SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Filed by a Party other than the Registrant /_/
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/_/ Preliminary Proxy Statement
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/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARIZONA PUBLIC SERVICE COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BRUCE GARDNER
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
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/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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<PAGE>
Arizona Public Service Company
P.O. BOX 53999, PHOENIX, ARIZONA 85072-3999
NOTICE AND PROXY STATEMENT
For Annual Meeting of Shareholders
To Be Held On Tuesday, May 21, 1996
To the Shareholders:
The seventy-sixth annual meeting of shareholders of Arizona Public Service
Company will be held at the offices of the Company at 400 North Fifth Street in
Phoenix, Arizona, on Tuesday, May 21, 1996, at 10:00 a.m., for the following
purposes:
To elect a Board of Directors to serve for the ensuing year or until
their successors are elected and qualified; and
To transact such other business as may properly come before the
meeting or any adjournment thereof.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Company's Board of Directors. So far as management is aware, the
matters set out in this Proxy Statement will be the only ones to be acted upon
at the meeting. If any other matters properly come before the meeting or any
adjournment thereof, the Proxy Committee named in the enclosed proxy will vote
thereon in accordance with its judgment.
Shareholders are earnestly requested to date, sign and mail promptly the
enclosed proxy. A postage-paid envelope is provided for mailing in the United
States. You are entitled to revoke your proxy at any time before it is exercised
and vote your shares in person if you attend the meeting.
The management of the Company cordially invites you to attend the meeting.
By order of the Board of Directors
NANCY C. LOFTIN
Secretary
Approximate date of mailing to shareholders:
April 19, 1996
<PAGE>
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed proxy to vote for
the nominees listed below to serve as members of the Board of Directors until
the next annual meeting of shareholders or until their successors are elected
and qualified. If, between the mailing of this Proxy Statement and the meeting
date, any such individual becomes unavailable to serve (which is not
anticipated), the proxies may be voted for a person properly nominated or the
number of directors to be elected will be reduced accordingly. The following
information has been furnished by the respective nominees as of March 25, 1996.
The term "Pinnacle West" refers to Pinnacle West Capital Corporation, the
Company's parent.
NOMINEES
O. Mark DeMichele, 62, is President and Chief Executive Officer of the Company
and first became a director in September 1982. Mr. DeMichele was elected
President and Chief Operating Officer of the Company in 1982 and became Chief
Executive Officer in January 1988. Mr. DeMichele is also a director of Pinnacle
West.
Martha O. Hesse, 53, has been a director since December 1991. She is President
of Hesse Gas Company, Houston, Texas (marketing of gas and other fuels). In
1990, Ms. Hesse served as Senior Vice President of First Chicago Corporation
(financial services), and from 1986 to 1989, she was Chairman of the Federal
Energy Regulatory Commission. Ms. Hesse is also a director of Pinnacle West,
Sithe Energies, Inc., Mutual Trust Life Insurance, Laidlaw Inc., and American
Natural Resources Company and ANR Pipeline Company, subsidiaries of Coastal
Corp.
Marianne Moody Jennings, 42, has been a director since March 1987. She is a
Professor of Legal and Ethical Studies in Business at the College of Business,
Arizona State University, where she has worked for more than five years. In
addition, Ms. Jennings is a textbook author, and since 1977 she has been a
consultant for various firms. Ms. Jennings is also a columnist for The Arizona
Republic and a director of Lincoln Center for Applied Ethics.
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<PAGE>
Robert G. Matlock, 62, has been a director since April 1993. He has, since 1984,
been an independent management consultant to various governmental agencies
involved in developing nuclear energy resources and to utilities operating
nuclear facilities.
Jaron B. Norberg, 58, has been a director since July 1986. He has, for over five
years, served as Executive Vice President and Chief Financial Officer of the
Company.
John R. Norton III, 66, is Chairman of the Board and Chief Executive Officer of
J.R. Norton Company (agricultural production), Phoenix, Arizona, and was first
elected as a director of the Company in January 1984. Mr. Norton resigned as a
director in May 1985 to accept appointment as U.S. Deputy Secretary of
Agriculture, a position he held until February 1986. In February 1986 he was
re-elected as a director of the Company. Mr. Norton is also a director of
Pinnacle West, Aztar Corporation (casino hotels), and Terra Industries Inc.
(agricultural chemicals).
William J. Post, 45, is Senior Vice President and Chief Operating Officer of the
Company and Executive Vice President of Pinnacle West. From April 1986 to June
1993, Mr. Post served as Vice President of the Company. In June 1993 he was
elected Senior Vice President. Mr. Post was elected Chief Operating Officer and
member of the Board of the Company in September 1994. He was elected Executive
Vice President of Pinnacle West in June 1995. Mr. Post is also a director of
Nuclear Electric Insurance Limited (NEIL).
