|
Equity
compensation plans not approved by stockholders
(1)
|
|
143,581
|
|
$6.23
|
|
|
|
|
|
|
|
|
|
Total:
|
|
1,504,363
|
|
|
|
1,383,325
|
(1)
Represents warrants issued to
consultants as compensation for their participation in the Companys purchase
of the City of West Covinas water distribution system and facilities in 2000.
The warrants are currently exercisable, terminate in 2014 and contain certain
anti-dilution rights.
BENEFICIAL OWNERSHIP TABLE
The following table provides information concerning the
beneficial ownership of our common stock as of April 28, 2010, for: (i) each
director and nominee for director of the Company, (ii) each executive
officer named in the Summary Compensation Table in Item 11, and (iii) all
directors (including nominees) and executive officers as a group. Except as
otherwise noted, to our knowledge, the named individual or their family members
have sole voting and investment power with respect to the securities
beneficially owned by the Stockholder.
25
Table of Contents
We calculate beneficial ownership by including shares owned
in each directors or named executive officers name (or by any member of his
or her immediate family). Also, in
calculating the percentage ownership, we count securities which the director or
named executive officer could purchase within 60 days of April 28, 2010,
(such as exercisable stock options that are listed in a separate column as
outstanding securities). No director or
named executive officer owns shares of our preferred stock.
Name of Beneficial Owner
|
|
Common Stock
(1)
|
|
Exercisable
Options
(2)
|
|
Total Shares of
Stock and
Exercisable
Options
|
|
Percentage of
Class
|
|
|
|
|
|
|
|
|
|
BlackRock
Inc.
40 East 52
nd
Street
New York, NY 10022
(3)
|
|
1,438,647
|
|
|
|
1,438,647
|
|
5.2%
|
|
|
|
|
|
|
|
|
|
|
|
SW Merger
Acquisition Corp.
245 Park Avenue, Second Floor
New York, NY 10167
(4)
|
|
2,700,000
|
|
|
|
2,700,000
|
|
9.8%
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
Kimberly
Alexy
(5)
|
|
|
|
|
|
|
|
*
|
|
H.
Frederick Christie
|
|
41,675
|
|
44,575
|
|
86,250
|
|
*
|
|
Bruce C.
Edwards
(5)
|
|
|
|
|
|
|
|
*
|
|
Linda
Griego
|
|
7,756
|
|
22,025
|
|
29,781
|
|
*
|
|
Donovan D.
Huennekens
|
|
130,460
|
|
44,575
|
|
175,035
|
|
*
|
|
Thomas Iino
|
|
2,756
|
|
10,000
|
|
12,756
|
|
*
|
|
William D.
Jones
|
|
6,989
|
|
44,575
|
|
51,564
|
|
*
|
|
Maureen
Kindel
|
|
10,423
|
|
44,575
|
|
54,998
|
|
*
|
|
Richard G.
Newman
|
|
84,796
|
|
44,575
|
|
129,371
|
|
*
|
|
Named
Executive Officers
|
|
|
|
|
|
|
|
|
|
Mark A.
Swatek
|
|
140,379
|
|
100,000
|
|
240,379
|
|
*
|
|
Cheryl L.
Clary
(6)
|
|
3,556
|
|
|
|
3,556
|
|
*
|
|
David
Stanton
(7)
|
|
767
|
|
|
|
767
|
|
*
|
|
Charles
Profilet
|
|
7,357
|
|
9,000
|
|
16,357
|
|
*
|
|
Michael O.
Quinn
|
|
39,383
|
|
72,537
|
|
111,920
|
|
*
|
|
All
Directors and Executive Officers as a Group (14)
|
|
476,927
|
|
436,437
|
|
912,734
|
|
3.3%
|
|
*Represents
less than 1% of the outstanding shares as of April 28, 2010.
|
|
|
(1)
|
Includes shares held directly or in
joint tenancy, shares held in trust, by broker, bank nominee or other
indirect means over which the individual has voting or shared voting and/or
investment power.
|
(2)
|
Includes options that become
exercisable within 60 days of April 28, 2010.
|
(3)
|
Based on information contained in
Schedule 13G filed on January 29, 2010.
|
(4)
|
Based on information contained in
Schedule 13D/A filed on March 23, 2010. As disclosed in such filing, SW
Merger Acquisition Corp. (Parent) may be deemed to be a member of a group
within the meaning of Section 13(d)(3) of the Exchange Act that
includes WAM, TRF Master Fund (Cayman) LP, a Cayman Islands limited
partnership (the WAM Stockholder), Water Investment Advisors (Cayman) Ltd.,
a Cayman Islands exempted company (the WAM General Partner), Matthew J.
Diserio, an individual (Mr. Diserio), Disque D. Deane Jr., an
individual (Mr. Deane and together with WAM, WAM Stockholder, WAM
General Partner and Mr. Diserio, the WAM Investors), IIF Subway,
and IIF Water Manager LLC, a Delaware limited liability company (IIF GP,
and together with IIF, the IIF Investors, and collectively with the WAM
Investors, the Investors). WAM Stockholder, WAM General Partner and the IIF
Investors are the direct or indirect owners of Parent. WAM is the investment manager of WAM
Stockholder. Parent privately acquired an aggregate of 2,700,000 shares of
our common stock on March 16, 2010 (the Purchased Stock), as described
under Summary of the Merger Long-Term Infrastructure Investment. WAM Stockholder previously acquired
1,173,969 shares of our common stock in the public markets. Parent expressly disclaimed beneficial ownership
of any of the shares of our common stock that may be beneficially owned by
the Investors (other than the Purchased Stock). All of the information set forth in this
footnote relating to Parents beneficial ownership of our common stock is
based upon the information contained in the previously referenced Schedule
13D/A.
