UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
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[ ] Definitive Additional Materials
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SJW Corp.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement)
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SJW CORP.
Notice of Annual Meeting of Shareholders
To Be Held On April 27, 2006
To Our Shareholders:
Notice is hereby given that the annual meeting of shareholders of SJW Corp.
will be held on Thursday, April 27, 2006 at 10:00 AM Pacific Time at the offices
of SJW Corp., 374 West Santa Clara Street, San Jose, California, for the
following purposes, as more fully described in the proxy statement accompanying
this Notice:
1. To elect nine directors to serve on the Board of Directors of SJW
Corp.;
2. To approve the Long-Term Incentive Plan Amendment which was adopted
by the Board of Directors of SJW Corp. on January 31, 2006;
3. To ratify the appointment of KPMG LLP as the independent registered
public accounting firm of SJW Corp. for fiscal year 2006; and
4. To act upon such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
The Board of Directors has set the close of business on Monday, March 6,
2006 as the record date for determining the shareholders entitled to notice of
and to vote at the annual meeting and at any adjournment or postponement
thereof.
Your vote is important. Whether or not you plan to attend the meeting,
please vote as soon as possible. You may vote by telephone, via the Internet or
by mailing a completed proxy card. For detailed information regarding voting
instructions, please refer to the sections titled "Voting Procedure" on page 2
of the proxy statement. You may revoke a previously delivered proxy at any time
prior to the meeting. If you attend the meeting and wish to change your proxy
vote, you may do so automatically by voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
W. Richard Roth
President and Chief Executive Officer
San Jose, California
March 10, 2006
TABLE OF CONTENTS
Page
PURPOSE OF MEETING ......................................................1
VOTING RIGHTS AND SOLICITATION ..........................................1
Voting .................................................................1
Quorum And Votes Required ..............................................2
Voting Procedure .......................................................2
Proxy Solicitation Costs ...............................................3
PROPOSAL 1 -- ELECTION OF DIRECTORS .....................................4
General ................................................................4
Business Experience of Nominees ........................................5
Independent Directors ..................................................6
Board Committees .......................................................7
Shareholder Communications with the Board ..............................9
Code of Ethical Business Conduct ......................................10
Board Meetings ........................................................10
Compensation of Directors .............................................10
Recommendation of the Board of Directors ..............................13
PROPOSAL 2 -- LONG-TERM INCENTIVE PLAN AMENDMENT .......................13
General ...............................................................13
Purpose and Effect of Plan Amendment ..................................13
Plan Summary ..........................................................15
Plan Adoption ...................................................15
Types of Awards .................................................15
Share Reserve ...................................................15
Eligibility .....................................................16
Administration ..................................................16
Stock Options ...................................................17
Dividend Units ..................................................17
Performance Shares ..............................................18
Rights to Acquire Restricted Stock ..............................18
Stock Bonuses ...................................................20
Stock Appreciation Rights .......................................20
Option Grants ...................................................21
Deferred Restricted Stock Awards ................................21
Other Awards ....................................................22
New Plan Benefits Under the Plan Amendment ......................22
General Plan Provisions .........................................22
Federal Income Tax Consequences .................................23
Required Vote .........................................................26
Recommendation of the Board of Directors ..............................26
Page
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ........................26
General ...............................................................26
Principal Independent Accountants Fees and Services ...................27
Recommendation of the Board of Directors ..............................27
OWNERSHIP OF SECURITIES ................................................27
Section 16(a) Beneficial Ownership Reporting Compliance ...............27
Security Ownership of Certain Beneficial Owners and Management ........28
COMMITTEE REPORTS ......................................................30
Annual Report of the Audit Committee ..................................30
Annual Report of the Executive Compensation Committee .................31
EXECUTIVE COMPENSATION AND RELATED INFORMATION .........................36
Summary Compensation Table ............................................36
Stock Option Grants in 2005 ...........................................38
Aggregated Option Exercises in 2005 and Year-End Option Values ........40
Pension Plan Table ....................................................40
Securities Authorized for Issuance Under Equity Compensation Plans ....41
Employment Agreements, Termination of Employment and
Change-in-Control Arrangements ......................................42
Compensation Committee Interlocks and Insider Participation ...........43
Five-Year Performance Graph ...........................................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .........................44
SHAREHOLDER PROPOSALS ..................................................45
FORM 10-K ..............................................................45
OTHER MATTERS ..........................................................45
APPENDIX A -- SJW CORP. AUDIT COMMITTEE CHARTER .......................A-1
APPENDIX B -- SJW CORP. LONG-TERM INCENTIVE PLAN AMENDMENT ............A-8
SJW CORP.
374 West Santa Clara Street
San Jose, California 95113
Proxy Statement for the 2006 Annual Meeting of Shareholders
To Be Held on April 27, 2006
The enclosed proxy is solicited on behalf of the Board of Directors of SJW
Corp., a California corporation ("SJW Corp." or the "Corporation"), for use at
SJW Corp.'s annual meeting of shareholders to be held on April 27, 2006 at 10:00
AM Pacific Time and at any adjournment or postponement thereof. The annual
meeting will be held at the offices of the Corporation, 374 West Santa Clara
Street, San Jose, California.
These proxy solicitation materials are being mailed on or about March 20,
2006 to all shareholders entitled to notice of and to vote at the annual meeting
of shareholders. SJW Corp.'s 2005 Annual Report, including its Form 10-K for the
year ended December 31, 2005, accompanies these proxy solicitation materials.
All share numbers in this proxy statement reflect the two-for-one split of
the Corporation's common stock effected as of March 2, 2006.
PURPOSE OF MEETING
The Board of Directors has called the annual meeting of shareholders for
the following purposes:
1. To elect nine directors to serve on the Board of Directors of SJW
Corp.;
2. To approve the Long-Term Incentive Plan Amendment which was adopted
by Board of Directors of SJW Corp. on January 31, 2006;
3. To ratify the appointment of KPMG LLP as the independent registered
public accounting firm of SJW Corp. for fiscal year 2006; and
4. To act upon such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
The Board of Directors asks for your proxy for each of the foregoing
proposals.
VOTING RIGHTS AND SOLICITATION
Voting
Only shareholders of record on March 6, 2006, the record date, will be
entitled to notice of and to vote at the annual meeting. As of the close of
business on March 6, 2006 there were 18,271,432 shares of common stock issued
and outstanding. The common stock of the Corporation was split on a two-for-one
basis effective as of March 2, 2006 and the share data presented in this proxy
statement reflects the split, unless otherwise noted.
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Each share of common stock is entitled to one vote on each matter presented
at the meeting, except in connection with the election of directors when
shareholders are entitled to cumulate votes. When shareholders are entitled to
cumulate votes, every shareholder, or his or her proxy, may cumulate his or her
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of shares owned by such shareholder.
Alternately, a shareholder may distribute his or her votes on the same principle
among as many candidates as he or she thinks fit. For example, assume you have
100 shares. We have nine directors so you have a total of 9 x 100 = 900 votes.
You could give all 900 votes to one nominee, or 450 votes to each of two
nominees, or 100 votes to each of nine nominees. No shareholder or proxy,
however, shall be entitled to cumulate votes unless (1) the candidate(s) has
been placed in nomination prior to the voting and (2) the shareholder has given
notice at the meeting prior to any voting that the shareholder intends to
cumulate the shareholder's votes. If any one shareholder has given such notice,
all shareholders may cumulate their votes for candidates in nomination. The
Board of Directors seeks, by your proxy, the discretionary authority to cumulate
votes in the event that any shareholder invokes cumulative voting. The nine
nominees receiving the highest number of votes will be elected directors.
Quorum And Votes Required
A majority of the Corporation's outstanding shares of common stock must be
present in person or represented by proxy at the annual meeting in order to
constitute a quorum. Abstentions and broker non-votes (shares held of record by
brokers for which the required voting instructions are not provided by the
beneficial owners of those shares) are included in the number of shares present
for purposes of determining whether a quorum is present for the transaction of
business.
In the election of directors, the nine director nominees receiving the
highest number of affirmative votes will be elected (Proposal 1). The approval
of the Long-Term Incentive Plan Amendment (Proposal 2) requires that over 50% of
the shares of common stock must cast a vote for, against or abstaining with
respect to the proposal and a majority of such votes casts must be for the
proposal. For purpose of Proposal 2, broker non-votes can have the effect of
preventing approval because they are not counted as votes cast for purpose of
exceeding 50%. The ratification of the appointment of the independent
accountants (Proposal 3) requires the affirmative vote of a majority of the
shares of common stock present in person or represented by proxy and voting at
the annual meeting, provided that such affirmative vote must also equal at least
a majority of the shares required to constitute a quorum. For purpose of
Proposal 3, abstentions and broker non-votes can have the effect of preventing
approval of the proposal where the number of affirmative votes, though a
majority of the votes cast, does not constitute a majority of the required
quorum.
Voting Procedure
Shareholders of record may vote via the Internet, by telephone, by mailing
a completed proxy card prior to the annual meeting, by delivering a completed
proxy card at the annual meeting, or by voting in person at the annual meeting.
Instructions for voting via the Internet or by telephone are set forth on the
enclosed proxy card. The Internet and telephone voting facilities will close at
11:59 PM Eastern Time on April 26, 2006. If the enclosed form of proxy is
properly signed, dated and returned, the shares represented thereby will be
voted at the annual meeting in accordance with the instructions specified
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thereon. Unless you specify different instructions on the proxy, all shares
represented by valid proxies (and not revoked before they are voted) will be
voted at the annual meeting FOR the election of the director nominees listed in
Proposal 1, FOR the approval of the Long-Term Incentive Plan Amendment as
described in Proposal 2 and FOR the ratification of the appointment of KPMG LLP
as the independent registered public accounting firm as described in Proposal 3.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
You may revoke your proxy at any time before it is actually voted at the
meeting by:
o delivering written notice of revocation to the Secretary at SJW Corp.,
374 West Santa Clara Street, San Jose, California 95113;
o submitting a later dated proxy; or
o attending the meeting and voting in person.
Your attendance at the meeting will not, by itself, constitute a revocation
of your proxy.
You may also be represented by another person present at the meeting by
executing a form of proxy designating that person to act on your behalf. Shares
may only be voted by or on behalf of the record holder of shares as indicated in
the stock transfer records of the Corporation. If you are a beneficial owner of
shares, but those shares are held of record by another person such as a stock
brokerage firm or bank, then you must provide voting instructions to the
appropriate record holder so that such person can vote those shares. In the
absence of such voting instructions from you, the record holder may not be
entitled to vote those shares.
Proxy Solicitation Costs
The Corporation will bear the entire cost of this solicitation of proxies,
including the preparation, assembly, printing, and mailing of this proxy
statement, the proxy, and any additional solicitation materials that the
Corporation may provide to shareholders. Copies of solicitation materials will
be provided to brokerage firms, fiduciaries and custodians holding shares in
their names that are beneficially owned by others so that they may forward the
solicitation material to such beneficial owners. The Corporation will reimburse
the brokerage firms, fiduciaries and custodians holding shares in their names
for reasonable expenses incurred by them in sending solicitation materials to
its beneficial shareholders. The solicitation of proxies will be made by regular
or commercial mail and may also be made by telephone, telegraph, facsimile or
personally by directors, officers and employees of the Corporation who will
receive no extra compensation for such services.
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PROPOSAL 1
ELECTION OF DIRECTORS
General
Nine (9) directors, constituting the entire Board of Directors, are to be
elected at the annual meeting, to hold office until the next annual meeting and
until a successor for such director is elected and qualified, or until the
death, resignation or removal of such director.
Unless individual shareholders specify otherwise, each returned proxy will
be voted FOR the election of the nine nominees who are listed below, each of
whom has been nominated by the existing Board of Directors upon the
recommendation of the Nominating & Governance Committee. Robert A. Van Valer was
recommended as a nominee by George E. Moss, a non-management director. All other
nominees are current directors of SJW Corp., San Jose Water Company, SJW Corp.'s
wholly owned public utility water corporation subsidiary, and SJW Land Company,
SJW Corp.'s wholly owned real estate development company subsidiary. The number
of directors will be increased from eight to nine effective at the annual
meeting. SJW Corp. intends to appoint all persons elected as directors of SJW
Corp. at the annual meeting to be the directors of San Jose Water Company and
SJW Land Company for a concurrent term.
In the unanticipated event that a nominee is unable or declines to serve as
a director at the time of the annual meeting, proxies will be voted for any
nominee named by the present Board of Directors to fill the vacancy. As of the
date of this proxy statement, SJW Corp. is not aware of any nominee who is
unable or will decline to serve as a director.
The following sets forth certain information concerning the nominees for
directors of SJW Corp.:
Director Position with
Name Age Since the Corporation Committee Membership
---- --- ----- --------------- --------------------
Mark L. Cali 40 1992 Director Executive Compensation Committee (Chair)
Nominating & Governance Committee
J. Philip DiNapoli 66 1989 Director Audit Committee
Real Estate Committee
Drew Gibson 63 1986 Chairman of the Board Executive Committee (Chair)
Executive Compensation Committee
Nominating & Governance Committee
Real Estate Committee (Chair)
Douglas R. King 63 2003 Director Audit Committee (Chair)
Nominating & Governance Committee
George E. Moss 74 1985 Director Executive Committee
Executive Compensation Committee
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Director Position with
Name Age Since the Corporation Committee Membership
---- --- ----- --------------- --------------------
W. Richard Roth 53 1994 President, Chief Executive Executive Committee
Officer and Director Real Estate Committee
Charles J. Toeniskoetter 61 1991 Director Nominating & Governance Committee (Chair)
Real Estate Committee
Frederick R. Ulrich, Jr. 62 2001 Director Audit Committee
Executive Compensation Committee
Robert A. Van Valer 56 N/A N/A N/A
Business Experience of Nominees
Mark L. Cali, Attorney at Law, a principal with the firm of Clark, Cali and
Negranti, LLP since 1996. Mr. Cali holds a California Real Estate Broker's
license and is Vice-President of Arioto-Cali Properties.
J. Philip DiNapoli, Attorney at Law, former Chairman of Comerica California
Inc. (California bank holding company). He serves as a director of Comerica,
Inc. (bank holding company) and Comerica Bank-California (bank holding company).
He served as Chairman of Citation Insurance Company (workers' compensation
specialty carrier) until 1996. He is also the owner of DiNapoli Development
Company (real estate development and investment company).
Drew Gibson, Principal of Gibson Speno, LLC (real estate development and
investment company) between 2000 and 2002, and director of Preferred Community
Management, Inc. (real estate management company) since 2002. He has also been a
director of Celluphone, Inc. (Los Angeles-based cellular agent) since 1991.
Douglas R. King, Retired as an audit partner of Ernst & Young, LLP in 2002.
Mr. King began his career at Ernst & Young in Tulsa, Oklahoma in 1970. During
his career he was the audit partner on large, complex public registrants and
managed Ernst & Young's San Francisco office. Mr. King is a Certified Public
Accountant with a Masters Degree in Business Administration from the University
of Arkansas.
George E. Moss, Vice Chairman of the Board of Roscoe Moss Manufacturing
Company (manufacturer of steel water pipe and well casing) since 1984. Mr. Moss
was formerly President of the Roscoe Moss Company (holding company) until 1984.
W. Richard Roth, President and Chief Executive Officer of the Corporation,
San Jose Water Company and SJW Land Company. Mr. Roth was appointed Chief
Executive Officer of SJW Corp. in 1999 and President in 1996. Prior to becoming
President, he was Chief Financial Officer and Treasurer of the Corporation from
1990 to 1996 and Vice President from April 1992 until October 1996.
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Charles J. Toeniskoetter, Chairman of TBI Construction and Construction
Management, Inc. since 2004, and Chairman and Chief Executive Officer of
Toeniskoetter & Breeding, Inc. Development (a real estate development company)
since 1983. He also serves as a director of Redwood Trust, Inc. (real estate
investment trust) and Heritage Commerce Corp. (bank holding company).
Frederick R. Ulrich, Jr., Retired. Mr. Ulrich graduated from West Point and
the Harvard Business School. From 1972 to 1982 he was a member of the corporate
finance departments of Morgan Stanley & Co. and Warburg Paribas Becker. From
1982 through 2001, Mr. Ulrich was a consultant to corporations regarding mergers
and acquisitions and an equity investor in leveraged buyouts.
Robert A. Van Valer, President of Roscoe Moss Manufacturing Company
(manufacturer of steel water pipe and well casing) since 1990. Mr. Van Valer is
responsible for all manufacturing, sales and marketing, financial and
administrative functions.
No nominee has any family relationship with any other current director,
nominee or with any executive officer. Other than Mr. Roth, whose employment
relationships with SJW Corp., San Jose Water Company and SJW Land Company are
described above, no nominee is or has been employed by SJW Corp. or its
subsidiaries during the past five years.