Donald M. Riley, 52, has been a director since June 1987. He is President and
General Manager of Gilpin's Construction Company, Inc. (general contractor),
Yuma, Arizona.
3
<PAGE>
Henry B. Sargent, 61, is President of El Dorado Investment Company, a subsidiary
of Pinnacle West. From 1985 until his retirement in June 1995, Mr. Sargent
served as Executive Vice President and Chief Financial Officer of Pinnacle West.
Mr. Sargent served as a director of the Company from January 1976 until he
resigned in July 1986. He was re-elected as a director in May 1990. Mr. Sargent
is also a director of Pinnacle West and Megafoods Stores, Inc.
Wilma W. Schwada, 69, has been a director since September 1977. She is a civic
leader and homemaker, Phoenix, Arizona.
Richard Snell, 65, has been a director since July 1975. He was elected Chairman
of the Board of the Company pursuant to his being selected as Chairman of the
Board, President, and Chief Executive Officer of Pinnacle West as of February
1990. He is also a director of Aztar Corporation, Banc One Arizona Corporation
and Bank One Arizona, N.A.
Dianne C. Walker, 39, has been a director since June 1994. She is an independent
consultant on electric utility mergers and acquisitions and asset purchase
transactions. Ms. Walker served as an electric energy consultant for Bear
Stearns from January 1990 to December 1994. Ms. Walker is also a director of
Satellite Technology Management, Comdial Corporation, and Microtest, Inc.
Ben F. Williams, Jr., 66, has been a director since December 1970. He practices
law as a sole practitioner in Tucson, Arizona. Mr. Williams was a partner in the
law firm of Lesher and Williams, Tucson, Arizona, from January 1992 to June
1994. Prior to 1992, Mr. Williams practiced law as a sole practitioner in
Douglas, Arizona.
Thomas G. Woods, Jr., 69, is retired. He served as a consultant to the Company
between 1985 and 1992 and has been a director since November 1977. He retired in
February 1985 as Executive Vice President of the Company.
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VOTING SECURITIES
Each of the 76,207,761 shares of the Company's capital stock (71,264,947
shares of common and 4,942,814 shares of preferred) outstanding at the close of
business on March 25, 1996 entitles the holder to notice of, and to vote at, the
meeting or any adjournment thereof, but shares can be voted at the meeting only
if the holder is present or represented by proxy.
PRINCIPAL HOLDERS OF VOTING SECURITIES
All of the outstanding shares of the common stock of the Company are owned
by Pinnacle West. Pursuant to a Pledge Agreement, dated as of January 31, 1990
between Pinnacle West and Citibank, N.A., as Collateral Agent (the "Pledge
Agreement"), and as part of a restructuring of substantially all of its
outstanding indebtedness, Pinnacle West granted certain of its lenders a
security interest in all of the Company's outstanding common stock. Until the
Collateral Agent and Pinnacle West receive notice of the occurrence and
continuation of an Event of Default (as defined in the Pledge Agreement),
Pinnacle West is entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the common stock. As to matters
other than the election of directors, Pinnacle West agreed not to exercise or
refrain from exercising any such right if, in the Collateral Agent's judgment,
such action would have a material adverse effect on the value of the common
stock. The pledgees under the Pledge Agreement do not presently beneficially own
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934) the
Company's outstanding common stock.
No director-nominee is the beneficial owner of any of the outstanding
capital stock of the Company except for Mr. Thomas G. Woods, Jr., who
beneficially owns, in trust with his wife, 700 shares of the Company's $2.625
Cumulative Preferred Stock, Series C, which is less than 1% of the class.
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The following table shows each person who at the close of business on
December 31, 1995 was known by the Company to beneficially own more than 5% of
any class of the capital stock of the Company:
Percent
Title of Name and Address of Amount and Nature of of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
Common Pinnacle West Capital 71,264,947 100.00%
Corporation (Direct)
400 East Van Buren, Suite 700
Phoenix, AZ 85004
Preferred Travelers Group Inc. and its 265,714 Shares 5.38%
affiliates: $1.8125 Cumulative
Associated Madison Companies, Preferred Stock
Inc. Series W
PFS Services, Inc. (Direct)
The Travelers Insurance Group,
Inc.
The Travelers Indemnity Company
388 Greenwich Street
New York, NY 10013
OWNERSHIP OF PINNACLE WEST SECURITIES
BY MANAGEMENT
The following table sets forth as of March 25, 1996 the number of shares of
Pinnacle West common stock beneficially owned by each director, each
director-nominee, each executive officer named in the Summary Compensation
Table, and all directors and executive officers as a group. Shares which may be
acquired within 60 days by the exercise of stock options are shown separately.
Unless otherwise indicated, the owners listed have sole voting and investment
power.