|
(5)
|
Appointed to the Board
August 10, 2009.
|
(6)
|
Ms. Clary ceased serving as
Chief Financial Officer on July 3, 2009.
|
(7)
|
Mr. Stanton ceased serving as
Chief Financial Officer on January 25, 2010.
|
26
Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
The
Company is required by law and generally accepted accounting principles to
disclose to investors certain transactions between the Company and a related
party. A related party would include a director, nominee for director,
executive officer, certain stockholders, and certain others. As a part of the process in determining its
disclosure obligations, the Company circulates a questionnaire to each
director, nominee for director, executive officer, and other persons who the
Company believes could be a related party containing questions calculated to
discover the existence of a related party transaction. The Company also
conducts such other investigations as it deems appropriate under the
circumstances.
Our
Code of Ethics for Directors and Executive Officers states that our executive
officers and directors, including their family members, are charged with
avoiding situations in which their personal, family or financial interests
conflict with those of the Company. The Board is responsible for reviewing and
approving all related person transactions between the Company and any directors
or executive officers. The Compensation and Organization Committee reviews
compensation related transactions with directors or executive officers (such as
salary and bonus). Any request for us to enter into a transaction with an
executive officer or director, or any such persons immediate family members or
affiliates, must be presented to the Board for review and approval. In
considering the proposed agreement, the Board will consider the relevant facts
and circumstances and the potential for conflicts of interest or improprieties.
No
director, nominee, executive officer or any member of their family had any
indebtedness to the Company, any business relationship with the Company or any
transaction with the Company in 2009. No
director, nominee, executive officer or any member of their 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 from,
including charitable contributions, 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 entities consolidated gross revenues reported
for that fiscal year.
Director Independence
Based
on information solicited from each director in the form of an annual
questionnaire and upon the advice and recommendation of the Companys
Nominating and Governance Committee, the Board has determined that each of the
current directors, except the President and Chief Executive Officer (Mr. Swatek),
has no material relationship with SouthWest Water (either directly or as a
partner, Stockholder or officer of an organization that has a relationship with
the Company) and is independent within the meaning of the director
independence standards, as currently in effect. The NASDAQ independence
definition includes a series of objective tests, such as the director is not an
employee of the Company and not engaged in various types of business dealings
with the Company. Furthermore, the Board has determined that each of the
members of the Audit, Compensation and Organization, and Nominating and
Governance Committees has no material relationship with SouthWest Water
(directly or as a partner, stockholder or officer of an organization that has a
relationship with the Company), and is independent within the meaning of
NASDAQs director independence standards.
Independent director sessions of non-employee directors are
held at each regularly scheduled Board meeting. The sessions are chaired by an
independent director selected by the Board from time to time. Any director can
request that an additional independent director session be scheduled.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid to
Independent Accountant
PricewaterhouseCoopers LLP was the Companys independent
accountant for the fiscal years ending December 31, 2008 and 2009. The following table shows the fees billed to
SouthWest Water for audit and other services provided by the accountant during
those two years (in thousands).
Fee Category
|
|
|
Fiscal
2009 Fees
|
|
Fiscal
2008 Fees
|
|
Audit Fees
|
|
$1,991
|
|
$8,000
|
|
Audit
Related Fees
|
|
159
|
|
|
|
Tax Fees
|
|
34
|
|
|
|
27
Table of Contents
All Other
Fees
|
|
|
|
|
|
Total Fees
|
|
$2,154
|
|
$8,000
|
|
Audit Fees:
2008 audit fees include $2.1 million incurred
for professional services rendered in connection with the 2008 audit of the
annual consolidated financial statements, for the audit of internal controls
under Section 404 of the Sarbanes-Oxley Act, for the review of the
quarterly condensed consolidated financial statements included in the Companys
Form 10-Q and $5.9 million for the audit fees associated with the 2008
restatement of the Companys consolidated financial statements for 2007 and
2006.
Audit Related Fees:
Consist of fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of SouthWest Waters consolidated financial statements and are not
reported under Audit Fees. These services include additional internal control
assessments related to information technology and merger transaction due
diligence support.
Tax Fees:
Consist of fees billed for professional
services for tax consulting and advice.
Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Accountants:
The Audit Committee pre-approves all audit
and non-audit services provided by the independent accountants. The Audit
Committee has adopted a policy regarding the pre-approval of services provided
by the independent accountants. Under the policy, pre-approval is detailed as
to the particular service or category of services and is subject to a specific
budget. The Audit Committee may delegate pre-approval authority to one or more
of its members.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(3) Exhibits
:
See Exhibit Listing for a list of exhibits filed as part of the Amendment No. 1
on Form 10-K/A.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereto duly authorized.
SOUTHWEST WATER COMPANY
(REGISTRANT)
|
|
|
|
By:
|
/s/ MARK
A. SWATEK
|
|
|
Mark A.
Swatek
|
|
|
Chief Executive Officer and President
|
|
|
|
|
By:
|
/s/ BEN
SMITH
|
|
|
Ben Smith
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
|
|
Date:
|
April 28,
2010
|
|
28
Table of Contents
EXHIBIT LISTING
Exhibit
Number
|
|
Exhibit Description
|
|
|
|
31.1
|
*
|
Section 302
Certification of Mark A. Swatek
|
31.2
|
*
|
Section 302
Certification of Ben Smith
|
32.1
|
*
|
Section 906
Certification of Mark A. Swatek
|
32.2
|
*
|
Section 906
Certification of Ben Smith
|
*
Filed
herewith
29
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