Independent Directors
The Board of Directors has affirmatively determined that each of its
current directors, other than W. Richard Roth, SJW Corp.'s President and Chief
Executive Officer, is independent within the meaning of the New York Stock
Exchange director independence standards, as currently in effect. The Board of
Directors also determined that Robert A. Van Valer will be independent, if
elected.
In connection with its determination of independence for Charles J.
Toeniskoetter, the Board of Directors reviewed Mr. Toeniskoetter's relationships
with the Corporation through 444 West Santa Clara Street, L.P., which is
described in more detail under the section titled "Certain Relationships and
Related Transactions". The Board has concluded that the relationship does not
preclude Mr. Toeniskoetter from being independent based on the following
considerations. SJW Land Company, the Corporation's wholly owned subsidiary, is
a limited partner of 444 West Santa Clara Street, L.P. SJW Land Company received
its limited partnership interest in exchange for an in-kind contribution of raw
land to 444 West Santa Clara Street, L.P. in connection with its formation in
1999. SJW Land Company's objective in forming the partnership was to convert raw
land into a valuable asset through the skills of the principals of the general
partner, including Mr. Toeniskoetter. SJW Land Company does not have operational
control over the partnership, is not subject to any recourse for the
indebtedness of the partnership and is not liable for any other obligations of
the partnership. In addition, the payments made by the partnership to the
general partner, TBI-444 West Santa Clara Street, L.P., an entity controlled by
Mr. Toeniskoetter, are made solely out of the income and assets of the
partnership. These amounted to approximately $60,000 in 2005 and future annual
payments are expected to remain consistent with the payments in 2005, amounts
which are not significant to Mr. Toeniskoetter's development and property
management business. Consequently, the Board of Directors believes that Mr.
Toeniskoetter is not subject to undue influence with respect to 444 West Santa
Clara Street, L.P., or in his capacity as a director, by the Board of Directors
or management of the Corporation.
6
In connection with the determination of independence for George E. Moss and
Robert A. Van Valer, the Board of Directors considered the Corporation's
relationship with Roscoe Moss Manufacturing Company, an intermittent supplier of
the Corporation and of which Mr. Moss is Vice Chairman of the Board, Mr. Van
Valer is the President and each is a significant stockholder. In 2003, Roscoe
Moss Manufacturing Company sold approximately $35,000 of water well casing and
screens to the Corporation. There were no sales to SJW Corp. in 2004 or 2005.
The Board of Directors concluded that this relationship would not impair the
independence of Messrs. Moss and Van Valer in light of the fact that the sales
of Roscoe Moss Manufacturing Company to SJW Corp. were far less than 1% of gross
revenues of each entity in 2003.
Each of the other independent directors has no relationship with the
Corporation other than being a director and/or shareholder of SJW.
In addition, the Board of Directors has determined that the members of the
Audit Committee meet the additional independence criteria promulgated by the New
York Stock Exchange for audit committee membership.
Board Committees
The Board of Directors has a standing Audit Committee, an Executive
Committee, an Executive Compensation Committee, a Nominating & Governance
Committee and a Real Estate Committee.
Audit Committee
The Audit Committee assists the Board of Directors in its oversight of the
integrity of the financial reports and other financial information provided by
the Corporation to any governmental body or the public, the Corporation's
compliance with legal and regulatory requirements, the Corporation's systems of
internal controls, the qualifications and independence of the independent
accountants, and the quality of the Corporation's accounting and financial
reporting processes generally. The Board of Directors has determined that Mr.
King is an "audit committee financial expert" as defined in Securities and
Exchange Commission rules. Mr. King is "independent", as that term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. The
Audit Committee held nine meetings during fiscal year 2005. On October 27, 2005,
the Board of Directors adopted a revised Audit Committee charter. A copy of the
current Audit Committee charter is attached as Appendix A to this proxy
statement. Such charter may also be found at the Corporation's website at
www.sjwater.com/corp/shareholders.jsp or may be obtained by mailing a request
for a copy to the Secretary of the Corporation at the above address.
Executive Committee
The Executive Committee assists the Board of Directors in its oversight of
the Corporation by exercising the authority of the Board of Directors to the
extent permitted by law and by the Corporation's By-Laws under those
circumstances where (1) action is required at a time when it would not be
7
practical to convene a meeting of the full Board or (2) the matter to be acted
upon is sufficiently routine as to not warrant a meeting of the full Board. The
Executive Committee held two meetings during fiscal year 2005.
Executive Compensation Committee
The Executive Compensation Committee assists the Board of Directors in its
responsibilities with respect to the compensation of the Corporation's executive
officers and other key employees, and administers all employee benefit plans,
including the Corporation's Long-Term Incentive Plan and any other equity
incentive plans that may be adopted by the Corporation. Additionally, the
Executive Compensation Committee is authorized to review and approve the
compensation payable to the Corporation's executive officers and other key
employees, approve all perquisites, equity incentive awards and special cash
payments made or paid to executive officers and other key employees, and approve
severance packages with cash and/or equity components for the executive
officers. The Executive Compensation Committee held five meetings during fiscal
year 2005. The Executive Compensation Committee has a charter, a copy of which
may be found at the Corporation's website at
www.sjwater.com/corp/shareholders.jsp. Such charter may also be obtained by
mailing a request for a copy to the Secretary of the Corporation at the above
address.
Nominating & Governance Committee
The Nominating & Governance Committee is charged by the Board with
reviewing and proposing changes to the Corporation's corporate governance
policies, developing criteria for evaluating performance of the Board of
Directors, determining the requirements and qualifications for members of the
Board of Directors and proposing to the Board of Directors nominees for the
position of director of the Corporation. The Board had determined that all of
the members of the Nominating & Governance Committee are independent as defined
under the independence standards for nominating committee members in the listing
standards for the New York Stock Exchange. The Nominating & Governance Committee
held four meetings during fiscal year 2005. The Nominating & Governance
Committee has a charter and Corporate Governance Policies, which may be found at
the Corporation's website at www.sjwater.com/corp/shareholders.jsp, or may be
obtained by mailing a request for a copy to the Secretary of the Corporation at
the above address.
On October 28, 2004, the Board of Directors approved the "Policies and
Procedures of the Nominating & Governance Committee for Nomination for
Directors" (the "Policies and Procedures"). The Policies and Procedures specify
director selection criteria for the Nominating & Governance Committee to
consider, and procedures for identifying and evaluating director candidates for
the Nominating & Governance Committee to follow, when executing its duty to
recommend director nominees at the annual meeting of shareholders. The Policies
and Procedures also specify steps a shareholder must take in order to properly
recommend director candidates which the Nominating & Governance Committee will
consider. All candidates for director must generally meet the criteria set forth
in the Policies and Procedures, a copy of which can be found at the
Corporation's website at www.sjwater.com/corp/shareholders.jsp, and can also be
obtained by mailing a request for a copy to the Secretary of the Corporation at
the above address.
8
The criteria address the specific qualifications that the Nominating &
Governance Committee believes must be met by each nominee prior to
recommendation by the Committee for a position on the Corporation's Board of
Directors. In particular, the criteria address the specific qualities or skills
that the Nominating & Governance Committee believes are necessary for one or
more of the Corporation's directors to possess in order to fill the Board,
committee chairman and other positions and to provide the best combination of
experience and knowledge on the Board and its committees. These criteria
include: highest professional and personal ethical standards; ability to
contribute insight and direction to achieve the Corporation's goals; skills and
expertise relative to the entire make-up of the Board; experience in effective
oversight and decision-making, including experience on other boards; ability and
willingness to serve a full term with consistent attendance; first-hand business
experience in the industry; and independence as determined under the New York
Stock Exchange and SEC rules and regulations. The Nominating & Governance
Committee and the Board evaluate and update the criteria at their discretion,
and compliance with some or all of the criteria alone does not confer the right
to further consideration of a candidate.
The steps a shareholder must take in order to properly recommend director
candidates which the Committee will consider include submission via mail to the
attention of the Nominating & Governance Committee at the address of the
Corporate Secretary, SJW Corp., 374 West Santa Clara Street, San Jose,
California 95113, of a completed "Shareholder Recommendation of Candidate for
Director" form which can be found at the Corporation's website at
www.sjwater.com/corp/shareholders.jsp or may be obtained by mailing a request
for a copy of the form to the Secretary of the Corporation at the above address.
Forms must be submitted not earlier than 210 days prior and not later than 120
days prior to the one-year anniversary of the date the proxy statement for the
preceding annual meeting was mailed to shareholders. In addition to or in lieu
of making a director candidate recommendation via the completed recommendation
form, shareholders may nominate directly a person for election as a director at
the annual meeting, see the section titled "Shareholder Proposals" on page 45 of
this proxy statement for further information regarding shareholder nominations.
Real Estate Committee
The Real Estate Committee is charged with review of significant potential
acquisitions or dispositions involving the real property interests of the
Corporation and its subsidiaries and makes recommendations thereon to the Chief
Executive Officer and the full Board. The Real Estate Committee held four
meetings during fiscal year 2005.
Shareholder Communications with the Board
Communications to the Board of Directors may be submitted by email to
boardofdirectors@sjwater.com or by writing to SJW Corp., Attention: Corporate
Secretary, 374 West Santa Clara Street, San Jose, California 95113. The Board
relies upon the Corporate Secretary to forward written questions or comments to
named directors or committees, as appropriate. General comments or inquiries
from security holders are forwarded to the appropriate individual within the
Corporation, including the President or Chairman, as appropriate.
9
Interested parties may make their concerns known to non-management
directors on a confidential and anonymous basis by calling the Corporation's
toll free hotline. The toll free hotline is 1-888-883-1499.
Code of Ethical Business Conduct
The Corporation has adopted a Code of Ethical Business Conduct (the "Code")
that applies to the directors, officers and employees of the Corporation. A copy
of the Code can be found at the Corporation's website at
www.sjwater.com/corp/shareholders.jsp or may be obtained by mailing a request
for a copy to the Secretary of the Corporation at the above address.
Board Meetings
During 2005 there were four regular meetings and two special meetings of
the Board of Directors. Each director attended or participated in 75% or more of
the aggregate of (i) the total number of regular and special meetings of the
Board of Directors and (ii) the total number of meetings held by all committees
of the Board on which such director served during the 2005 fiscal year. Mr.
Gibson was chosen to preside at all executive sessions of the non-management
directors.
Although the Corporation does not have a formal policy regarding attendance
by members of the Board of Directors at the annual meetings of shareholders,
directors are encouraged to attend the annual meeting of shareholders. All of
the directors of SJW Corp. attended the 2005 annual meeting of shareholders.
Compensation of Directors
Directors Annual Retainer and Meeting Fees
SJW Corp., San Jose Water Company and SJW Land Company pay each of their
non-employee directors annual retainers of $6,000, $16,000 and $5,000,
respectively.
The meeting fees for the Chairman of the Board of SJW Corp., San Jose Water
Company and SJW Land Company are $5,000, $5,000 and $2,500, respectively, for
each Board meeting attended in person. The meeting fees are the same for
attending Board and Committee meetings held telephonically.
The meeting fees for the Chairman of SJW Corp.'s Audit Committee and the
Chairman of the other SJW Corp. Board Committees are $3,000 and $2,000,
respectively, for each Committee meeting attended in person. The meeting fees
are the same for attending Board and Committee meetings held telephonically.
All other non-employee directors of SJW Corp. and San Jose Water Company
are paid $1,000 for each Board or Committee meeting attended in person and all
other non-employee directors of SJW Land Company are paid $500 for each Board
meeting attended in person. The meeting fees are the same for attending Board
and Committee meetings held telephonically.
10
In the event a non-employee director attends an in-person Board or
Committee meeting by telephone, he or she is entitled to receive the meeting
fees set forth above for the first meeting attended by telephone in a calendar
year and half of such meeting fees for subsequent meetings attended by telephone
in the same calendar year.
Long-Term Incentive Plan
Non-employee directors are currently eligible to participate in two special
programs implemented for them under SJW Corp.'s Long-Term Incentive Plan, as
amended ("Incentive Plan" or "LTIP"), and will also be eligible to participate
in any other programs now or hereafter established under such plan. The two
programs currently in effect may be summarized as follows:
1. Deferral Election Program for Non-Employee Board Members
Pursuant to the Corporation's Deferral Election Program for Non-Employee
Board Members (the "Deferral Program"), each non-employee Board member has the
opportunity to defer either 50% or 100% of his or her annual Board retainer fee
in the form of a deferred restricted stock award. Additionally, each
non-employee Board member will also be entitled to defer 100% of his or her fees
for attending pre-scheduled Committee and Board meetings, starting with the 2007
calendar year. The deferral election is irrevocable and must be made by each
non-employee Board member prior to the start of the year for which the fees are
to be earned. The deferred fees will be converted into a deferred stock award on
the first business day of the calendar year to which those fees relate by
dividing the deferred amount by the fair market value of one share of the
Corporation's common stock on the immediately preceding business day. The
deferred stock award will vest in twelve equal monthly installments over the
director's period of continued Board service during the year to which the
deferred fees relate. To the extent vested, the deferred stock award will be
paid in shares of common stock under the LTIP upon the director's termination of
Board service. The shares may be issued either in a single lump or in annual
installments, as elected by the director in his or her deferral election related
to that award.
Messrs. DiNapoli, Gibson, King and Moss each elected to defer 100% of their
2005 annual retainer fees in return for deferred restricted stock awards
covering 1,484 shares each for a total of 5,936 shares of SJW Corp.'s common
stock.
2. Directors Deferred Restricted Stock Program
Pursuant to the Corporation's Deferred Restricted Stock Program (the "Stock
Program"), each non-employee Board member who commences Board service on or
after April 29, 2003, will be granted a deferred restricted stock award on the
third business day following each annual meeting of shareholders, beginning with
the annual meeting which is at least six (6) months following his or her initial
election or appointment to the Board, at which he or she continues to serve as a
non-employee Board member. These deferred restricted stock awards will be made
annually for the first 10 years of Board service, and the number of shares of
the Corporation's common stock subject to each annual reward will be determined
by dividing the retainer fees payable per director for service on the board of
directors of the Corporation and its subsidiaries for that year by the fair
market value of one share of the Corporation's common stock on the grant date.
The shares subject to the annual deferred restricted stock awards will be issued
from the LTIP upon the director's termination of Board service. The shares may
11
be issued either in a single lump sum or in up to 10 annual installments, as
elected by the director at the time of his or her initial entry into the Stock
Program. Because each of the individuals who served as non-employee Board
members during the 2005 fiscal year commenced such service before April 29,
2003, no awards were made under the Stock Program during 2005 to the
non-employee directors.
Each non-employee Board member who commenced service prior to April 29,
2003 and participated in the Director Pension Plan was given the opportunity
during the 2003 calendar year to irrevocably elect to convert his or her
accumulated benefit under that plan into a deferred restricted stock award under
the Stock Program. The accumulated benefit of each director who made such an
election was converted, on September 2, 2003, into a deferred restricted stock
award of comparable value based on the fair market value per share of the
Corporation's common stock on such date. The award vests in 36 monthly
installments over the director's period of continued Board service.
In accordance with the foregoing, Messrs. Cali, DiNapoli, Gibson, Moss and
Toeniskoetter elected to have their existing Director Pension Plan benefits
converted into deferred restricted stock pursuant to the Stock Program. As a
result, Messrs. Cali, DiNapoli, Gibson, Moss and Toeniskoetter each had $270,000
in Pension Plan benefits converted into an award for 19,014 shares of deferred
restricted stock, based on a fair market value of $14.20 per share on September
2, 2003.
Messrs. Ulrich and King continue to participate in the Director Pension
Plan. Under that plan, Messrs. Ulrich and King will each receive a series of
annual cash payments following their cessation of service as a director of SJW
Corp., San Jose Water Company or SJW Land Company, as the case may be. The
annual payment will be equal to the most recent rate of annual cash retainer
payable per director and will be paid to them or their estate, for the number of
years they served on the board, up to a maximum of 10 years.
Directors who elected to convert their accumulated Director Pension Plan
benefits into deferred restricted stock in 2003, and each non-employee member of
the Board who commences Board service on or after April 29, 2003, are not
eligible to participate in the Director Pension Plan.
Dividend Equivalent Rights
Dividend Equivalent Rights ("DERs") are part of the deferred restricted
stock awards made to the non-employee directors under the Deferral and Stock
Programs. Pursuant to those DERs, each non-employee director's deferred stock
account will be credited, each time a dividend is paid on the Corporation's
common stock, with a dollar amount equal to the dividend paid per share
multiplied by the number of shares at the time credited to the deferred stock
account, including the number of shares previously credited to the account by
reason of the DERs. As of the first business day in January of each year, the
cash dividend equivalent amounts so credited in the immediately preceding year
will be converted into additional shares of deferred restricted stock by
dividing such cash amount by the average of the fair market value of the common
stock on each of the dates in the immediately preceding year on which dividends
were paid. The additional shares of common stock that are credited based on such
DERs will vest in the same manner as the deferred restricted stock awards to
which they are attributable and will be paid out upon the director's termination
of Board service. Such shares may be issued, either in a single lump sum or in
up to 10 annual installments, as elected by the director.