Shares Under Total
Shares Options Shares
Beneficially Exercisable Beneficially
Name or Group Owned(1) Within 60 Days Owned
- ------------- -------- -------------- -----
Kenneth M. Carr(2) 10 -0- 10
O. Mark DeMichele 112,053 96,208 208,261
Martha O. Hesse 2,200 14,000 16,200
Marianne M. Jennings 110 -0- 110
James M. Levine 18,749 8,669 27,418
Robert G. Matlock 1,000 -0- 1,000
Jaron B. Norberg 41,191 43,115 84,306
John R. Norton III 16,000 17,500 33,500
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Shares Under Total
Shares Options Shares
Beneficially Exercisable Beneficially
Name or Group Owned(1) Within 60 Days Owned
- ------------- -------- -------------- -----
William J. Post 24,522 32,043 56,565
Donald M. Riley 2,500 -0- 2,500
Henry B. Sargent 26,594 10,500 37,094
Wilma W. Schwada 1,264 -0- 1,264
Verne D. Seidel(2) 1,457 -0- 1,457
Richard Snell 48,407 364,166 412,573
William L. Stewart 17,100 39,666 56,766
Dianne C. Walker 100 -0- 100
Ben F. Williams, Jr. 2,100 -0- 2,100
Thomas G. Woods, Jr. 2,400 -0- 2,400
All Directors and
Executive Officers as
a Group (28 persons) 408,394 722,951 1,131,345(3)
______________
(1) Includes shares subject to restrictions under Pinnacle West stock
incentive plans and shares in the Company's employee savings plan. Also
includes in the cases of: Mr. DeMichele, 51,037 shares held in a trust in
which investment and voting power is shared; Mr. Norton, 500 shares held
by his wife, 500 shares in a profit-sharing plan, and 2,000 shares held
in a trust for Mr. Norton's late mother, for which he serves as trustee;
Mr. Sargent, 21,369 shares held in a trust in which investment and voting
power is shared; Mr. Woods, 2,400 shares held in a trust in which
investment and voting power is shared; and shares as to which investment
or voting power is shared with spouses, as follows: Mr. Carr, 10; Ms.
Jennings, 110; Mr. Matlock, 1,000; Mr. Norberg, 27,575; and Mr. Williams,
2,100.
(2) Messrs. Carr and Seidel, at mandatory retirement age, are not standing
for re-election as directors.
(3) Includes 121,937 shares in which voting or investment power is shared with
others. Such total amount accounted for 1.3% of the total outstanding
shares of Pinnacle West; however, no individual owns as much as 1%.
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<PAGE>
THE BOARD AND ITS COMMITTEES
The full Board of Directors met twelve times in 1995. Certain required
information is provided below with regard to the Human Resources and the Audit
Review Committees of the Board. There are presently two other standing
committees of the Board that are important to its overall operations. Each
director then in office attended 88% or more of the meetings of the full Board
and of the committees on which he or she served.
The Human Resources Committee is composed of Mr. Riley as chairman, and
Mmes. Hesse, Jennings, and Schwada and Messrs. Carr, Matlock, Seidel, and
Williams as members.* The Committee met five times in 1995. In addition to the
responsibilities mentioned in the Report of the Human Resources Committee which
is contained in this Proxy Statement, the Committee also recommends prospective
new Board members to the full Board. The Committee may consider shareholder
suggestions with respect to new nominees for the Board if the suggestion is sent
to the Secretary of the Company at the address on the cover page of this Proxy
Statement.
The Company's Audit Review Committee reviews the performance and
independence of the Company's independent accounting firm, makes an annual
recommendation to the full Board with respect to the appointment of the firm,
approves the general nature of the services to be performed by the firm, and
solicits and reviews the firm's recommendations. The Committee also consults
with the Company's internal audit group and periodically reviews the
relationships among that group, management of the Company, and its independent
accountants. The Committee met five times in 1995 and consisted of Ms. Jennings
as chairman, Ms. Hesse, and Messrs. Riley, Seidel and Woods. As of January 16,
1996, its chairman is Ms. Hesse and its members are Ms. Schwada and Messrs.
Norton, Seidel, Williams, and Woods.
_________________
* On January 16, 1996, after the Human Resources Committee finalized its
decisions for 1995, it was reorganized along with all of the committees of the
Board. During 1995 the Human Resources Committee was comprised of the
following members: Mr. Norton as chairman, and Mmes. Hesse, Jennings, Schwada,
and Walker and Messrs. Riley and Williams.
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In 1995, non-employee directors received an annual retainer of $18,000.
With certain exceptions, non-employee directors also received $900 for each
board meeting attended and $700 for each committee meeting attended.
The Company has a directors' retirement plan which, with certain
exceptions, provides to non-employee directors over the age of 65 an annual
payment of $12,000 upon their retirement from the Board. This payment is limited
to the number of credited years that the director served on the Board or until
the director dies, whichever occurs first. With limited exceptions, directors
will be credited only for years of service on the Board prior to age 65.