12
On January 3, 2006, the following non-employee Board members were credited
with additional shares of deferred restricted stock pursuant to their DERs: Mr.
Cali, 462 shares; Mr. DiNapoli, 556 shares; Mr. Gibson, 556 shares; Mr. King, 94
shares; Mr. Moss, 556 shares; and Mr. Toeniskoetter, 462 shares.
Expense Reimbursement Policies
Under the Corporation's Director Compensation and Expense Reimbursement
Policies, each non-employee director will be reimbursed for all reasonable
expenses incurred in connection with his or her attendance at SJW Corp., San
Jose Water Company ("SJWC") or SJW Land Company ("Land Company") Board Meetings,
Committee Meetings or other meetings organized by the Corporation, SJWC or Land
Company. Such reimbursements include the expense of traveling by non-commercial
aircraft if within 1,000 miles of the Corporation's headquarters and approved by
the Chairman of the Board, and the expense of traveling first class for any
travel within the United States. A copy of the Director Compensation and Expense
Reimbursement Policies is attached as Exhibit 10.1 to the Form 8-K filed on
February 3, 2006.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR the election
of the nine nominees listed on pages 4 and 5.
PROPOSAL 2
LONG-TERM INCENTIVE PLAN AMENDMENT
General
Shareholders are being asked to approve an amendment to the Corporation's
Long-Term Incentive Plan (the "Incentive Plan") which will provide the Executive
Compensation Committee of the Corporation's Board of Directors with broader
authority to design and structure awards under the Incentive Plan that will
serve as substantial incentive vehicles to attract and retain the services of
qualified and experienced non-employee Board members. The amendment (the "Plan
Amendment") would also effect a series of technical revisions to the Incentive
Plan to reflect recent developments in the laws, regulations, and accounting
principles applicable to the plan. The Plan Amendment was adopted by the
Corporation's Board of Directors (the "Board") on January 31, 2006, and will
become effective upon shareholder approval of this proposal at the annual
meeting. In the event that shareholder approval is not obtained, the Plan
Amendment will not be implemented. A copy of the Plan Amendment is attached as
Appendix B.
Purpose and Effect of Plan Amendment
The primary purpose of the Plan Amendment is to expand and enhance the
authority of the Executive Compensation Committee to utilize any or all of the
various forms of awards currently authorized under the Incentive Plan in
implementing equity compensation programs to attract and retain non-employee
Board members. At present, the non-employee Board members receive equity awards
13
under the Incentive Plan through two formulaic programs: (i) the deferral
fee program which allows them to defer both their annual retainer and their
scheduled meeting fees in the form of deferred stock awards payable upon their
cessation of Board service and (ii) an annual grant program pursuant to which
they receive deferred stock awards following their initial election or
appointment to the Board, and upon their subsequent re-election to the Board at
each annual shareholders meeting. However, the latter program limits the number
of years for which the non-employee Board members may receive such automatic
awards to a maximum of 10 years or to a lesser number of years for certain
non-employee Board members.
The proposed amendment would provide the Executive Compensation Committee
with the authority to make awards under the Incentive Plan in a more
discretionary manner, subject only to (i) the express limitations currently set
forth in the Incentive Plan and (ii) the new limitations imposed by the Plan
Amendment, as summarized below. Accordingly, the Executive Compensation
Committee would have the authority under the Plan Amendment to award stock
options, stock appreciation rights, deferred stock rights, performance shares,
dividend equivalent rights and stock bonuses to the non-employee Board members
at such times, for such number of shares and subject to such terms and
conditions as the Executive Compensation Committee determines is reasonable and
appropriate under the circumstances. The terms and conditions of such awards may
vary among the non-employee Board members on an individual by individual basis
or may differ from the terms and conditions in effect for prior awards made to
them. The Executive Compensation Committee would also have the authority to
eliminate any existing limitations on the participation of non-employee Board
members in current plan programs.
However, the Executive Compensation Committee's discretion would at all
times be subject to the following new limitations imposed by the Plan Amendment:
(i) The maximum number of shares of common stock for which any
non-employee Board member may be granted awards in a single calendar year
will be limited to four thousand (4,000) shares, except that such limit
would increase to ten thousand (10,000) shares for the calendar year in
which a non-employee Board member is first appointed or elected to the
Board, with each of the foregoing share limitations subject to appropriate
adjustment from time to time for stock dividends, stock splits,
recapitalizations and other similar transactions affecting the
Corporation's outstanding common stock.
(ii) Each award authorized by the Executive Compensation Committee
will be subject to approval and ratification by a majority of the Board.
However, the foregoing limitations shall not apply to awards made to a
non-employee Board member in connection with such individual's election to
convert all or a portion of the cash fees payable for Board or Board committee
service or attendance at Board or Board committee meetings into shares of
deferred restricted stock at the then current fair market value per share of
common stock.
14
Subject to the foregoing limitations, the Executive Compensation Committee
will also have the discretion under the Plan Amendment to implement one or more
automatic grant programs pursuant to which the non-employee Board members would
receive awards in such amounts, at such times and subject to such terms as the
Executive Compensation Committee may designate in advance. The Executive
Compensation Committee could also implement one or more programs which provide
the non-employee Board members with the opportunity to elect to receive specific
types of awards, either on a current or deferred basis, in lieu of retainer or
meeting fees otherwise payable to them in cash for their service as Board
members and/or as members of one or more Board committees.
Plan Summary
The following is a summary of the principal features of the Incentive Plan,
as modified by the proposed Plan Amendment. The summary, however, does not
purport to be a complete description of all the provisions of the Incentive
Plan. Any shareholder who wishes at any time to obtain a copy of the actual
Incentive Plan document may do so upon written request to the Corporate
Secretary at the Corporation's principal executive offices in San Jose.
Plan Adoption
The Incentive Plan was originally adopted by the Board on March 6, 2002,
and approved by the shareholders at the annual meeting held on April 18, 2002.
The Incentive Plan was subsequently amended by the Board on March 3, 2003, and
that amendment was approved by the shareholders at the 2003 annual meeting held
on April 29, 2003.
Types of Awards
The following awards may be made under the Incentive Plan: (i) stock
options, (ii) dividend units, (iii) performance shares, (iv) rights to acquire
restricted stock, (v) stock bonuses, and (vi) stock appreciation rights. The
principal features of each type of award are described below.
Share Reserve
A total of 1,800,000 shares of the Corporation's common stock have been
reserved for issuance over the ten-year term of the Incentive Plan. Shares
subject to any outstanding options or other awards under the Incentive Plan
which remain unissued at the time those options or awards expire or terminate
will be available for subsequent grant under the Incentive Plan. Any unvested
shares issued under the Incentive Plan that are subsequently forfeited, or that
are repurchased at a price not greater than the original issue price paid per
share, upon the holder's termination of employment or service with the
Corporation will be added back to the share reserve under the Incentive Plan and
will accordingly be available for subsequent issuance.
As of January 31, 2006, (i) options to purchase 165,902 shares were
outstanding under the Incentive Plan and options for 1,592 shares had been
exercised, (ii) dividend units pertaining to 12,294 shares were outstanding,
(iii) no performance shares were outstanding, (iv) rights to acquire 208,186
shares of restricted stock were outstanding, (v) no stock bonuses had been
awarded, (vi) no stock appreciation rights were outstanding, and (vii) 1,395,556
shares were available for future grants.
15
No individual may receive awards covering more than six hundred thousand
(600,000) shares in any calendar year. However, such limit does not apply to
rights to acquire restricted stock, performance shares or stock bonuses which
are not intended to qualify as "performance-based compensation" that is exempt
from the $1 million limitation per covered individual which Section 162(m) of
the Internal Revenue Code imposes on the deductibility of the compensation paid
to certain of the Corporation's executive officers.
In addition, the number of shares subject to awards made to a non-employee
Board member is limited to four thousand (4,000) shares per calendar year,
except that such limit is increased to ten thousand (10,000) shares for the
calendar year in which the non-employee Board member is first appointed or
elected to the Board. However, the foregoing limitations shall not apply to
awards made to a non-employee Board member in connection with such individual's
election to convert all or a portion of the cash fees payable for Board or Board
committee service or attendance at Board or Board committee meetings into shares
of deferred restricted stock at the then current fair market value per share of
common stock.
Eligibility
Key Employees (including officers) and non-employee directors of the
Corporation and its affiliated entities (whether now existing or subsequently
established) are eligible to participate in the Incentive Plan. An entity will
be deemed to be such an affiliated entity if (i) it is a member of a controlled
group of corporations of which the Corporation is a member and each member in
that group (other than the last member in the chain) owns securities
representing at least eighty percent (80%) of the total value or combined voting
power of the outstanding securities of at least one other member of that group
or (ii) it is a corporation or other entity in which the Corporation owns at
least twenty-five percent (25%) equity interest.
As of January 31, 2006, four executive officers, seven non-employee Board
members and approximately 30 other employees were eligible to participate in the
Incentive Plan.
Administration
The Executive Compensation Committee has the exclusive authority to
administer the Incentive Plan with respect to all eligible individuals, subject
any Board review or approval requirements as the Board may establish from time
to time. The Board may at any time replace the Executive Compensation Committee
with another committee. The term "Plan Administrator" as used in this summary
will mean the Executive Compensation Committee or any other committee appointed
by the Board to replace the Executive Compensation Committee, to the extent each
such entity is acting within the scope of its administrative jurisdiction under
the Incentive Plan.
16
Stock Options
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals are to receive option grants, the time or times when those
grants are to be made, the number of shares subject to each such grant, the
status of any granted option as either an incentive stock option or a
non-statutory option under the federal tax laws, the vesting schedule (if any)
to be in effect for the option grant, and the maximum term for which any granted
option is to remain outstanding.
Price and Exercisability. Each granted option will have an exercise price
per share not less than the fair market value per share of common stock on the
grant date, and no granted option will have a term in excess of 10 years. The
shares subject to each option will generally vest and become exercisable in a
series of installments over a specified period of service measured from the
grant date.
The exercise price may be paid in cash or in shares of the Corporation's
common stock. Outstanding options may also be exercised through a same-day sale
program pursuant to which a brokerage firm will effect an immediate sale of the
shares purchased under the option and pay over to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
Shareholder Rights/Assignability. An optionee will not have any shareholder
rights with respect to the option shares until such optionee has exercised the
option and paid the exercise price for the purchased shares. Options will
generally not be assignable or transferable during the optionee's lifetime and
may only be transferred after his or her death either by will or the laws of
inheritance or through a beneficiary designation.
Termination of Service. The Plan Administrator will determine on a
grant-by-grant basis the period for which an option will remain outstanding and
exercisable following cessation of employment or service. Generally, it is
anticipated that an optionee will have a ninety (90)-day period following his or
her termination date or (if shorter) the remainder of the option term to
exercise his or her outstanding options for any shares in which the optionee is
vested at the time of such termination, except that in certain circumstances
approved by the Plan Administrator, such as termination due to death,
disability, or retirement, the option may vest on an accelerated basis and an
extended exercise period may be in effect. If employment is terminated for
cause, the option will immediately terminate.
Dividend Units
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals will receive dividend units under the Incentive Plan,
whether the dividend units will be granted alone or in tandem with other awards
and the maximum term for which the units will remain outstanding. The amount
payable per dividend unit will equal the aggregate dividends paid per share of
the Corporation's outstanding common stock during the period the dividend unit
remains outstanding.
Payment. The amounts which become payable under each dividend unit may be
paid either immediately as they accrue or on a deferred basis and may be settled
either in cash or in shares of common stock, as specified by the Plan
17
Administrator. If dividend units are to be paid in common stock, the number of
shares into which the cash accruals on those units are to be converted will be
based on the fair market value per share of common stock on the date of
conversion, a prior date or an average of such fair market value over a
designated period, as the Plan Administrator may specify.
Performance Shares
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals will receive performance shares under the Incentive Plan.
At the time of grant, the Plan Administrator will determine the number of
performance shares covered by the award, the performance period and the
performance goal or goals to be achieved. At the end of the performance period,
the Plan Administrator will measure the actual level of attainment of each
performance goal against the target level and determine the number of
performance shares (if any) which will be payable to the participant.
Performance Goals. The performance goals to which the performance shares
may be tied include operating profits (including EBITDA), net profits, earnings
per share, profit returns and margins, revenue, shareholder return and/or value
(including economic value added or shareholder value added), stock price and
working capital. Performance criteria may be measured solely on a corporate,
subsidiary or business unit basis, or a combination thereof. The performance
criteria may reflect absolute entity performance or a relative comparison of
entity performance to the performance of a peer group of entities or other
external measure of the selected performance criteria. Profit, earnings and
revenues used for any performance criteria measurements will exclude gains or
losses on operating asset sales or dispositions, asset write-downs, litigation
or claim judgments or settlements, accruals for historic environmental
obligations, effect of changes in tax law or rate on deferred tax liabilities,
accruals for reorganization and restructuring programs, uninsured catastrophic
property losses, the cumulative effect of changes in accounting principles, and
any extraordinary non-recurring items as described in Accounting Principles
Board Opinion No. 30 and/or in management's discussion and analysis of financial
performance appearing in the Corporation's Annual Report on Form 10-K or annual
report to shareholders for the applicable year.
The designated performance goals provide the Plan Administrator with
flexibility to structure certain awards under the Incentive Plan so that they
will qualify as performance-based compensation which will not be subject to the
$1 million limitation per covered individual which Section 162(m) of the
Internal Revenue Code imposes on the deductibility of the compensation paid to
certain of the Corporation's executive officers.
Payment. The Plan Administrator has complete discretion to determine
whether awards will be paid in cash, common stock, or a combination of cash and
common stock.
Rights to Acquire Restricted Stock
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals will receive rights to acquire restricted stock. Rights to
acquire restricted stock will in most instances be granted at no investment cost
18
to the recipient and will entitle the recipients to receive the underlying
shares upon the Corporation's attainment of designated performance goals or
completion of a specified service period. The Plan Administrator will have
complete discretion to determine which eligible individuals are to receive such
rights to acquire restricted stock, the time or times when those rights are to
be awarded, the number of shares subject to each such award and the performance
or service vesting requirements to be in effect for the awarded rights.
Vesting. The shares underlying a right to acquire restricted stock may vest
upon the recipient's completion of a designated service period or upon the
Corporation's attainment of pre-established performance goals, and those shares
may be issued immediately upon vesting or at a designated time thereafter.
Outstanding rights to acquire restricted stock will automatically terminate, and
no shares of common stock will actually be issued in satisfaction of those
rights, if the performance goals or service requirements established for those
awards are not attained. The Plan Administrator, however, will have the
discretionary authority to issue shares of common stock in satisfaction of one
or more outstanding rights to acquire restricted stock as to which the
performance goals or service requirements are not satisfied. However, no vesting
requirements tied to the attainment of performance objectives may be waived with
respect to awards which were intended at the time of issuance to qualify as
performance-based compensation under Internal Revenue Code Section 162(m),
except in the event of certain involuntary terminations or changes in control or
ownership.
Director Deferral Fee Program. The Executive Compensation Committee has
established a deferral fee election fee program for the non-employee Board
members pursuant to the deferred restricted stock features of the Incentive
Plan. Pursuant to that program as currently in effect, each non-employee Board
member may elect to have either 50% or 100% of his or her annual Board or Board
committee retainer fees and/or (effective as of January 1, 2007) 100% of his or
her Board and Board committee meeting fees converted into a deferred restricted
stock award. The number of shares subject to each such award will be calculated
by dividing the amount of the deferred fees by the fair market value of the
Corporation's common stock on the last business day of the year immediately
preceding the year in which those fees are to be earned. The awards will
generally be made on the first business day of the year in which the deferred
fees are to be earned and will vest in monthly installments over the Board
member's continued service during that year. The deferred stock awards which so
vest will be paid in shares of common stock upon the Board member's cessation of
service, with such payment to be either in a single lump or in annual
installments. Dividend equivalent rights ("DERs") will also be granted with
respect to the shares subject to each non-employee Board member's deferred stock
award. The phantom dividends accumulated pursuant to the DERs will be converted,
as of the first business day in January of each year, by dividing (i) the
accumulated phantom dividends for the preceding year by (ii) the average of the
fair market value of the common stock on each of the dates in the immediately
preceding year on which dividends were paid, and the shares resulting from such
conversion will also have DERs. The additional shares of common stock
attributable to the DERs will vest and be paid at the same time and in the same
manner as the deferred stock awards to which they pertain.
19
Stock Bonuses
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals will receive stock bonuses. The Plan Administrator may
grant stock bonuses in consideration for past services or may grant such bonuses
upon the attainment of designated performance goals or completion of a specified
service period. The Plan Administrator has complete discretion to determine
which eligible individuals are to receive stock bonuses, the time or times when
awards are to be made, the number of shares covered by each stock bonus and the
performance or service vesting requirements (if any) to be in effect for the
stock bonus.
Vesting. The shares awarded under a stock bonus may be fully and
immediately vested upon issuance or may vest upon the recipient's completion of
a designated service period or upon the Corporation's attainment of
pre-established performance goals. However, no shares awarded under a stock
bonus that are subject to vesting will be issued until the applicable vesting
requirements are satisfied. The Plan Administrator, however, will have the
discretionary authority to issue shares of common stock in satisfaction of one
or more outstanding stock bonuses as to which the performance or service vesting
requirements are not satisfied. However, no vesting requirements tied to the
attainment of performance objectives may be waived with respect to awards which
were intended at the time of issuance to qualify as performance-based
compensation under Internal Revenue Code Section 162(m), except in the event of
certain involuntary terminations or changes in control or ownership.
Stock Appreciation Rights
Grants. The Plan Administrator has complete discretion to determine which
eligible individuals will receive stock appreciation rights under the Incentive
Plan. Stock appreciation rights may be granted in tandem with other awards under
the Incentive Plan or as stand-alone awards. Tandem stock appreciation rights
provide recipients with the right to surrender the award to which those rights
are tandem for an appreciation distribution from the Corporation equal in amount
to the excess of (a) the fair market value of the vested shares of common stock
subject to the surrendered award over (b) the aggregate exercise price payable
for those shares. Such appreciation distribution may, at the discretion of the
Plan Administrator, be made in cash or in shares of common stock. Stand-alone
stock appreciation rights will entitle recipients to a distribution from the
Corporation in an amount payable in cash or stock equal to the excess of (a) the
fair market value of the common stock as to which such right is exercised over
(b) the exercise price in effect for that stock appreciation right. Such
exercise price may not be less than the fair market value of the underlying
shares of common stock on the grant date.
20
Option Grants
The following table sets forth, as to the Chief Executive Officer and the
Corporation's three other most highly compensated executive officers (with base
salary and bonus in excess of $100,000) for 2005 and the other individuals and
groups indicated, the number of shares of common stock subject to option grants
made under the Incentive Plan for the period beginning January 1, 2005 and
ending January 31, 2006, together with the weighted average exercise price
payable per share.
OPTION TRANSACTIONS
Number of Shares Weighted Average
Underlying Exercise Price
Name and Position Options Per Share($)
----------------- ------- ------------
W. Richard Roth, President and Chief Executive Officer 33,452 $ 17.63
George J. Belhumeur, Senior Vice President - Operations 2,508 $ 17.63
Angela Yip, Chief Financial Officer and Treasurer 2,508 $ 17.63
R. Scott Yoo, Chief Operating Officer 16,508 $ 26.16
All current executive officers as a group (4 persons)....................... 54,976 $ 20.19
All current non-employee directors as a group (7 persons)................... 0 n/a
All employees, including current officers who are not executive officers, as
a group................................................................... 57,484 $ 20.08
The option grants made to Mr. Roth, Ms. Yip, Mr. Belhumeur, and Mr. Yoo
contain dividend equivalent rights which will provide such individuals with
phantom dividends on the underlying option shares, with such amounts to be
converted into additional shares of common stock and paid out at a designated
date following the vesting of the option shares.
Deferred Restricted Stock Awards
The following table sets forth, as to the Chief Executive Officer and the
Corporation's three other most highly compensated executive officers for 2005
and the other individuals and groups indicated, the number of shares of common
stock subject to deferred restricted stock awards made under the Incentive Plan
during the period beginning January 1, 2005, and ending January 31, 2006. Each
share of deferred restricted stock will entitle the holder to one share of the
Corporation's common stock, without payment of any cash consideration, when that
share becomes issuable either upon vesting or on the designated issuance date
following such vesting. The deferred restricted stock awards also include
dividend equivalent rights on the underlying shares of common stock, with the
phantom dividends to be paid out in cash or converted into additional shares of
common stock and paid out at a designated date following the vesting of the
deferred stock awards.
DEFERRED RESTRICTED STOCK AWARDS
Number of
Name and Position Underlying Shares
----------------- -----------------
W. Richard Roth, President and Chief Executive Officer (1) 23,954
George J. Belhumeur, Senior Vice President - Operations 284
Angela Yip, Chief Financial Officer and Treasurer 262
R. Scott Yoo, Chief Operating Officer 448
All current executive officers as a group (4 persons) 24,948
All current non-employee directors as a group (7 persons) 16,740
All employees, including current officers who
are not executive officers, as a group 25,420
(1) Includes 14,000 restricted stock units issued to Mr. Roth on January 30,
2006, under the Corporation's Long-Term Incentive Plan. The units will vest
in four successive equal annual installments over the four-year period of
service measured from the award date. The restricted stock units include
dividend equivalent rights under which the accumulated amounts will vest
and be paid out in cash as the shares underlying the units vest and are
21
issued. The restricted stock units will vest and the underlying shares will
be immediately issued upon certain changes of control of the Corporation or
upon Mr. Roth's termination of employment under certain defined
circumstances.
Other Awards
No awards of stock appreciation rights, performance shares, stock bonuses
or stand-alone dividend units were made during the period from January 1, 2005
to January 31, 2006.
New Plan Benefits Under the Plan Amendment
As of January 31, 2006, no awards had been made under the Incentive Plan on
the basis of the Plan Amendment which is the subject of this proposal.
General Plan Provisions
Valuation. For all valuation purposes under the Incentive Plan, the fair
market value per share of common stock is deemed equal to the closing selling
price per share on that date on the New York Stock Exchange. On January 31,
2006, the closing selling price of the Corporation's common stock was $25.50 per
share.
Vesting Acceleration. The Plan Administrator has complete discretion under
the Incentive Plan to determine the effect that certain change in control or
ownership transactions will have upon the term, exercisability, vesting and/or
payment and settlement of outstanding awards. Such change in control or
ownership transactions include changes in the beneficial ownership of the
Corporation's common stock, the sale of its assets, any merger, consolidation,
spin-off, reorganization or other similar corporate transaction, or the
liquidation of the Corporation. Accordingly, such a transaction may result in
acceleration in whole or in part of the vesting, exercisability and/or
settlement of awards immediately upon the occurrence of the transaction or upon
certain terminations of service within a specified period following such
transaction.
Outstanding awards include provisions for acceleration of vesting upon
certain changes in control, as defined in the award agreement, or upon either an
involuntary termination without cause or a voluntary termination for good reason
(as defined in the award agreement) that occurs in anticipation of, or within
twenty-four (24) months after, the change in control.
The acceleration of vesting in the event of a change in the ownership or
control of the Corporation is intended to provide employees with an incentive to
remain in employment during periods when there is potential for a change in
control of the Corporation and to participate in and facilitate transactions
that might otherwise result in the termination of their employment. However,
under certain circumstances, acceleration of vesting may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Corporation.
Changes in Capitalization. In the event any change is made to the number of
outstanding shares of common stock by reason of any stock dividend, stock split
or other subdivision or combination of shares, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
Incentive Plan, (ii) the maximum number and/or class of securities for which any
22
one person may be granted certain awards under the Incentive Plan per calendar
year, (iii) the maximum number and/or class of securities for which any one new
or continuing non-employee Board member may be granted awards under the
Incentive Plan in any calendar year and (iv) the number or class of securities,
and exercise or issue price (if applicable) for the shares of common stock
subject to outstanding awards under the Incentive Plan. Such adjustments will be
designed to preclude any dilution or enlargement of benefits under the Incentive
Plan or the outstanding awards thereunder.
Special Tax Withholding. The Plan Administrator may provide one or more
holders of options or other awards under the Incentive Plan, with the right to
have the Corporation withhold a portion of the shares otherwise issuable to such
individuals in satisfaction of the withholding taxes to which they may become
subject in connection with the exercise, vesting or settlement of those awards.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of common stock in payment of such withholding tax
liability.
Amendment and Termination. The Board may amend or terminate the Incentive
Plan at any time, subject to any shareholder approval requirement pursuant to
applicable laws and regulations, and the Plan Administrator may amend
outstanding awards at any time. However, no such amendment or termination may
impair a participant's rights under an outstanding award without his or her
written consent. In no event, may an outstanding award be amended to lower the
exercise price, or canceled in connection with a reissuance at a lower price,
without shareholder approval. Unless sooner terminated by the Board, the
Incentive Plan will terminate on March 5, 2012.
Federal Income Tax Consequences
The following is a summary of the Federal income taxation treatment
applicable to the Corporation and the participants who receive awards under the
Incentive Plan.
Option Grants. Options granted under the Incentive Plan may be either
incentive stock options which satisfy the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to meet
such requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is recognized for regular tax
purposes at the time the option is exercised, although taxable income may arise
at that time for alternative minimum tax purposes. The optionee will recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of certain other dispositions. For Federal tax purposes,
dispositions are divided into two categories: (i) qualifying, and (ii)
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made more than two (2) years after the date the option for the shares
involved in such sale or disposition is granted and more than one (1) year after
the date the option is exercised for those shares. If the sale or disposition
occurs before these two periods are satisfied, then a disqualifying disposition
will result.
23
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date or (if less) the amount realized upon such sale or disposition
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain recognized upon the disposition will
be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Corporation will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the amount of ordinary
income recognized by the optionee as a result of the disposition. The
Corporation will not be entitled to any income tax deduction if the optionee
makes a qualifying disposition of the shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the Corporation will be
required to collect the withholding taxes applicable to such income from the
optionee.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Corporation in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when such repurchase right lapses, an
amount equal to the excess of (i) the fair market value of the shares on the
date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the option
an amount equal to the excess of (i) the fair market value of the purchased
shares on the exercise date over (ii) the exercise price paid for such shares.
If the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Corporation will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
Corporation's taxable year in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights. No taxable income is recognized upon receipt of
a stock appreciation right. The holder will recognize ordinary income in the
year in which the stock appreciation right is exercised, in an amount equal to
the excess of the fair market value of the underlying shares of common stock on
the exercise date over the base price in effect for the exercised right, and the
Corporation will be required to collect the withholding taxes applicable to such
income from the holder. The Corporation will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by the holder in
connection with the exercise of the stock appreciation right. The deduction will
be allowed for the taxable year in which such ordinary income is recognized.
24
Direct Stock Issuances. The tax principles applicable to direct stock
issuances, whether as a stock bonus or other direct issuance of shares of common
stock, under the Incentive Plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.
Deferred Restricted Stock. No taxable income is recognized upon receipt of
a deferred restricted stock award. The holder will recognize ordinary income in
the year in which the shares subject to that award are actually issued to the
holder. The amount of that income will be equal to the fair market value of the
shares on the date of issuance, and the Corporation will be required to collect
the withholding taxes applicable to such income from the holder. The Corporation
will be entitled to an income tax deduction equal to the amount of ordinary
income recognized by the holder at the time the shares are issued. The deduction
will be allowed for the taxable year in which such ordinary income is
recognized.
Dividend Units and Performance Shares. A participant will not recognize any
income subject to federal income tax at the time the dividend units or
performance shares are granted, nor will the Corporation be entitled to a
deduction at that time. When the dividend units or performance shares are
settled in a cash or stock payment, the participant will recognize ordinary
income equal to the amount of cash and/or the fair market value of the shares
received. The Corporation will be allowed a deduction in an amount equal to the
ordinary income so recognized by the participant.
Deductibility of Executive Compensation. The Corporation anticipates that
any compensation deemed paid by it in connection with the disqualifying
disposition of incentive stock option shares or the exercise of non-statutory
options or stock appreciation rights will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain of
the Corporation's executive officers. Accordingly, the compensation deemed paid
with respect to options and stock appreciation rights granted under the
Incentive Plan will remain deductible by the Corporation without limitation
under Section 162(m). However, any compensation deemed paid by the Corporation
in connection with shares issued pursuant to deferred restricted stock awards,
performance shares or stock bonuses will be subject to the $1 million
limitation, unless the vesting of the shares is tied solely to one or more of
the performance milestones described above.
Accounting Treatment. Pursuant to the accounting standards established by
Statement of Financial Accounting Standards No. 123R, the Corporation is
required to expense all stock-based compensation, commencing with the 2006
fiscal year which began on January 1, 2006. Accordingly, stock options and stock
appreciation rights payable in stock which are granted to the Corporation's
employees and non-employee Board members will have to be valued at fair value as
of the grant date under an appropriate valuation formula, and that value will
then have to be charged as a direct compensation expense against the
Corporation's reported earnings over the designated vesting period of the award.
Similar option expensing will be required for any unvested options outstanding
on the January 1, 2006 effective date, with the grant date fair value of those
unvested options to be expensed against the Corporation's earnings over the
remaining vesting period. For shares issuable upon the vesting of deferred
restricted stock awards under the Incentive Plan, the Corporation must amortize,
over the vesting period for each such award, a compensation cost equal to the
25
fair market value of the underlying shares on the award date. If any other
shares are unvested at the time of direct issuance, then the fair market value
of those shares at that time will be charged against the Corporation's reported
earnings ratably over the vesting period. However, such accounting treatment for
the deferred restricted stock awards and direct stock issuances would be
applicable whether vesting were tied to service periods or performance goals.
The issuance of a fully-vested stock bonus will result in an immediate charge to
the Corporation's earnings equal to the fair market value of the bonus shares on
the issuance date.
Required Vote
To approve the Plan Amendment, over 50% of the shares of common stock must
cast a vote with respect to the Plan Amendment (which includes votes for,
against and abstaining) and a majority of such votes casts must be for the Plan
Amendment.
Recommendation of the Board of Directors
The Board believes that Proposal No. 2 is in the Corporation's best
interests and in the best interests of its stockholders and recommends a vote
FOR the approval of the Plan Amendment.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General
The Audit Committee of the Board of Directors has appointed KPMG LLP as the
independent registered public accounting firm (the "independent accountants") of
SJW Corp. for fiscal year 2006. At the annual meeting, shareholders are being
asked to ratify the appointment of KPMG LLP as SJW Corp.'s independent
accountants for fiscal year 2006. In the event the shareholders fail to ratify
the appointment of KPMG LLP, the Audit Committee will reconsider its selection.
Representatives of KPMG LLP are expected to be present at the annual
meeting. They have been offered the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
26
Principal Independent Accountants Fees and Services
The following table sets forth the approximate aggregate fees billed to the
Corporation during fiscal years 2004 and 2005:
2005 2004
---- ----
Audit Fees (1) $639,000 $558,000
Audit-Related Fees (2) $ 19,500 $ 48,000
Tax Fees (3) $ 14,000 $ 29,000
All Other Fees (4) -0- -0-
(1) Audit Fees: This category consists of the fees for the audit of annual
financial statements, review of the financial statements included in
quarterly reports on Form 10-Q and services that are normally provided by
the independent accountants in connection with statutory and regulatory
filings or engagements for those fiscal years. In 2004, this includes
services requested by SJW Corp. in connection with its preparation for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
(2) Audit-Related Fees: This category consists of assurance and related
services by the independent accountants that are reasonably related to the
performance of the audit and review of financial statements and are not
reported under "Audit Fees." All audit-related fees were pre-approved by
the audit committee.
(3) Tax Fees: This category consists of professional services rendered by the
independent accountants for tax compliance and tax planning. The services
for the fees disclosed under this category include tax return preparation
and technical advice.
(4) All Other Fees: This category consists of fees not covered by "Audit Fees,"
"Audit-Related Fees" and "Tax Fees."
The Audit Committee has considered and concluded that the provision of
services described above is compatible with maintaining the independence of KPMG
LLP.
The Audit Committee has adopted a pre-approval policy regarding the
rendering of audit and non-audit services by KPMG LLP. In general, audit fees
are reviewed and approved by the Audit Committee annually. Non-audit services
are pre-approved by the Audit Committee when necessary. The Audit Committee has
delegated authority to its Chairman to pre-approve specific services to be
rendered by KPMG LLP subject to disclosure to and affirmation by the Audit
Committee of such pre-approvals when the Audit Committee next convenes a
meeting.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the adoption of the proposal
to ratify the appointment of KPMG LLP as SJW Corp.'s independent accountants for
fiscal year 2006.
OWNERSHIP OF SECURITIES
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and directors of the Corporation, and persons who own more than 10% of
a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange. These persons are required to
furnish SJW Corp. with copies of all Section 16(a) forms they file. Based solely
on its review of the copies of such reports received by it, and written
27
representations from certain reporting persons that no other reports were
required during 2005, SJW Corp. believes that all Section 16(a) reporting
obligations were met during 2005 except that Nancy O. Moss, spouse of George E.