The Company has consulting agreements with Messrs. Carr and Matlock under
which they are each paid $150 per hour (maximum of $40,000 per year), plus
expenses, for consulting services relating to the Company's nuclear operations.
In 1995 the following amounts were paid for fees and expenses: Kenneth M. Carr
- -- $13,196.42; and R. G. Matlock & Associates, Inc. -- $15,573.60 (Mr. Robert G.
Matlock is President and Chief Executive Officer of R. G. Matlock & Associates,
Inc.).
REPORT OF THE HUMAN RESOURCES COMMITTEE
The Company's Human Resources Committee is composed of eight directors
(seven directors during 1995), none of whom currently is, or has ever been, an
officer or employee of the Company or any of its subsidiaries. The
responsibilities of the Committee include reviewing annually and recommending to
the full Board of Directors the cash compensation paid to the Company's
officers, establishing annual goals for such officers, and approving the payment
of variable pay incentives when such goals are met. Pursuant to these duties,
the Committee obtains information regarding stock incentive plans authorized by
Pinnacle West shareholders under which stock options and other long-term
incentives may be awarded to the Company's officers and key employees by the
Human Resources Committee of the board of Pinnacle West. Information regarding
the compensation objectives and philosophy of the Pinnacle West Human Resources
Committee was taken from that committee's
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report contained in the proxy statement relating to Pinnacle West's 1996 Annual
Meeting of Shareholders.
The executive compensation policy, as developed and adopted by the
Committee, is incentive-based and provides for short- and long-term incentives
in the form of bonuses and stock. The policy is designed to reward individual
performance in critical areas of the Company's operations, including cost
management, earnings performance, customer service, safety and environmental
concerns. Incentive goals are developed annually to focus on the Company's
profitability and its operational results in the short and long term. The
Committee sets the compensation of Company officers in accordance with
comparable median industry levels and the achievement of incentive goals.
Pursuant to a law enacted in 1993, publicly-traded corporations generally
will not be permitted to deduct, for federal income tax purposes, annual
compensation in excess of $1 million paid to any of certain top executives,
except to the extent the compensation qualifies as "performance-based." While
the Committee is biased toward rewarding performance through the bonus and
equity participation programs, certain features of these programs do not fit the
law's stringent definition of "performance-based," and limited amounts of
compensation may therefore not be deductible.
The Committee retains an international benefits and compensation consulting
firm to report annually on how the Company's officers' compensation compares to
the compensation paid to officers performing similar functions at comparable
utility companies. Information was provided for ten other organizations engaged
primarily in the electric utility business and having characteristics similar to
the Company in terms of size, assets under management, and nuclear generation,
eight of which are included in the companies comprising the Edison Electric
Institute Index used in the performance graph on page 14. The Committee also
considered the compensation figures in the proxy statements of seven additional
utility companies which supported the findings of the consultant's report.
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<PAGE>
Components of Compensation
Base Salary
The Committee reviews each executive officer's base salary annually. To
determine an appropriate salary level, consideration is given to individual
performance, level of responsibility, prior experience and expertise, and base
pay of officers performing similar functions at comparable utility companies.
Base salaries for Company officers were at or below median salaries of
comparable utility companies. Salary increases for the majority of the officers
were not more than 2% of their 1994 salaries. The exceptions were two officers
who were in the lower range of their respective pay grades, two officers whose
salaries were increased in recognition of their expertise, and Mr. Post, whose
salary was increased at the time of his accepting additional responsibilities.
The small percentage increase is in keeping with the Committee's policy of
having a significant portion of compensation achieved through incentives, such
as bonuses, tied to Company performance and the attainment of goals established
by the Committee.
Cash Incentives
Under the Company's variable pay plan for officers, the total compensation
of the Chief Executive Officer as well as the other executive officers is
significantly impacted by their degree of accomplishment in meeting certain
critical success indicators established by the Committee at the beginning of
each year. The amount of incentive compensation paid, if any, depends on the
degree of success in meeting these goals. However, the plan does not allow any
cash incentive payments to be paid unless the Company experiences lower than
budgeted capital and operations and maintenance expenditures, and threshold
earnings and efficiency ratios are met. The other indicators established by the
Committee related to customer satisfaction. Under the plan, the incentive
payment for 1995 could reach 60% of Mr. DeMichele's year end base salary and
from 37% to 54% of the year end base salary of the other officers, depending on
their position. 100% of Mr. DeMichele's cash incentive payment and 40% of the
other officers' cash incentive payments are based on overall corporate
performance. The remaining 60% of the cash incentive payments for the officers
(other than Mr. DeMichele) is based on the
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achievement of key result area targets on each officer's Performance Enhancement
Plan.