Moss who is a non-employee Board member and a person who beneficially owns more
than 10% of the Corporation's common stock, filed (i) a late Form 3 with respect
to her beneficial ownership of more than 10% of the Corporation's common stock
as of February 15, 2005, which she may be deemed to own because of her
relationship with Mr. Moss, and (ii) a late Form 4 reporting the purchase of an
aggregate of 140,000 shares (not adjusted for two-for-one stock split) of the
Corporation's common stock by May 11, 2005. However, such purchase was timely
reported by Mr. Moss on his Form 4.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of January 30, 2006, certain information
concerning ownership of shares of SJW Corp. common stock by each director of the
Corporation, each of the Chief Executive Officer and the three other highest
paid executive officers of SJW Corp. and its subsidiaries named in the Summary
Compensation Table below (the "Named Executive Officers"), and all directors and
executive officers of SJW Corp. and its subsidiaries as a group and beneficial
owners of 5% or more of the common stock of SJW Corp. Unless otherwise
indicated, the beneficial ownership consists of sole voting and investment power
with respect to the shares indicated, except to the extent that spouses share
authority under applicable law.
Name Shares Beneficially Owned Percent of Class
---- ------------------------- ----------------
Directors:
Mark L. Cali (1) 34,908 *
J. Philip DiNapoli (2) 3,600 *
Drew Gibson (3) 11,400 *
Douglas R. King (4) 4,000 *
George E. Moss (5)(6) 3,137,530 17.2%
W. Richard Roth, President and Chief Executive Officer (7) 70,758 *
Charles J. Toeniskoetter (8) 1,800 *
Frederick R. Ulrich, Jr. (9) 2,836 *
Officers not listed above:
Angela Yip, Chief Financial Officer and Treasurer (10) 4,254 *
George J. Belhumeur, Senior Vice President - Operations (11) 8,262 *
R. Scott Yoo, Chief Operating Officer (11) 2,754 *
All directors and executive officers as a group (11 3,282,102 17.9%
individuals) (12)
Beneficial owners of 5% or more not listed above:
Nancy O. Moss (6) (13) 3,137,530 17.2%
Roscoe Moss, Jr. (14) 2,137,868 11.7%
4360 Worth Street
Los Angeles, CA 90063.
Mario J. Gabelli (15) 1,559,100 8.5%
One Corporate Center
Rye, NY 10580
28
* Represents less than 1% of the outstanding shares of SJW Corp.'s common
stock.
(1) Includes (i) 21,000 shares held by Nina Negranti, Mr. Cali's spouse, as
trustee of the Nina Negranti Revocable Trust, (ii) 1,200 shares held by
Nina Negranti's IRA, and (iii) an aggregate of 1,050 shares held by Mr.
Cali's children.
(2) Includes 600 shares held by a revocable trust of which Mr. DiNapoli and his
spouse are trustees and beneficiaries.
(3) Includes 100 shares held by Kay Gibson's, Mr. Gibson's spouse, IRA for
which Mr. Gibson has shared voting and investment powers.
(4) Includes 4,000 shares held by the King Family Trust dated June 6, 2005, of
which Mr. King and Melinda King are trustees.
(5) Includes (i) 794,834 shares held by the John Kimberly Moss Trust for which
George Moss disclaims beneficial ownership, and (ii) 1,167,870 shares held
by the Nancy O. Moss Trust for which George Moss disclaims beneficial
ownership.
(6) The address for George E. Moss and Nancy O. Moss is 4360 Worth Street, Los
Angeles, California 90063.
(7) Includes 52,458 shares subject to options which were exercisable as of
January 30, 2006, or which will become exercisable within 60 days
thereafter and 18,300 shares held by a trust for which Mr. W. Richard Roth
is trustee.
(8) Includes (i) 600 shares held by a Family Trust and (ii) 1,200 shares held
by a Profit Sharing Plan. Mr. Toeniskoetter has shared voting and
investment powers with respect to such 1,800 shares.
(9) Includes 2,836 shares held by the Ulrich Family Trust dated 07/06/2000. Mr.
Ulrich is a trustee of the Ulrich Family Trust.
(10) Includes 2,222 shares subject to options which were exercisable as of
January 30, 2006 or which will become exercisable within 60 days
thereafter.
(11) Includes 2,754 shares subject to options which were exercisable as of
January 30, 2006 or which will become exercisable within 60 days
thereafter.
(12) Includes 60,188 shares subject to options which were exercisable as of
January 30, 2006 or which will become exercisable within 60 days
thereafter.
(13) Includes (i) 794,834 shares held by the John Kimberly Moss Trust for which
Nancy Moss disclaims beneficial ownership, and (ii) 1,174,826 shares held
by the George Edward Moss Trust for which Nancy Moss disclaims beneficial
ownership.
(14) Pursuant to Amendment No. 3 to Schedule 13D filed with the SEC on May 10,
2005, by Roscoe Moss Jr. According to this Schedule 13D, Roscoe Moss Jr.,
as trustee of the Roscoe Moss Jr. Revocable Trust UA 03/24/82, has sole
power to vote and dispose of the shares.
(15) Pursuant to Amendment No. 5 to Schedule 13D filed with the SEC on November
24, 2004, by Mario J. Gabelli and the various entities he directly or
indirectly controls or for which he acts as Chief Investment Officer (the
"Gabelli Reporting Persons"). According to this Schedule 13D, the Gabelli
Reporting Persons had sole voting power and sole dispositive power over all
1,559,100 such shares, except that the Gabelli Reporting Persons did not
have authority to vote 192,800 shares of the 1,559,100 shares beneficially
owned.
29
In addition to the ownership of the shares and options reported in the
above table, as of January 30, 2006, the following directors and Named Executive
Officers hold deferred restricted stock awards covering shares of SJW Corp.
common stock as follows:
Name Number of Shares
---- ----------------
Directors:
Mark L. Cali 20,186
J. Philip DiNapoli 25,486
Drew Gibson 25,486
Douglas R. King 5,300
George E. Moss 25,486
W. Richard Roth, President and Chief Executive Officer 109,844
Charles J. Toeniskoetter 20,186
Frederick R. Ulrich, Jr. 0
Officers not listed above:
Angela Yip, Chief Financial Officer and Treasurer 316
George J. Belhumeur, Senior Vice President - Operations 338
R. Scott Yoo, Chief Operating Officer 502
The shares of SJW Corp. common stock issuable pursuant to these deferred
restricted stock awards are subject to vesting schedules tied to the
individual's continued service with SJW Corp. or its affiliated companies. The
shares which vest under each such award will be distributed either incrementally
as they vest or in a lump sum or installment distribution following a designated
deferral period. For further information concerning these deferred restricted
stock awards, please see the following sections of this proxy statement:
"Compensation of Directors" and "Executive Compensation and Related
Information--Summary Compensation Table and Stock Option Grants in 2005."
COMMITTEE REPORTS
Annual Report of the Audit Committee
In connection with the audited financial statements for the period ending
December 31, 2005, the Audit Committee (1) reviewed and discussed the audited
financial statements with management, (2) reviewed and discussed with the
independent accountants the matters required by Statement on Auditing Standards
No. 61 and (3) received and discussed with the independent accountants the
written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1 and discussed the independent
accountants' independence from the Corporation and its subsidiaries. Based upon
these reviews and discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Annual Report
on Form 10-K for the fiscal year ending December 31, 2005, for filing with the
Securities and Exchange Commission.
Audit Committee
Douglas R. King, Chairperson
J. Philip DiNapoli
Frederick R. Ulrich, Jr.
30
Annual Report of the Executive Compensation Committee
As members of the Executive Compensation Committee, it is our duty to
review and approve the compensation payable to the executive officers of the
Corporation and its subsidiaries and to establish the general compensation
policies for such individuals. The goal of this process is to attract, develop
and retain high-quality senior management through competitive compensation and
to assure that such compensation reflects the Corporation's financial
performance and the total return to its stockholders.
The Corporation through its San Jose Water Company subsidiary operates in a
regulated environment and seeks to attain above-average stockholder returns
while maintaining competitive customer rates. The Corporation is located in one
of the highest cost-of-living regions in the United States, which creates
additional challenges for the Corporation in attracting and retaining executive
talent. In our effort to balance the interests of our stockholders, customers
and executives, we believe that it is important to have a compensation policy
which seeks to attain the following objectives:
o provide market-competitive compensation and benefits which attract,
motivate and retain executive officers and other key personnel;
o reward individuals who contribute substantially to the advancement of
the Corporation's business strategies and financial success;
o establish compensation packages which are fair and equitable both
internally and externally;
o encourage the executive officers to manage the Corporation from the
perspective of owners with an equity stake in the Corporation; and
o assure that the compensation paid to the Corporation's executive
officers reflects the Corporation's financial performance and the
total return to its stockholders.
In order to achieve these objectives, the compensation package for each
executive officer includes three components: base pay, performance bonuses, and
long-term incentive awards. In 2005, the Committee utilized incentive
compensation programs tied to corporate and individual performance goals.
It is the policy of the Committee to review the reasonableness of
compensation paid to the executive officers of the Corporation based in part on
information provided by the Chief Executive Officer. In doing so, however, the
31
Committee customarily takes into account the comparative relationship of the
recommended compensation to the compensation paid by other similarly-situated
companies, individual performance, tenure, internal comparability and the
achievement of certain other operational and qualitative goals identified in the
Corporation's strategic plan. Similarly-situated companies used for comparative
compensation purposes include a group of publicly-held water companies similar
in size to the Corporation located in the Western United States, and a national
group of regulated utilities similar in size to the Corporation. The Committee's
goal in 2005 was to set the total compensation of the Corporation's Chief
Executive Officer and its other executive officers at amounts which range from
the median percentile to the 75th percentile of the total compensation for
executives in comparable positions at the companies examined, referred to below
as the "peer group."
In selecting the peer group companies to survey for comparative
compensation purposes, the Committee considered many factors not directly
associated with the stock price performance of those companies, such as
geographic location, organizational structure and market capitalization.
However, there is an overlap between the companies included within the peer
group identified for comparative compensation purposes and the companies
included within the A.G. Edwards Water Utility Index which the Corporation has
selected as the industry index for purposes of the stock performance graph
appearing later in this Proxy Statement.
Throughout 2005, the Committee sought and received additional guidance from
an outside compensation consultant who made recommendations regarding the total
compensation of the Chief Executive Officer and other executive officers,
including base salary, bonus amounts and long-term incentive awards, based on
the comparative compensation data derived from the peer group.
In December 2004, the Committee adopted and approved the implementation of
the Special Deferral Election Plan (the "Deferral Plan") by San Jose Water
Company. The Deferral Plan provides certain key employees, including executive
officers, with the opportunity to accumulate an additional source of retirement
income through the deferral of up to 50% of their base salary each year and up
to 100% of their bonus or other incentive compensation each year, beginning with
the bonus payable for the 2004 fiscal year. San Jose Water Company does not
provide any matching to base salary and bonus deferrals. For each year's
deferred compensation, the individual may designate the distribution event and
form in which the distribution will be made (lump sum or installments). During
the 2005 calendar year, the participant was permitted to designate the
investment of his or her account balance in one or more available investment
funds. No actual investments were held in the participant's account, but the
account balance was adjusted periodically during the 2005 calendar year to
reflect the return that account would have realized had it actually been
invested in the designated investment funds. Commencing with the 2006 calendar
year, the deferred account balances will be credited with a variable rate of
interest which will be adjusted annually based on prevailing corporate borrowing
rates. The Committee believes that the Deferral Plan offers the executive
officers an attractive, tax-favored vehicle for enhancing their retirement
income and will thereby encourage such individuals to remain in the
Corporation's employ.
CEO Total Compensation. In setting the total compensation payable to the
Corporation's Chief Executive Officer, W. Richard Roth, for the 2005 fiscal
year, the Committee sought to target that compensation at approximately the 75th
32
percentile of the total compensation paid to the chief executive officers of
similarly-situated companies within the defined peer group. At the same time,
the Committee structured Mr. Roth's compensation package so that a substantial
portion was tied to the Corporation's performance and stock price appreciation.
The Corporation had previously entered into an employment agreement with
Mr. Roth effective as of January 1, 2003. Because the terms and provisions of
that employment agreement continue to coincide with the Committee goals and
objectives with respect to Mr. Roth's total compensation and because of the
Committee's recognition of the valuable service Mr. Roth rendered to the
Corporation and its subsidiaries, the Committee allowed the agreement to
automatically renew for an additional year.
CEO Base Salary. With respect to Mr. Roth's base salary, it is the
Committee's intent to provide him with a level of stability and certainty each
year and not have this particular component of compensation affected to any
significant degree by corporate performance factors. For the 2005 fiscal year,
the Committee maintained Mr. Roth's base salary at the same level in effect in
2004. Accordingly, Mr. Roth's base salary for the 2005 fiscal year was at
approximately the 75th percentile of the base salaries paid to the chief
executive officers of the peer group companies.
CEO Bonus Award. Mr. Roth was eligible for a cash bonus for the 2005 fiscal
year which was conditioned on the Corporation's attainment of specified
performance goals tied to earnings per share and return on equity and the
achievement of certain other operational and qualitative goals identified in the
Corporation's strategic plan. Based on the Corporation's performance for the
2005 year, a bonus of $150,000 was awarded to Mr. Roth.
CEO Long-Term Incentive Awards. In recognition of his service and
dedication to the Corporation and his contribution to the Corporation's
financial success for the 2004 fiscal year, the Committee awarded a stock option
grant to Mr. Roth dated January 3, 2005. The grant is intended to provide him
with a significant incentive to remain in the Corporation's employ and continue
his contribution to the financial success of the Corporation. The option vests
in four successive equal annual installments over his period of continued
employment and, accordingly, will have value for Mr. Roth only if he remains
with the Corporation over the vesting schedule and the market price of the
underlying option shares appreciates over the market price in effect on the date
the grant was made.
Both the option and prior grants of stock options and restricted stock
units made to Mr. Roth include dividend equivalent rights ("DERs"). Pursuant to
the DERs, each time a dividend is paid on the Corporation's common stock, Mr.
Roth's deferred stock account will be credited with a dollar amount equal to the
dividend paid per share multiplied by the number of shares subject to each
outstanding option or restricted stock unit award. The dollar amount in this
account will then be converted, as of the first business day of January each
year, into additional shares of the Corporation's common stock in accordance
with a specified formula (as described more fully in Footnote 8 to the Summary
Compensation Table and Footnote 1 to the Stock Option Grants Table.) The
additional shares resulting from the DERs will vest in accordance with the same
vesting schedule in effect for the options or restricted stock units to which
they pertain and, accordingly, will have value for Mr. Roth only to the extent
he continues in the Corporation's employ.
33
Additionally, in recognition of his contribution to the Corporation's
financial success for the 2005 fiscal year, the Executive Compensation Committee
issued Mr. Roth on January 30, 2006, 14,000 restricted stock units under the
Corporation's Long-Term Incentive Plan. Each restricted stock unit will entitle
Mr. Roth to receive one share of the Corporation's common stock when that unit
vests. The units will vest in four successive equal annual installments over the
four-year period of service measured from the award date. The restricted stock
units include dividend equivalent rights under which the accumulated amounts
will vest and be paid out in cash as the shares underlying the units vest and
are issued. The restricted stock units will vest and the underlying shares will
be immediately issued upon certain changes of control of the Corporation or upon
Mr. Roth's termination of employment under certain defined circumstances.
As mentioned in the section entitled "Employment Agreements, Termination of
Employment and Change in Control Arrangements," Mr. Roth will become entitled to
certain severance benefits in the event his employment were to terminate under
certain circumstances or if he were to resign for good reason. The value and
calculation of his severance package would be subject to certain adjustments and
enhancements if his termination were to occur in connection with a change of
control of the Corporation. The Committee believes that such severance benefits
are fair and reasonable in light of the years of service and level of dedication
and commitment Mr. Roth has rendered to the Corporation and its subsidiaries and
will allow him to focus his attention primarily on business operations and
corporate and market growth without concern over his personal financial
situation.
Other Executive Officers. The annual incentive bonus to the executive
officers for the 2005 fiscal year was based on the Corporation's attainment of
certain performance goals primarily tied to earnings per share objectives as
well as individual performance. Based on the level of attainment of those
corporate and individual performance goals, bonuses for the 2005 fiscal year
were paid to the other named executive officers at 100% of target, which ranged
from $25,000 to $35,000. The actual dollar amounts of the 2005 bonuses for the
named executive officers are set forth in the Summary Compensation Table. Based
on its review of the compensation data for the peer group, in 2005 the Committee
increased the base salary for Mr. Yoo.