The 1995 cash incentive payments resulted from Company performance
exceeding all of the overall corporate goals and a majority of the department
key result area targets.
Long-Term Incentives
The Human Resources Committee of the board of Pinnacle West, the Company's
parent, makes the decisions on long-term incentives and believes that the
ultimate measure of management's performance is its ability to deliver rewards
to shareholders in the form of share price appreciation and rising dividends
over time. To those ends, the Pinnacle West Committee began in the Fall of 1990
to make systematic grants of restricted stock and stock options to officers and
key management employees of Pinnacle West and its subsidiaries, including the
Company, in order that officers and key management employees could participate
in those rewards through stock ownership.
The primary objective of Pinnacle West's stock incentive program is to
encourage stock ownership on a continuing basis. To that end, restricted stock
awards do not vest unless participants meet predetermined share ownership
guidelines, determined at the time of grant, that expose them to financial risks
similar to other shareholders.
The size of awards made by the Human Resources Committee of the board of
Pinnacle West to the Company's participants in the program is determined by
making assumptions as to how, generally, the stock should perform if Pinnacle
West and its subsidiaries achieve their longer-term goals. The Pinnacle West
Committee then determines the size of each grant with the goal of bringing the
recipient's total compensation to a level approximately equal to or slightly
ahead of the competitive level, provided the stock performs as assumed. In the
case of Mr. DeMichele, the 1995 restricted stock award was larger in partial
recognition of the reduction of his personal earnings capacity that will result
from his announced retirement, which will occur some two years before his normal
retirement date. See the Summary Compensation Table (page 15) and Pinnacle West
Stock Option Grants in 1995 chart (page 16) for information regarding
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long-term incentive awards granted to the Company's five most highly compensated
executive officers during 1995.
This Committee concurs with the position taken by the board of Pinnacle
West, and its program regarding grants of restricted stock and stock options to
officers and key employees of the Company.
The foregoing report of the Human Resources Committee is provided by its
1995 members: Mr. Norton (Chairman), Mmes. Hesse, Jennings, Schwada, and
Walker, and Messrs. Riley and Williams.
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PERFORMANCE GRAPH
The annual changes for the five-year period shown in the following graph
are based on the assumption that $100 was invested on the last trading day in
1990 in Pinnacle West stock and in the market represented by each of two indices
(the Dow Jones Equity Market Index and the Edison Electric Institute Index of
100 Investor-Owned Electrics), and that any dividends were reinvested. The
common stock of Pinnacle West is used to measure the performance of the Company
because the Company is the largest subsidiary of Pinnacle West and its
operations account for substantially all of Pinnacle West's operating revenues.
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN
Data Points for Performance Graph
in APS' Proxy for 1996 Annual Meeting
Date Pinnacle West Dow Jones EEI
---- ------------- --------- ---
12/31/90 100.00 100.00 100.00
12/31/91 173.75 132.44 128.87
12/31/92 203.75 143.83 138.69
12/31/93 225.75 158.14 154.11
12/31/94 206.50 159.36 136.28
12/31/95 307.00 220.51 178.55
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EXECUTIVE COMPENSATION
The following tables on compensation and stock options relate to the five
most highly compensated executive officers of the Company. Information given
with respect to stock options and restricted stock relate to shares of the
common stock of Pinnacle West.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities All
Name and Restricted Underlying Other
Principal Stock Options Compen-
Position Year Salary Bonus Awards(1) Granted sation(2)
- ------------------- ------- ---------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
O. Mark 1995 $409,904 $245,942 $526,848 21,000 $24,037
DeMichele 1994 402,008 242,690 380,000 25,000 12,873
President, CEO & 1993 394,642 136,994 110,625 25,000 14,757
Director
James M. Levine 1995 $180,473 $101,405 $ 32,928 6,000 $12,349
VP, Nuclear 1994 176,875 59,382 26,600 7,000 5,066
Production 1993 173,495 36,828 28,763 6,500 1,763
Jaron B. Norberg 1995 $259,344 $126,819 $ 76,832 14,000 $15,230
Exec. VP, CFO & 1994 254,400 129,717 60,800 16,000 9,339
Director 1993 248,614 70,014 57,525 13,000 9,289
William J. Post 1995 $287,500 $175,500 $ 93,296 17,000 $12,229
Senior VP, COO 1994 195,522 145,672 64,600 17,000 5,265
& Director 1993 160,142 44,831 33,188 7,500 7,347
William L. 1995 $306,595 $186,214 $ 90,552 16,500 $10,175
Stewart 1994 307,869 152,400 237,200 69,000 818
Executive VP, 1993 -0- -0- -0- -0- -0-
Nuclear
</TABLE>
__________________
(1) The value of the restricted stock is based on the closing market price of
Pinnacle West common stock on the date the restricted shares were
granted. The restrictions lapse on most restricted stock awards made in
1995 upon (i) the passage of three years from date of grant or upon
retirement after the age of 60, and (ii) the holding of certain numbers
of unrestricted shares for certain periods of time, as determined by the
Pinnacle West Human Resources Committee at the time of grant. Dividends
that are payable in cash or stock will be withheld until the restrictions
lapse. Mr. DeMichele, who is 62 years old, has announced his intention to
retire from the Company in February, 1997. Upon Mr.
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DeMichele's retirement, the time restrictions on his 1995 restricted stock
award (19,200 shares) will lapse. Additionally, Mr. DeMichele's 1995 grant
does not contain an unrestricted stock matching requirement.
The aggregate number of restricted shares held and their value (in
brackets) as of December 31, 1995 are as follows: Mr. DeMichele -- 44,200
[$1,270,750]; Mr. Levine -- 3,900 [$112,125]; Mr. Norberg -- 8,600
[$247,250]; Mr. Post -- 8,300 [$238,625]; and Mr. Stewart -- 17,100
[$491,625].
(2) This column includes (i) the above market portion of interest accrued in
1995 on funds deferred under a deferred compensation plan in the
following amounts: Mr. DeMichele -- $11,705; Mr. Levine -- $7,421; Mr.
Norberg -- $5,554; Mr. Post -- $6,733; and Mr. Stewart -- $1,969;
(ii) Company contributions made during 1995 under the Company's Employee
Savings Plan in the following amounts: Mr. DeMichele -- $4,500; Mr.
Levine -- $3,974; Mr. Norberg -- $4,500; Mr. Post -- $4,500; and Mr.
Stewart -- $-0-; and (iii) premiums paid by the Company for life
insurance in the following amounts: Mr. DeMichele -- $7,832; Mr. Levine
-- $954; Mr. Norberg -- $5,176; Mr. Post -- $996; and Mr. Stewart --
$8,206.
PINNACLE WEST STOCK OPTION GRANTS IN 1995
Number of Percent
Securities of Total
Underlying Options Grant Date
Options Granted To Exercise Expiration Present
Name Granted Employees Price(1) Date Value(2)
- ---- ------- --------- -------- ---- --------
Mr. DeMichele 21,000 6.12% $27.44 Nov. 2005 $43,680
Mr. Levine 6,000 1.75% 27.44 Nov. 2005 16,800
Mr. Norberg 14,000 4.08% 27.44 Nov. 2005 39,200
Mr. Post 17,000 4.95% 27.44 Nov. 2005 47,600
Mr. Stewart 16,500 4.81% 27.44 Nov. 2005 46,200
____________________
(1) Options vest annually in installments of 33% per year beginning on the
first anniversary of the date of grant. All options not already exercisable
will become exercisable if an individual retires on or after the age of 60.
No SARs have been granted.
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(2) The Black-Scholes option pricing model was used in determining the present
value of the options granted. The assumptions utilized in the model are as
follows: .126 for expected volatility; 5.46% (5.21% for Mr. DeMichele) for
risk-free rate of return; 4.5% for dividend yield and 5 years for the time
of exercise (2.5 years for Mr. DeMichele).
STOCK OPTION EXERCISES IN 1995
AND YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options at 12/31/95 Options at 12/31/95
on Exercise Value Exercisable/ Exercisable/
Name of Option Realized(1) Unexercisable Unexercisable(2)
- ---- --------- ----------- ------------- ----------------
Mr. DeMichele 26,264 $265,944 88,922 46,001 $646,413 $245,226
Mr. Levine 4,504 37,042 8,669 12,834 $ 68,543 $67,719
Mr. Norberg 14,343 144,421 39,024 29,001 $267,181 $151,056
Mr. Post 703 4,679 30,603 30,834 $267,117 $149,339
Mr. Stewart 0 0 22,999 62,501 $265,905 $553,459
_________________
(1) Value of options exercised is the market value of the shares on the
exercise date minus the exercise price.
(2) Includes only those options whose per share exercise price is less than the
market value of a share of Pinnacle West common stock on December 31, 1995
($28.75 per share). Value of the outstanding options is the value of
Pinnacle West common stock at year end minus the exercise price.
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EXECUTIVE BENEFIT PLANS AND AGREEMENTS
Employees' Retirement Plan And Supplemental Excess Benefit Retirement Plan.
The following table illustrates the annual benefits, calculated on a
straight-life annuity basis, that would be provided under the Company Employees'
Retirement Plan and the Supplemental Excess Benefit Retirement Plan to officers
of the Company who retire at the indicated compensation and longevity levels.