In fiscal 2005, Messrs. Belhumeur, Yoo and Ms. Yip, and other officers also
received stock option grants under the Long-Term Incentive Plan, together with
DERs. The grant to each such executive was based upon the Committee's assessment
of his or her individual performance and level of responsibility and the need to
provide that individual with a meaningful incentive to remain with the
Corporation. Each such grant is designed to align and strengthen the interests
of the executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Corporation from the
perspective of an owner with an equity stake in the business. Each option vests
in four successive equal annual installments over the executive's continued
period of employment and, accordingly, will have value for the executive only if
he or she remains with the Corporation over the vesting schedule and the market
price of the underlying option shares appreciates over the market price in
effect on the date the grant was made.
34
Section 162(m). Under Section 162(m) of the Internal Revenue Code, the
Corporation is generally not allowed a federal income tax deduction for
compensation, other than certain performance-based compensation, paid to the
Chief Executive Officer and the four other highest paid executive officers to
the extent that such compensation exceeds $1 million per officer in any one
year. The Corporation's Long-Term Incentive Plan is structured so that
compensation deemed paid to an executive officer in connection with the exercise
of a stock option should qualify as performance-based compensation that is not
subject to the $1 million limitation. Other awards made under that Plan may or
may not so qualify. The Committee believes that in establishing the cash and
equity incentive compensation programs for the executive officers, the potential
deductibility of the compensation payable under those programs should be only
one of a number of relevant factors taken into consideration, and not the sole
governing factor. For that reason the Committee may deem it appropriate to
continue to provide one or more executive officers with the opportunity to earn
incentive compensation, including cash bonus programs tied to the Corporation's
financial performance and restricted stock units awards, which may be in excess
of the amount deductible by reason of Section 162(m) or other provisions of the
Internal Revenue Code. The Committee believes it is important to maintain cash
and equity incentive compensation at the requisite level to attract and retain
the executive officers essential to the Corporation's financial success, even if
all or part of that compensation may not be deductible by reason of the Section
162(m) limitation. However, for the 2005 fiscal year, the total amount of
compensation paid by the Corporation (whether in the form of cash payments or
upon the exercise or vesting of equity awards) should be deductible and not
affected by the Section 162(m) limitation.
It is the opinion of the Committee that the executive compensation policies
and plans provide the necessary total remuneration program to properly align the
interests of each executive officer and the interests of the Corporation's
shareholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner.
Executive Compensation Committee
Mark L. Cali
Drew Gibson
George E. Moss
Frederick R. Ulrich, Jr.
35
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table provides certain summary information concerning the
compensation which the Named Executive Officers earned for services rendered in
all capacities to the Corporation and its subsidiaries for the years ended
December 31, 2003, 2004, and 2005.
Summary Compensation Table
LONG-TERM COMPENSATION PAYOUTS
Securities
Restricted Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Award(s) Options/SARs Payouts Compensation
--------------------------- ---- ------ ----- -------- ------------ ------- -------------
W.R. Roth 2005 $400,000 $150,000 (1) $87,692 (4)(5) 33,452 $8,400 (9)
President and Chief Executive 2004 $400,000 $125,000 (2) $37,867 (6)(7) 42,570 $8,200 (9)
Officer of SJW Corp. 2003 $403,077 $125,000 (3) $1,170,927 (8) 45,624 $8,000 (9)
G.J. Belhumeur 2005 $260,000 $25,000 (1) $2,151 (4) 2,508 $8,400 (9)
Senior Vice President- 2004 $260,000 $15,000 (2) $802 (6) 2,130 $8,200 (9)
Operations of 2003 $260,000 $10,000 (3) 2,130 $8,000 (9)
San Jose Water Company
A. Yip 2005 $260,000 $25,000 (1) $1,975 (4) 2,508 $8,400 (9)
Chief Financial Officer and 2004 $260,000 $20,000 (2) $802 (6) 2,130 $8,200 (9)
Treasurer of SJW Corp. 2003 $260,000 $10,000 (3) 2,130 $8,000 (9)
R.S. Yoo 2005 $263,923 (10) $35,000 (1) $2,151 (4) 16,508 $8,065 (9)
Chief Operating Officer of 2004 $260,000 $20,000 (2) $802 (6) 2,130 $8,200 (9)
San Jose Water Company 2003 $245,000 $10,000 (3) 2,130 $8,000 (9)
(1) Performance-related bonuses in 2005 were approved by the Executive
Compensation Committee in 2005 and paid in 2006. Includes $25,000 and $35,000
deferred by Ms. Yip and Mr. Yoo, respectively under the Corporation's Special
Deferral Election Plan.
(2) Performance-related bonuses in 2004 were approved by the Executive
Compensation Committee in 2004 and paid in 2005. Includes $125,000, $20,000 and
$20,000 deferred by Mr. Roth, Ms. Yip and Mr. Yoo, respectively, under the
Corporation's Special Deferral Election Plan.
(3) Performance-related bonuses in 2003 were approved by the Executive
Compensation Committee in 2003 and paid in January 2004.
(4) Includes the fair market value of the deferred restricted stock
credited to the executive's deferred stock account on January 3, 2005, pursuant
to dividend equivalent rights under the executive's outstanding stock options as
summarized in Footnote 1 to the table entitled "Stock Option Grants in 2005". At
the time of such credit, the fair market value per share of the Corporation's
common stock was equal to $17.63. Mr. Roth, Mr. Belhumeur, Ms. Yip and Mr. Yoo
were credited with 2,552, 122, 112 and 122 shares of deferred restricted stock,
respectively. The credited shares will vest in the same manner as the option
shares to which they relate, and, to the extent vested, those shares will be
issued to the executive not later than the fourth anniversary of the grant date
of the option. As of December 31, 2005, when the fair market value of the
Corporation's common stock was $22.75, the number of shares of deferred
restricted stock credited to each executive's deferred stock account and the
value of such shares was as follows: Mr. Roth 3,704 shares ($84,266); Mr.
Belhumeur and Mr. Yoo, each 176 shares ($4,004); and Ms. Yip 166 shares
($3,777). Each of the credited shares includes dividend equivalent rights
similar to the dividend equivalent rights under the original stock option award.
36
(5) Includes the fair market value of deferred restricted stock credited to
Mr. Roth's deferred stock account on January 3, 2005, pursuant to dividend
equivalent rights under Mr. Roth's deferred restricted stock award summarized in
Footnote 8 to this Summary Compensation Table. At the time of such credit, the
fair market value per share of the Corporation's common stock was $17.63, and
Mr. Roth was credited with 2,422 shares of deferred restricted stock. The
credited shares will vest in the same manner as the shares underlying the
original deferred restricted stock award and, to the extent vested, those shares
will be issued to Mr. Roth at the same time the original shares of deferred
restricted stock are issued. As of December 31, 2005, when the fair market value
of the Corporation's common stock was $22.75, a total of 3,820 shares were
credited to Mr. Roth's deferred stock accounts, and the aggregate value of those
credited shares was $86,905. Each of the credited shares also includes dividend
equivalent rights similar to the dividend equivalent rights under the original
deferred restricted stock award.
(6) Includes the fair market value of deferred restricted stock credited to
the executive's deferred stock account on January 2, 2004, pursuant to dividend
equivalent rights under the executive's outstanding stock options as summarized
in Footnote 1 to the table entitled "Stock Option Grants in 2005". At the time
of such credit, the fair market value per share of the Corporation's common
stock was $14.85. Mr. Roth, Mr. Belhumeur, Ms. Yip, and Mr. Yoo were credited
with 1,152, 54, 54 and 54 shares of deferred restricted stock, respectively. The
credited shares will vest in the same manner as the option shares to which they
relate, and, to the extent vested, those shares will be issued to the executive
not later than the fourth anniversary of the grant date of the option. As of
December 31, 2004, when the fair market value per share of the Corporation's
common stock was $18.20, the number of shares of deferred restricted stock
credited to each executive's deferred stock account and the value of such shares
was as follows: Mr. Roth 1,152 shares ($20,966); and Mr. Belhumeur, Ms. Yip, and
Mr. Yoo, each 54 shares ($983). Each of the credited shares also includes
dividend equivalent rights similar to the dividend equivalent rights under the
original stock option award.
(7) Includes the fair market value of deferred restricted stock credited to
Mr. Roth's deferred stock account on January 2, 2004, pursuant to dividend
equivalent rights under Mr. Roth's deferred restricted stock award summarized in
Footnote 8 to this Summary Compensation Table. At the time of such credit, the
fair market value per share of the Corporation's common stock was $14.85, and
Mr. Roth was credited with 1,398 shares of deferred restricted stock. The
credited shares will vest in the same manner as the shares underlying the
original deferred restricted stock award, and, to the extent vested, those
shares will be issued to Mr. Roth at the same time the original shares of
deferred restricted stock are issued. As of December 31, 2004, when the fair
market value of the Corporation's common stock was $18.20, a total of 1,398
shares were credited to Mr. Roth's deferred stock accounts, and the aggregate
value of those credited shares was $25,444. Each of the credited shares also
includes dividend equivalent rights similar to the dividend equivalent rights
under the original deferred restricted stock award.
(8) Represents a one-time grant of 83,340 shares of deferred restricted
stock made to Mr. Roth in 2003. This grant represents equal value consideration
for the elimination of the special enhanced Supplemental Executive Retirement
Plan benefit that was in place for Mr. Roth prior to September 2003. The amount
in the Summary Compensation Table is reflective of the full grant at the fair
market value of $14.05 per share at date of grant, although the deferred
restricted stock vests incrementally upon the continued service of Mr. Roth over
the thirty-six month period measured from January 1, 2003, and the underlying
vested shares of common stock will be issued upon the later of his termination
of employment or his attainment of age 55. For financial reporting purposes the
compensation expense associated with the deferred restricted stock units accrues
as the deferred restricted stock units vest. Each of the units includes
"dividend equivalent rights." Pursuant to those rights, Mr. Roth's deferred
stock account will be credited, each time a dividend is paid on the
Corporation's common stock, with a dollar amount equal to the dividend paid per
share multiplied by the number of shares credited to his deferred stock account
(including the number of shares previously credited to that account by reason of
the dividend equivalent rights). As of the first business day in January of each
year, the credited cash amount for the immediately preceding year will be
converted into a number of shares of SJW Corp. common stock by dividing that
amount by the average of the fair market value per share of the common stock on
37
each of the dates in the immediately preceding year on which the dividends were
paid. The shares credited to Mr. Roth's deferred stock account will vest at the
same time and in the same manner as the original shares of deferred restricted
stock vest, and, to the extent vested, those shares will be issued to Mr. Roth
at the same time the original shares of deferred restricted stock are issued. As
of December 31, 2005, when the fair market value of the Corporation's common
stock was $22.75, the fair market value of the 27,780 unvested shares of
deferred restricted stock credited to Mr. Roth's deferred stock account was
$631,995.
(9) Represents matching contributions paid by San Jose Water Company under
its Salary Deferral Plan (401(k) plan).
(10) Scott Yoo's annual base salary was increased from $260,000 to $270,000
on July 28, 2005, in connection with his appointment as Chief Operating Officer
of San Jose Water Company.
The foregoing table does not include (i) the restricted stock units issued
to Mr. Roth on January 30, 2006, and (ii) the retirement and other benefits
payable under San Jose Water Company's Retirement Plan (the "Retirement Plan"),
Executive Supplemental Retirement Plan ("SERP") or Executive Severance Plan. On
January 30, 2006, Mr. Roth was awarded restricted stock units for 14,000 shares
which will vest in four successive equal annual installments upon his completion
of each year of employment over the four-year period measured from the award
date. The award includes phantom dividend rights pursuant to which Mr. Roth will
be credited with the cash dividends which would have been paid on the shares
underlying his restricted stock units had those shares been actually
outstanding. The credited phantom dividends will be paid in cash as the shares,
to which they relate, vest and are issued. The restricted stock units may vest
on an accelerated basis in the event Mr. Roth's employment terminates under
certain circumstances or upon certain changes in control of the Corporation.
Information concerning retirement benefits is set forth below in the Pension
Table and accompanying footnotes, and information concerning the Executive
Severance Plan is set forth below in the section entitled "Employment
Agreements, Termination of Employment and Change-in-Control Arrangements."
None of the Named Executive Officers have received perquisites or other
personal benefits with a value in excess of 10% of their annual salary and
incentive bonus or (if lesser) with a value in excess of $50,000. The benefits
which the Named Executive Officers have received include the personal use of
Corporation-owned automobiles, reimbursement of spousal travel expenses, club
memberships and tickets to sporting events, although the latter benefit is also
made available periodically to employees of San Jose Water Company.
Stock Option Grants in 2005
The following table contains information concerning the stock options
granted to the Named Executive Officers during the 2005 fiscal year. All the
grants were made under the Corporation's Long-Term Incentive Plan. No stock
appreciation rights were granted during the 2005 fiscal year.
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK ALTERNATIVE
PRICE APPRECIATION FOR TO GRANT
INDIVIDUAL GRANTS OPTION TERM DATE VALUE
------------------------------------------------------------------ ------------------------------ ----------
(1) Percent of
Number of total (2)
securities options/SARs Exercise (3)
underlying granted to or base Grant date
options/SARs employees in price Expiration present
Name granted (#) fiscal year ($/Sh) date 5% 10% value $
---------------- --------------- -------------- -------- ------ ----- ----- ---------
W.R. Roth 33,452 17.63 1/2/2015 -- -- 123,438
G.J. Belhumeur 2,508 17.63 1/2/2015 -- -- 9,255
A. Yip 2,508 17.63 1/2/2015 -- -- 9,255
R.S. Yoo 2,508 17.63 1/2/2015 -- -- 9,255
R.S. Yoo 14,000 27.69 7/27/2015 -- -- 74,340
38
(1) Each of the options will vest and become exercisable in a series of
four successive equal annual installments upon the optionee's completion of each
year of service over four-year period measured from the grant date. All such
options were granted on January 3, 2005, except that Scott Yoo's option to
purchase 14,000 shares was granted on July 28, 2005.
In the event of a Change in Control, as defined in the Long-Term Incentive
Plan, Mr. Roth's option grant will vest and become exercisable as to all the
option shares on an accelerated basis. The options granted to other Named
Executive Officers will also vest and become fully exercisable on such an
accelerated basis, unless the option is assumed by the successor corporation,
substituted with an equivalent option or otherwise continued in effect pursuant
to the terms of the Change in Control transaction. If the option does not
accelerate at the time of the Change in Control, then the option will vest and
become fully exercisable should a Qualifying Termination occur. A "Qualifying
Termination" will be deemed to occur upon: (i) the Corporation's termination of
the optionee's service for any reason other than Good Cause (as defined in the
Long-Term Incentive Plan) in immediate anticipation of, or at any time after
execution of the definitive agreement to effect a Change of Control or within
twenty-four (24) months after the effective date of a Change in Control or (ii)
the optionee's termination of his or her service for Good Reason (as defined in
the Long-Term Incentive Plan) at any time within twenty-four (24) months after
the effective date of a Change in Control.
Each option includes dividend equivalent rights. Pursuant to such rights,
the optionee's deferred stock account will be credited, each time a dividend is
paid on the Corporation's common stock, with a dollar amount equal to the
dividend paid per share multiplied by the number of shares credited to the
deferred stock account (including the number of shares previously credited to
such account by reason of the dividend equivalent rights). As of the first
business day in January of each year, the credited cash amount for the preceding
year will be converted into a number of shares of SJW Corp. common stock by
dividing that cash amount by the average of the fair market value of the common
stock on each of the dates in the immediately preceding year on which the
dividends were paid. The shares credited to the optionee's deferred stock
account will vest at the same time and in the same manner as the option shares
and, to the extent vested, will be paid to the optionee not later than the
fourth anniversary of the grant date. Following such payment, no further
dividend equivalent rights will be in effect for that particular option.
(2) The exercise price may be paid in cash or check payable to the
Corporation or in shares of the Corporation's common stock. Any shares delivered
in payment of the exercise price will be valued at fair market value on the
exercise date. Subject to some limitations, cashless exercises through a same
day exercise of the option and sale of the purchased shares are also permitted.
(3) SJW Corp. utilized the Black-Scholes option-pricing model to compute
the fair value of options at the grant date as a basis for determining
stock-based compensation costs for financial reporting purposes. The assumptions
utilized include an expected dividend yield of 2.6%, an expected volatility of
24.3%, a risk-free interest rate of 3.67% and an expected holding period of five
years.
39
Aggregated Option Exercises in 2005 and Year-End Option Values
The following table sets forth for each of the Named Executive Officers,
the shares acquired and the value realized on each exercise of stock options
during the year ended December 31, 2005, and the number and value of securities
underlying unexercised options held by the Named Executive Officers on December
31, 2005. No stock appreciation rights were exercised by the Named Executive
Officers during the 2005 fiscal year, and none of those officers held any
appreciation rights as of December 31, 2005.