Years of Service with APS
-------------------------
Average Annual
Compensation(1) 5(2) 10 20 25(3)
--------------- ---- -- -- -----
$150,000 $ 22,500 $ 45,000 $ 75,000 $ 90,000
200,000 30,000 60,000 100,000 120,000
250,000 37,500 75,000 125,000 150,000
300,000 45,000 90,000 150,000 180,000
350,000 52,500 105,000 175,000 210,000
400,000 60,000 120,000 200,000 240,000
450,000 67,500 135,000 225,000 270,000
500,000 75,000 150,000 250,000 300,000
550,000 82,500 165,000 275,000 330,000
600,000 90,000 180,000 300,000 360,000
650,000 97,500 195,000 325,000 390,000
700,000 105,000 210,000 350,000 420,000
_____________
(1) Compensation under the retirement plan consists solely of base salary,
including any amounts voluntarily deferred under the Company's savings
plan. While the retirement plan does not include amounts voluntarily
deferred under other deferred compensation plans, bonuses or incentive
pay, the Supplemental Excess Benefit Retirement Plan does include,
subject to certain exceptions, these additional components of
compensation. For purposes of the Employees' Retirement Plan,
compensation in excess of $150,000 (as adjusted for cost-of-living) is
disregarded.
(2) Although years of service begin accumulating on the date of employment,
benefits do not vest until the completion of five years of service.
(3) Although the maximum number of years used in calculating benefits under the
Employee's Retirement Plan is 33-1/3, a greater maximum benefit is achieved
under the Supplemental Excess Benefit Retirement Plan after 25 years of
service.
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For officers, a Supplemental Excess Benefit Retirement Plan provides for
enhanced benefit calculations and for the payment, to those eligible, of annual
benefits in excess of the maximum allowable under the basic plan, from the
general assets of the Company. The number of credited years of service for each
of the individuals named in the Summary Compensation Table and their 1995
remuneration covered by the Company's plans are as follows: Mr. DeMichele -- 18
years (see description of Mr. DeMichele's employment agreement below), $652,594;
Mr. Levine -- 6 years, $249,855; Mr. Norberg -- 14 years (see description of Mr.
Norberg's employment agreement below), $389,061; Mr. Post -- 23 years, $433,172;
and Mr. Stewart -- 2 years (see description of Mr. Stewart's employment
agreement below), $458,955. The amounts shown in the table are not expected to
be subject to any reduction or offset for social security benefits or other
significant amounts.
In April 1978, Mr. DeMichele and the Company entered into an agreement
under which the Company, in calculating Mr. DeMichele's pension benefits,
granted Mr. DeMichele credit for 17 years of prior employment with another
company.
In July 1995, Mr. Norberg and the Company entered into an agreement under
which the Company, in calculating Mr. Norberg's pension benefits, granted Mr.
Norberg credit for four additional years of employment.
In January 1994, the Company entered into an agreement with Mr. Stewart
under which he would receive at age 60 an aggregate pension benefit based on an
age 60 pension benefit from his previous employer. The benefits to be received
under this agreement will be based on age and other factors existing at the time
of retirement and therefore cannot be presently determined.
Executive Severance Arrangements. The Company has entered into severance
agreements, which are essentially identical in content, with each of its
executive officers. The agreements are intended to provide stability of key
management for the Company. Under the agreements, each officer will receive a
payment and other severance benefits having an aggregate value of not more than
2.99 times the officer's "base income" (the average
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<PAGE>
of the officer's annual compensation over the five years preceding the year of
the "change in control") if, during the two-year period following a "change in
control" of the Company, the officer's employment is terminated or the terms and
conditions of his or her employment are significantly and detrimentally altered.
"Change in control" includes any change in control event required to be reported
under the Securities Exchange Act of 1934, an unrelated third party's
acquisition of 20% or more of the Company's voting stock or substantially all of
the assets of the Company, a merger or acquisition of the Company in which the
Company is not the surviving corporation unless the Company's shareholders have
the same proportionate interest in the surviving corporation, or a change in the
majority of the members of the Company's Board of Directors over a two-year
period, which change is not approved by two-thirds of the members of the Board
then serving who were members immediately prior to the change. No severance
benefits will be payable to an officer who has attained age 65 or whose
termination is on account of retirement, voluntary termination, disability or
death, or "for cause," as defined in the agreements. An officer will not be
deemed to have voluntarily terminated his or her employment if the officer's
termination is due to a material adverse change in his or her duties, status, or
perquisites, failure to re-elect or redesignate the officer to a position held
prior to the "change in control," a significant relocation of the officer's job
without his or her consent, or a material breach by the Company of the officer's
severance agreement. Each of the executive severance agreements terminates on
December 31 of each year, upon six months' advance notice by the Company to the
officer; if such notice is not given, the agreement will continue for successive
one-year periods until the notice is given.