Value of Unexercised
In-the-Money Options at
Number of Securities December 31, 2005 (market
Underlying Unexercised price of shares
Shares Options at December 31, 2005 less exercise price)(2)
Acquired on Value ---------------------------- -----------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
W. R. Roth -- -- 33,454 88,192 $283,677 $623,110
G.J. Belhumeur -- -- 1,596 5,172 13,513 34,793
A. Yip -- -- 1,064 5,172 8,858 34,793
R.S. Yoo -- -- 1,596 19,172 13,513 0
------------------------------------
(1) Value realized is based upon the fair market value of the Common Stock on
the date of exercise, less the exercise price, multiplied by the number of
shares exercised.
(2) Based upon the market price of $22.75 per share, which was the closing
price per share of the Common Stock as quoted on the New York Stock
Exchange on December 31, 2005, less the option exercise price payable per
share.
Pension Plan Table
The Company maintains two defined benefit plans, the Retirement Plan and
the SERP under which benefits are determined primarily based on average annual
compensation and years of service. The following table sets forth the estimated
combined annual retirement benefit payable under those two plans in the form of
a straight life annuity at an assumed retirement age of 65.
Years of Service
Annualized Final Average --------------------------------------------------------------------------------------
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
------------ -------- -------- -------- -------- --------
$175,000 $57,750 $77,000 $91,000 $105,000 $105,000
$200,000 $66,000 $88,000 $104,000 $120,000 $120,000
$225,000 $74,250 $99,000 $117,000 $135,000 $135,000
$250,000 $82,500 $110,000 $130,000 $150,000 $150,000
$275,000 $90,750 $121,000 $143,000 $165,000 $165,000
$300,000 $99,000 $132,000 $156,000 $180,000 $180,000
$400,000 $132,000 $176,000 $208,000 $240,000 $240,000
$500,000 $165,000 $220,000 $260,000 $300,000 $300,000
$600,000 $198,000 $264,000 $312,000 $360,000 $360,000
The annual retirement benefit which becomes payable under the SERP at age
65 will be equal to 12 monthly payments each in an amount determined as follows:
two and two-tenths percent (2.2%) of the "final average compensation" of such
officer, which is defined as his or her average monthly compensation for the
consecutive thirty-six month period within his or her last 10 years of service
for which such average compensation is the highest, multiplied by such officer's
years of service (not to exceed 20 years) plus one and six-tenth percent (1.6%)
of such final average compensation multiplied by the officer's years of service
in excess of 20 years (not to exceed an additional 10 years), up to a total
monthly retirement benefit not to exceed sixty percent (60%) of the officer's
40
final average compensation; less the monthly retirement benefit payable to the
officer from the Retirement Plan. Mr. Roth's retirement benefit will not be
reduced for the commencement prior to age 65, provided he attains or is deemed
to attain age 55 prior to his retirement. In computing Mr. Roth's final average
compensation, his annual bonus for each year beginning on or after January 1,
2003, will be equal to the greater of his actual bonus or his target bonus for
such year. The SERP contains additional benefit calculation provisions,
including age and service credits, that may become effective following a change
of control. See "Employment Agreements, Termination of Employment and
Change-in-Control Arrangements", below.
The annual retirement benefit which becomes payable under the Retirement
Plan at age 65 for years of service completed after January 1, 1978, will be
equal to 12 monthly payments each in an amount equal to 1.6% of average monthly
compensation for each year of service. The Retirement Plan provides a minimum
benefit equal to 50% of an employee's average monthly compensation for the 36
consecutive months of highest compensation prior to age 65, less 50% of the
employee's monthly old-age insurance benefit under Section 202 of the Social
Security Act (reduced for service of less than 30 years). However, the
Retirement Plan contains a special benefit calculation for those participants
whose age and service equals or exceeds 75. This special benefit is equal to 60%
of the employee's average monthly compensation for the consecutive thirty-six
months of highest compensation, less 50% of the employee's monthly old-age
insurance benefit under Section 202 of the Social Security Act (reduced for
service of less than 30).
The number of years of credited service and the annualized final average
compensation for the consecutive 36 month period through December 31, 2005, for
which that compensation was the highest are for Mr. Roth, 16 years, $529,879;
Mr. Belhumeur, 35 years, $300,519; Ms. Yip, 19 years, $295,653; and Mr. Yoo, 20
years, $284,525.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2005, with
respect to the shares of the Corporation's common stock that may be issued under
the Corporation's existing equity compensation plan.
A B C
------------------- ------------------- -----------------------
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
to be Issued Upon Weighted Average Equity Compensation Plans
Exercise of Exercise Price of (Excluding Securities
Plan Category Outstanding Options Outstanding Options Reflected in Column A )
------------- ------------------- ------------------- -----------------------
Equity Compensation Plans
Approved by Shareholders (1) 372,382 $15.25 1,679,956 (2)(3)
Equity Compensation Plans Not
Approved by Shareholders (4) 0 N/A 0
Total 372,382 1,679,956
------------------
(1) Consists of the Corporation's Long-Term Incentive Plan and Employee Stock
Purchase Plan.
(2) Consists of 1,409,556 shares available for issuance under the Long-Term
Incentive Plan and 270,400 shares available for issuance under the Employee
Stock Purchase Plan.
41
(3) The shares under the Long-Term Incentive Plan may be issued pursuant to
stock option grants, stock appreciation rights, restricted stock or
restricted stock unit awards, performance shares, dividend equivalent
rights and stock bonuses. Each such type of award is described in more
detail in Proposal 2 of this proxy statement.
(4) The Corporation does not have any outstanding equity compensation plans
which are not approved by shareholders.
Employment Agreements, Termination of Employment and Change-in-Control
Arrangements
Officers of SJW Corp., San Jose Water Company or SJW Land Company who are
serving in such capacity at the time of a Change in Control may become entitled
to severance benefits under the Corporation's Executive Severance Plan and the
SERP (collectively, the "Plans") if their employment terminates under certain
circumstances following such a Change in Control. Accordingly, upon the
termination of such officer's employment within two years after such Change in
Control by the employer for any reason other than Good Cause (as defined in such
Plans) or by such officer for Good Reason (as defined in such Plans) or, with
respect to Mr. Roth, upon his voluntary termination for any reason during the 60
day period beginning on the one-year anniversary of a Change in Control, such
officer (i) will be entitled, among other things, to a severance benefit
consisting of three years of annual base salary and (ii) will be deemed to be
three years older and be given three additional years of service for purposes of
calculating his or her retirement benefit under the SERP. In addition, if Mr.
Roth becomes entitled to a severance benefit under the Executive Severance Plan
by reason of a qualifying termination of employment after a Change of Control,
he will be credited with such additional years of service and years of age as
are necessary to qualify him for the retirement benefits to which he would
otherwise be entitled had he terminated employment after qualifying for early
retirement (i.e., the attainment of age 55 and the completion of at least 10
years of service), provided that no retirement benefits will actually be payable
to him before his 55th birthday. Under the Executive Severance Plan, such
officers and their eligible dependents would also be entitled to continued
medical, dental, vision and life insurance coverage pursuant to COBRA for up to
three years at the Corporation's expense.
If any payment made in connection with a Change in Control or the
subsequent termination of the executive officer's employment would be subject to
an excise tax under Section 4999 of the Code (the "Excise Tax"), then the
aggregate present value measured at the date of the payments and benefits to
which the officer is entitled will be limited as specified in the Executive
Severance Plan. However, if any payment or benefit provided to Mr. Roth under
the Executive Severance Plan is subject to Excise Tax or constitutes an excess
parachute payment under Section 280G of the Code, then such payment or benefit
will be grossed up to ensure that Mr. Roth does not incur any out-of-pocket cost
with respect to such Excise Tax so that Mr. Roth receives the same net after-tax
benefit he would have received if such Section 280G had not been applicable.
The Corporation has entered into an agreement with Mr. Roth in connection
with his employment as President and Chief Executive Officer of the Corporation.
The agreement has a three-year term measured from January 1, 2003, which term
may be extended as more fully set forth in the agreement. During the term of the
agreement, Mr. Roth will be provided with the following compensation: an initial
annual base salary of $400,000 per year, paid health care coverage for himself
and his dependents, certain perquisites and an annual target bonus of up to 150%
42
of 25% of his annual base salary, payable based upon the Executive Compensation
Committee's evaluation of his achievement of applicable performance goals.
Pursuant to the agreement, Mr. Roth received the following equity awards under
the LTIP on April 29, 2003: (i) an option to purchase 45,624 shares of common
stock with an exercise price per share equal to the fair market value of the
Corporation's common stock on date of grant and (ii) deferred restricted stock
award covering 83,340 shares (collectively, the "Awards"). The Awards include
accompanying DERs and are subject to vesting schedules tied to Mr. Roth's
continued service with the Corporation. The option component of the Awards will
vest and become exercisable in four successive equal annual installments over
the four-year period measured from the grant date, and the deferred restricted
stock component vested in a series of 36 successive equal monthly installments
over the three-year period measured from January 1, 2003. Effective January 1,
2006, Mr. Roth's annual base salary was increased to $425,000.
In addition to the benefits under the Plans described above, if Mr. Roth's
employment is involuntarily terminated for any reason other than death,
disability or Good Cause (as defined in Mr. Roth's employment agreement) or his
employment is voluntarily terminated for Good Reason (as defined in such
agreement) and he is not entitled to benefits under the Executive Severance
Plan, he will be entitled to the following benefits: (i) cash severance equal to
three times his base salary at the time of termination (or such higher rate as
was in effect at any time during the previous 12 months after the effective date
of Mr. Roth's employment agreement), (ii) three times his annual bonus for the
year of termination (or if higher, the average of Mr. Roth's actual annual
bonuses for the previous three years after fiscal 2002), (iii) a prorated annual
bonus for the year of termination, (iv) paid COBRA coverage for up to 36 months
following termination and (v) accelerated vesting of his deferred restricted
stock awards.
Compensation Committee Interlocks and Insider Participation
No member of the Executive Compensation Committee was at any time during
the 2005 fiscal year or at any other time an officer or employee of the
Corporation or any of its subsidiaries. No executive officer of the Corporation
serves as a member of the Board of Directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Corporation's Board of Directors or Executive Compensation Committee. Drew
Gibson, Mark L. Cali, Frederick R. Ulrich, Jr. and George E. Moss were the
non-employee directors who served on the Executive Compensation Committee during
fiscal year 2005.
43
Five-Year Performance Graph
The following performance graph compares the changes in the cumulative
shareholder return on the Corporation's common stock with the cumulative total
return on the Water Utility Index and the S&P 500 Index during the last five
years ended December 31, 2005. The comparison assumes $100 was invested on
December 31, 2000, in the Corporation's common stock and in each of the
foregoing indices and assumes reinvestment of dividends.
[GRAPHIC OMITTED]
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T:]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
SJW Corp. 100 86 81 96 121 155
Water Utility Index 100 112 108 138 162 213
S&P 500 100 88 69 88 98 103
The Water Utility Index is the eleven-water company Water Utility Index
prepared by A.G. Edwards.
The preceding reports of the Executive Compensation Committee and the Audit
Committee, and the preceding Five-Year Performance Graph shall not be deemed
incorporated by reference into any previous filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate future filings, including this proxy statement, in whole or in part,
nor are such reports or Chart to be incorporated by reference into any future
filings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999, SJW Land Company and TBI-444 West Santa Clara Street, L.P.
("TBI-444") formed 444 West Santa Clara Street, L.P., a California limited
partnership (the "WSCS Partnership"), for the purpose of developing and managing
a 22,080 square foot office building on land contributed to the WSCS Partnership
by SJW Land Company.
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Mr. Toeniskoetter, a member of the Board of Directors of SJW Corp., has an
indirect ownership interest in the WSCS Partnership. TBI-444 is the general
partner with a 30% interest in the WSCS Partnership. SJW Land Company is a
limited partner with a 70% interest in the WSCS Partnership. Mr. Toeniskoetter
is a limited partner in TBI-444 with a 32.3% interest in TBI-444. Toeniskoetter
& Breeding, Inc. Development ("TBI Development") is the general partner with a
5% interest in TBI-444. Mr. Toeniskoetter is the chairman and chief executive
officer and has a 51% interest in TBI Development.
In 2005, the WSCS Partnership made cash distributions of $61,200 to
TBI-444. In addition, TBI-444 manages the office building owned by the WSCS
Partnership pursuant to a property management agreement between the WSCS
Partnership and TBI-444. Under this property management agreement, in 2005 the
tenant in the office building paid $26,596.78 of management fees to TBI
Development.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at next year's annual
meeting of shareholders must comply with all applicable requirements of SEC Rule
14a-8 and be received by the Corporation by November 17, 2006 for inclusion in
the Corporation's proxy materials relating to that meeting. In addition, the
proxy solicited by the Board of Directors for the 2007 annual meeting of
shareholders will confer discretionary authority to vote on any proposal
presented to the shareholders at the meeting for which the Corporation did not
have notice on or prior to January 31, 2007.
FORM 10-K
SJW CORP. WILL MAIL, WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF SJW
CORP.'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, LIST OF EXHIBITS, AND ANY
PARTICULAR EXHIBIT SPECIFICALLY REQUESTED. REQUESTS SHOULD BE SENT TO: SJW
CORP., 374 WEST SANTA CLARA STREET, SAN JOSE, CALIFORNIA 95113, ATTENTION:
CORPORATE SECRETARY. THE ANNUAL REPORT ON FORM 10-K IS ALSO AVAILABLE AT THE
CORPORATION'S WEBSITE AT WWW.SJWATER.COM.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
shareholder action at the annual meeting other than as set forth herein. If any
other matters are properly brought before the annual meeting or any adjournment
or postponement thereof, the persons named in the enclosed form of proxy will
have discretionary authority to vote all proxies with respect thereto in
accordance with their judgment. Whether or not you intend to be present at the
meeting, you are urged to complete, sign and return your proxy card promptly.
By Order of the Board of Directors
Suzy Papazian, Corporate Secretary/Attorney
San Jose, California
March 10, 2006
45
APPENDIX A
SJW CORP.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee shall be to assist the Board of
Directors in fulfilling its oversight responsibilities of: (i) the integrity of
the financial reports and other financial information provided by the
Corporation to any governmental body or the public; (ii) the Corporation's
compliance with legal and regulatory requirements; (iii) the Corporation's
systems of internal controls regarding finance, accounting, legal compliance and
ethics that management and the Board have established; (iv) the independent
accountants' qualifications and independence and; (v) the quality of
Corporation's accounting and financial reporting processes generally, including
the performance of the Corporation's internal audit function and the independent
accountants. Consistent with this function, the Audit Committee should encourage
continuous improvement of, and should foster adherence to, the Corporation's
policies, procedures and practices at all levels. In addition, the Audit
Committee shall oversee preparation of the report that the rules of the
Securities and Exchange Commission (SEC) require to be included in the
Corporation's annual proxy statement.
In carrying out its functions hereunder, the Audit Committee shall also:
1. Serve as an independent and objective party to monitor the
Corporation's financial department process and internal control system.
2. Review and appraise not just the acceptability but the quality of
the Corporation's financial reports and the quality of the audit efforts of
the Corporation's independent accountants.
3. Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors as defined
in the listing standards of the New York Stock Exchange (or other principal
market on which the securities of the Corporation are traded) and SEC Rules, and
free of any material relationship with the Corporation that would interfere with
the exercise of his or her independent judgment. If a member of the Audit
Committee simultaneously sits on the audit committees of two other
organizations, the member shall disclose to the Board the names of the other
organizations, and the Board shall make an affirmative determination as to
whether the member's simultaneous service does not impair the member's ability
to serve effectively on the Corporation's Audit Committee.
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All members of the Committee shall be financially literate, affirmatively
determined by the Board in its business judgment as having a working familiarity
with basic finance and accounting practices and being able to read and
understand fundamental financial statements, including a balance sheet, income
statement and statement of cash flow. In addition, the Committee shall have at
least one member who has accounting or related financial management expertise,
as determined by the Board in its business judgment as having past employment
experience or background which results in the individual's financial
sophistication. Committee members are encouraged to enhance their familiarity
with finance and accounting by participating in educational programs conducted
by the Corporation or an outside consultant.
Pursuant to the foregoing, the Board shall elect the members of the
Committee at the annual organizational meeting of the Board, upon consideration
and nomination by the Corporate Governance Committee, and the elected members of
the Committee shall continue in office until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet at least four (4) times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Committee should meet at least annually with management, the
Corporation's internal audit staff and the independent accountants in separate,
executive sessions to discuss any matters that the Committee or each of these
groups believe should be discussed privately. In addition, the Committee or at
least its Chair should confer with the independent accountants, the
Corporation's internal audit staff, and management on a quarterly basis to
review the Corporation's financials consistent with Section IV.4. below.
A majority of the members of the Audit Committee shall constitute a quorum.
The Chairperson of the Audit Committee or a majority of the members of the Audit
Committee may call a special meeting of the Audit Committee. The Audit Committee
shall fix its own rules of procedure, which shall be consistent with the bylaws
of the Corporation and this Charter.
The Audit Committee may request that any directors, officers, or employees
of the Corporation, or other persons whose advice and counsel are sought by the
Audit Committee, attend any meeting to provide such information as the Audit
Committee requests.
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IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall in
its meetings and with full preparation therefor:
Documents/Reports Review
1. Review and update this Charter at least annually as conditions
dictate, and at least annually assess the performance of the audit
committee.
2. Review the organization's annual financial statements which are
intended for submission to any governmental body or for dissemination
to the public, including any certification, report, opinion, or review
of such financial statements rendered by the independent accountants.
The Audit Committee shall make a recommendation to the Board with
respect to the inclusion of the audited financial statements and notes
thereto in the Corporation's annual report on Form 10-K.
3. Review with management any internal control issues or concerns and
recommendations if necessary.
4. Review earnings press releases as well as financial information and
earnings guidance provided to analysts and rating agencies, and review
with management and the independent accountants prior to filing both
the financial statements to be incorporated in Forms 10-Q and 10-K and
the Corporation's specific disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Independent Accountants; Internal Auditors
5. On an annual basis, obtain a formal written statement from the
independent accountants delineating all relationships between the
accountants and the Corporation consistent with Independence Standards
Board Standard No. 1, or successor standards established for auditor
independence, and review and discuss with the accountants all
significant relationships the accountants have with the Corporation
which may affect the accountants' independence.
6. Oversee the performance of the independent accountants, exercise sole
authority to approve the selection or termination of the independent
accountants subject to any stockholder ratification, and exercise sole
authority to approve the appropriate audit fees and other terms of
engagement of the independent accountants for the purpose of rendering
and issuing the audit report. The independent accountants shall report
directly to the Audit Committee. The Corporation shall provide for
appropriate funding, as determined by the Audit Committee, for payment
of compensation to the independent accountants.
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7. Approve in advance any audit and legally permitted non-audit services
provided by the independent accountants. Such pre-approval may be
pursuant to appropriate policies and procedures established by the
Audit Committee, including through delegation of authority to one or
more members of the Audit Committee. Any service that is approved
pursuant to a delegation of authority to one or more members of the
Audit Committee must be reported to the full Audit Committee at its
next scheduled meeting.
8. Comply with SEC regulations governing the Corporation's hiring of
employees or former employees of the independent accountants.
9. Obtain and review at least annually a report by the independent
accountants describing: their internal quality-control procedures, any
material issues raised by their most recent internal quality-control
review or peer review or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
firm, and any steps taken to deal with any such issues; review at
least annually the qualifications and performance of the lead partner
of the independent accountants engaged on the Corporation's account
and ensure that the lead audit partners assigned to the audit
engagement by the company's independent auditor, and to each of its
subsidiaries that have securities registered with the SEC, and the
audit partner responsible for reviewing the company's audit shall be
changed at least every five years.
10. Review and approve the Corporation's internal audit staff functions,
including: (i) purpose, authority and organizational reporting lines;
(ii) annual audit plan, budget and staffing; and (iii) concurrence in
the appointment and compensation of the chief internal auditor. The
internal audit function shall provide management and the Committee
with ongoing assessments of the company's risk management processes
and system of internal control.
Financial Reporting Processes
11. In consultation with the independent accountants, review the integrity
of the Corporation's financial reporting and internal control
processes, both internal and external.
12. Review the accounting principles, policies and practices followed by
the Corporation in accounting for and reporting its financial results
of operations and consider the independent accountants' judgments
about the quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting. The Committee shall
consider and approve, if appropriate, any major changes to the
Corporation's auditing and accounting principles and practices as
suggested by the independent accountants and management.
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13. Review the Corporation's quarterly unaudited and annual audited
financial statements independently with management and the independent
accountants for fullness and accuracy, and discuss with the
independent accountants the matters required to be discussed by
Auditing Standard No. 61, or any successor standard, including (a) the
quality as well as acceptability of the accounting principles applied
in the financial statements; (b) new or changed accounting policies,
significant estimates, judgments, uncertainties or unusual
transactions; (c) accounting policies relating to significant
financial statement items; and (d) such other matters as shall be
reported to the Audit Committee by the independent accountants
pursuant to Section 204 of the Sarbanes-Oxley Act of 2002.
Process Improvement
14. Direct the establishment of regular and separate systems of reporting,
to the Audit Committee by management, personnel responsible for the
internal audit function and the independent accountants, including
separate meetings, as determined by the Audit Committee, regarding any
significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of
such judgments.
15. Following completion of the annual audit, review the Corporations
internal and disclosure control processes; review any management or
internal control letter submitted by the independent accountants; and
meet separately with management and the independent accountants to
discuss any significant difficulties encountered during the course of
the audit, including any restrictions on the scope of work or access
to required information.
16. Review with the independent auditor and management any audit problems
or difficulties or significant disagreement among management and the
independent accountants in connection with the preparation of the
financial statements, along with management's response thereto. The
Audit Committee shall also inquire of the independent accountants any
communication between the audit team and the firm's national office
regarding auditing or accounting issues presented by the engagement.
17. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented. (This review
should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the
Committee.)
Ethical and Legal Compliance
18. Recommend to the full Board, and review and update periodically as
appropriate, a Code of Ethical Business Conduct which is applicable to
all directors, officers and employees and a separate ethics code to be
signed by all financial executives, and review with management the
system established to enforce those codes.
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19. Determine that management has the proper review system in place to
ensure that Corporation's financial statements, reports and other
financial information disseminated to governmental organizations, and
the public satisfy legal requirements.
20. Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters, and (b) the confidential,
anonymous submission by employees of the Corporation of concerns
regarding questionable accounting or auditing matters.
21. Discuss with management the Corporation's policies with respect to
risk assessment and risk management, and review legal and regulatory
compliance matters including corporate securities trading policies.
22. Review, with legal counsel, any legal matter that could have a
significant impact on the organization's financial statements.
23. Review and approve any related party transactions.(1)
24. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing laws as the Committee or the Board
deems necessary or appropriate.
In carrying out its duties hereunder, the Audit Committee shall have the
authority to consult with and engage independent legal, accounting and other
advisors, at the expense of the Corporation, as it determines is necessary to
carry out its functions.
The Corporation shall also provide appropriate funding, as determined by
the Audit Committee, in payment of any such advisors as well as ordinary
administrative expenses of the Audit Committee that are necessary or appropriate
to carry out its duties.
--------------------
(1) The term "related party transaction" should be read consistent with SEC
Regulation S-K, Section 404(a).
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Adoption And Amendment
This amended Charter for the Audit Committee of SJW Corp. is approved and
adopted by the Board of Directors effective October 27, 2005. It may be amended
by a majority vote of the Board of Directors at any regular or special meeting
of the Board. Copies of this charter, and all amendments thereto, are to be
distributed by the Chair to the members of the Board once a year, and to new
members of the Committee on the date of their appointment or election.
Dated: 10-27-05 /s/ Douglas R. King
------------------------------
Douglas R. King,
Chairman, Audit Committee of
Board of Directors, SJW Corp.
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APPENDIX B
SJW CORP.
LONG-TERM INCENTIVE PLAN
PLAN AMENDMENT
The SJW Corp. Long-Term Incentive Plan, as adopted by the Board of
Directors on March 6, 2002, and approved by the shareholders on April 18, 2002,
and as subsequently amended March 3, 2003, and approved by the shareholders on
April 29, 2003 (the "Plan"), is hereby amended as follows, effective January 31,
2006, and subject to shareholder approval at the 2006 Annual Meeting:
1. There is hereby added to the Plan new Section XIV as follows:
XIV. AWARDS TO NON-EMPLOYEE BOARD MEMBERS
(a). The Committee shall have full power and authority (subject, however,
to the express provisions of the Plan and the limitations of Section XIV(b)
below) to make Awards, whether in the form of Nonstatutory Stock Options, rights
to acquire Restricted Stock, stock bonuses for Board or Board committee service
(or service on the board of directors of any Affiliate or on any committee of
such board), Stock Appreciation Rights, Performance Shares or Dividend Units
(whether alone or in tandem with other Awards), to any and all Non-Employee
Board Members, including members of the Committee, as the Committee deems
advisable at any time and from time to time in order to attract individuals to
serve in such capacity or to provide meaningful incentives for Non-Employee
Board Members to continue in such capacity. The Committee may effect such Awards
to the Non-Employee Board Members through grants made from time to time upon
such terms and conditions (including, without limitation, the applicable vesting
and issuance schedules and the term of the Award) as the Committee deems
appropriate in its sole discretion or pursuant to one or more programs which
provide for the automatic grant of such Awards in such amounts, at such times
and subject to such terms as the Committee may designate in advance, in each
instance subject to the express provisions of the Plan and the limitations of
Section XIV(b) below. The terms and conditions of the Awards may vary among the
Non-Employee Board Members on an individual by individual basis or may differ
from the terms and conditions in effect for prior Awards made to the
Non-Employee Board Members. The Committee may also implement one or more
programs which provide the Non-Employee Board Members with the opportunity to
elect on an advance basis to receive specific types of Awards, either on a
current or deferred basis, in lieu of retainer or meeting fees otherwise payable
to them in cash for their service as Non-Employee Board Members and/or as
members of one or more Board committees (or their service as members of the
board of directors of any Affiliate or any committee of such board). Subject to
the express limitations and restrictions set forth in the Plan and Section
XIV(b) below, the Committee shall have full power and authority to terminate and
cancel any existing or future limitations imposed by the Committee with respect
to the participation of any Non-Employee Board Members or any group of
Non-Employee Board Members in one or more Award programs now or hereafter in
effect under the Plan (including, without limitation, the Deferred Restricted
Stock Program for the Non-Employee Board Members) or which would otherwise make
one or more Non-Employee Board Members ineligible for any type of Award under
the Plan.
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(b) Notwithstanding the foregoing provisions of Section XIV(a), the
following limitations shall be in effect for each Award made to a Non-Employee
Board Member which is not otherwise in connection with such individual's
election to convert all or a portion of the cash fees payable for Board or Board
committee service or attendance at Board or Board committee meetings into shares
of deferred Restricted Stock at the then current Fair Market Value per share of
Common Stock:
(i) The maximum number of shares of Common Stock which may be made the
subject of such Awards made to a single Non-Employee Board Member shall not
exceed in the aggregate four thousand (4,000) shares per calendar year,
except that such limit shall be increased to ten thousand (10,000) shares
for the year in which a Non-Employee Board member is first appointed or
elected to the Board, with each of the foregoing share limitations to be
subject to appropriate adjustment from time to time in accordance with the
provisions of Section IX(a).
(ii) Each such Award authorized by the Committee shall be subject to
approval and ratification by a majority of the Board.
2. The following additional revisions are hereby made to the Plan:
a. Section II(m) is hereby amended to read as follows:
(m) "Fair Market Value" means the selling price per share of the
Common Stock at the close of regular hours trading on the New York Stock
Exchange (or any other national securities exchange or market on which the
Common Stock is at the time primarily traded) on the date in question. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the selling price at the
close of regular hours trading on the last preceding date for which such
quotation exists.
b. Section VI(c) is hereby amended to read as follows:
(c) Subject to the provisions of the Plan, the Committee shall
determine the key Employees and Non-Employee Board Members to whom, and the
time or times at which Awards shall be granted or awarded; the number of
shares of Common Stock subject to each Award; the applicable vesting
schedule for each Award; the Dividend Units or Performance Shares to be
subject to each Award: the duration of each Award; the time or times within
which Options or Stock Appreciation Rights may be exercised, the
performance targets required to earn Performance Shares; the duration of
the Dividend Units; the issuance schedule for the shares of Common Stock
subject to any Awards for which issuance is to be deferred beyond the
applicable vesting dates; and the other terms and conditions of Awards,
pursuant to the terms of the Plan. The provisions and condition of Awards
need not be the same with respect to each Employee or Non-Employee Board
Member or with respect to each Award.
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c. The first sentence of Section VI(d)(ii) is hereby amended to read
as follows:
Options may be exercised with cash, stock or a combination of cash and
stock, provided that if shares acquired pursuant to the exercise of an Option
are used, such shares must be held by the Participant for the requisite period
(if any) necessary to avoid a compensation expense to the Company for financial
statement purposes before their tender to exercise Options for additional
shares.
d. There is hereby added to the end of Section VI(e)(ii) the following
sentence:
In no event, however, shall any payment with respect to the Dividend Units
be conditioned upon the Participant's exercise of any Option, Stock Appreciation
Right or other Award to which those Dividend Units pertain.
e. There is hereby added to the end of Section VI(i)(i) the following
sentence:
The exercise price per Stock Appreciation Right shall not be less than the
Fair Market Value per share of Common Stock on the date such right is granted.
3. This Plan Amendment shall not become effective or otherwise have any
force or effect unless and until approved by the shareholders of SJW Corp. at
the 2006 Annual Shareholders Meeting. Awards may be made to the Non-Employee
Board Members prior to such shareholder approval, but those Awards shall be
subject to such shareholder approval and shall immediately terminate if the
shareholders do not approve this Plan Amendment and those Awards at the 2006
Annual Meeting.
4. All share numbers in this Plan Amendment have been adjusted to reflect
the two-for-one forward split of the Common Stock effected as of March 2, 2006,
through the distribution of one share of Common Stock on each outstanding share
of Common Stock held of record on March 2, 2006.
5. Except as modified by this Plan Amendment, all the terms and provisions
of the Plan as previously amended shall continue in full force and effect.
IN WITNESS WHEREOF, SJW CORP. has caused this Plan Amendment to be executed
on its behalf by its duly authorized as of the effective date indicated above.
SJW CORP.
By: ______________________________________
Title: ____________________________________
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SJW CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 27, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
notice of the Annual Meeting of Shareholders to be held April 27, 2006, and the
accompanying proxy statement, and appoints Drew Gibson and R. Scott Yoo, or
either of them, the proxy of the undersigned, with full power of substitution,
to vote all shares of Common Stock of SJW Corp. that the undersigned is entitled
to vote, either on his or her own behalf or on behalf of an entity or entities,
at the Annual Meeting of Shareholders of SJW Corp. to be held on April 27, 2006,
at 10:00 AM Pacific Time, and at any adjournment or postponement thereof, with
the same force and effect as the undersigned might or could have if personally
present thereat.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NO
CHOICE IS SPECIFIED, THEN THIS PROXY WILL BE VOTED IN FAVOR OF ELECTING THE NINE
NOMINEES NOTED HEREON TO THE BOARD OF DIRECTORS, FOR PROPOSAL 2 AND FOR PROPOSAL
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR
ADJOURNMENT THEREOF.
(continued and to be dated and signed on the reverse side)
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PROXY VOTING INSTRUCTIONS
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COMPANY NUMBER: ___________________ ACCOUNT NUMBER: ________________
MAIL - Date, sign and mail your proxy card in the envelope provided as soon as
possible.
- OR -
TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) from any touch-tone
telephone and follow the instructions. Have your proxy card available when you
call.
- OR -
INTERNET - Access "www.voteproxy.com" and follow the on-screen instructions.
Have your proxy card available when you access the web page.
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You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up
until 11:59 PM Eastern Time the day before the cut-off or meeting date.
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SEE REVERSE SIDE
A-11
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
AND "FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X].
1. Election of Directors FOR AGAINST ABSTAIN
2. Approve the Long-Term [ ] [ ] [ ]
Incentive Plan Amendment which
NOMINEES: was adopted by the Board of
Directors on January 31, 2006;
[ ] FOR ALL NOMINEES O M.L. Cali 3. Ratify the appointment [ ] [ ] [ ]
O J.P. DiNapoli of KPMG LLP as the independent
O D. Gibson registered public accounting
[ ] WITHOLD AUTHORITY O D.R. King firm of the Company for
FOR ALL NOMINEES O G.E. Moss fiscal year 2006;
O W.R. Roth
O C.J. Toeniskoetter 4. Act upon such other
[ ] FOR ALL EXCEPT O F.R. Ulrich, Jr. business as may properly come
(See instructions O R.A. Van Valer before the annual meeting or
below) any adjournment of postponement
thereof.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF THE
COMPANY. THIS PROXY, WHEN
PROPERLY EXECUTED, WILL BE VOTED
IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF
THE NINE NOMINEES TO THE BOARD
OF DIRECTORS AND "FOR" PROPOSALS
2 AND 3.
INSTRUCTION: To withhold authority to vote for
any individual nominee(s), mark "FOR ALL EXCEPT"
and fill in the circle next to each nominee you
wish to withhold, as shown here: O
To change the address on your account, please
check the box at right and indicate your new
address in the address space above. |_| Please
note that changes to the registered name(s) on
the account may not be submitted via this method.
Signature of ______________________ ______________________
Shareholder Date
Signature of ______________________ ______________________
Shareholder Date
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly each
holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in partnership name by
authorized person.
A-12