Supplemental Executive Benefit Plan. In 1992, the Company, together with
Pinnacle West, established the Supplemental Executive Benefit Plan ("SEBP") to
provide benefits to certain directors and key employees in the event of a
"change in control." The administration of the SEBP, including the selection of
participants, is performed by a committee appointed by the Board of Directors of
Pinnacle West (the "Administrative Committee"). The Company and Pinnacle West
have established an irrevocable trust to hold assets for purposes of funding the
plan (the "SEBP Trust"). The SEBP provides two benefits--a change in control
benefit for participants and an employer's benefit. The change in control
benefit to be determined by the Administrative Committee
20
<PAGE>
annually will be paid in a lump sum to a participant in January of the year
following the date of a change in control, provided that the participant meets
certain conditions of employment. No change in control benefit will be payable
to a participant who voluntarily terminated employment prior to the January
distribution date. Under certain conditions, a distribution will be made to a
participant prior to the scheduled distribution date.
The employer's benefit is the amount in the SEBP Trust that is not needed
to pay a participant's SEBP benefit. It will be paid in a lump sum to the
Company when one of the participants terminates employment for whatever reason
under circumstances which prevent him or her from qualifying for a change in
control benefit or when there is an asset balance remaining in the SEBP Trust
after payment of the benefit and such assets are not necessary to fund any other
participant's SEBP benefits. "Change in control" as defined in the SEBP is
substantially the same as the executive severance arrangements described above,
except that the SEBP refers to Pinnacle West and not to the Company. In
addition, a sale of more than 80% of the Company's stock, a sale of
substantially all of its assets to an unaffiliated party, and situations
involving bankruptcy, the appointment of a trustee, receiver or liquidator, or
an assignment for the benefit of creditors by Pinnacle West, also constitutes a
change in control.
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GENERAL
Cost of Solicitation. The cost of solicitation, which will be by mail, will
be borne by the Company. It is also anticipated that brokerage houses and others
will be reimbursed for their out-of-pocket expenses in forwarding documents to
beneficial owners of stock held in their names.
Voting Procedures. A majority of the outstanding shares entitled to vote
in person or by proxy at the meeting will constitute a quorum for the conduct
of business.
For the election of directors, the individuals receiving the highest number
of votes will be elected. The number of votes to which each shareholder will be
entitled is to be determined by multiplying the number of shares of stock owned
as of the March 25, 1996 record date by the number of directors to be elected,
and any shareholder may cumulate his or her votes by casting them all in person
or by proxy for any one nominee, or by distributing them among two or more
nominees. Broker "non-votes" with respect to any matter are not considered
shares present and will not affect the outcome of the vote on such matter.
Independent Accountants. It is contemplated that the Company's financial
statements as of December 31, 1996, and for the year then ending, will be
examined by Deloitte & Touche LLP, independent certified public accountants.
Representatives of that firm are expected to be present at the Annual Meeting
and will be afforded the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
Shareholder Proposals For Next Meeting. A shareholder who intends to submit
a proposal for inclusion in the proxy statement relating to next year's annual
meeting of shareholders must submit such proposal so that it is received by the
Company at its principal executive offices on or before December 20, 1996. The
Company recommends that proponents submit their proposals by certified
mail--return receipt requested.
22
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ARIZONA PUBLIC SERVICE COMPANY PROXY CARD
P P.O. Box 53999
Phoenix, Arizona 85072-3999
----------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
R ANNUAL MEETING ON MAY 21, 1996.
The undersigned hereby appoints O. Mark DeMichele and Nancy C. Loftin,
and each of them, proxies for the undersigned, each with full power of
substitution, to attend the annual meeting of shareholders of Arizona
O Public Service Company to be held May 21, 1996, at 10:00 a.m., Phoenix
time, and at any adjournment thereof, and to vote as specified in this
Proxy all the shares of stock of the Company which the undersigned
would be entitled to vote if personally present.
Voting with respect to the election of directors may be indicated on
the reverse of this card. Nominees for director are: O. Mark
X DeMichele, Martha O. Hesse, Marianne Moody Jennings, Robert G.
Matlock, Jaron B. Norberg, John R. Norton III, William J. Post, Donald
M. Riley, Henry B. Sargent, Wilma W. Schwada, Richard Snell, Dianne C.
Walker, Ben F. Williams Jr., and Thomas G. Woods Jr.
Y Your vote is important! Please sign, date and mail promptly
in the enclosed postage-paid envelope.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, IT WILL BE VOTED
FOR THE ELECTION OF DIRECTORS.
---
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
1. Election of Directors (See Other Side)
FOR* WITHHELD
[ ] [ ]
*FOR ALL NOMINEES, EXCEPT WITHHOLD VOTE FOR THE FOLLOWING:
- ---------------------------------------------------------
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are to vote upon such other business as may
properly come before the meeting.
_______________________________________________
Signature Date
_______________________________________________
Signature Date
Please sign as your name(s) appears to the
left. Joint owners should both sign.
Fiduciaries, attorneys, corporate officers,
etc., should state their capacities.
Any proxy given previously is hereby revoked.
