Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
PINNACLE WEST CAPITAL CORPORATION
----------------------------------------
(Name of Registrant as Specified in Its Charter)
Michael Ash
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-1l(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
PINNACLE WEST CAPITAL CORPORATION
P.O. BOX 52132
PHOENIX, ARIZONA 85072-2132
NOTICE AND PROXY STATEMENT
For Annual Meeting of Shareholders To Be Held On
Wednesday, May 17, 1995
To Shareholders:
The 1995 annual meeting of shareholders of Pinnacle West Capital
Corporation will be held in the Mesa Community Conference Center at 201 North
Center Street, Mesa, Arizona at 10:30 a.m. on Wednesday, May 17, 1995 for the
following purposes:
o To elect three Class I Directors;
o To act on the shareholder proposal described in the Proxy
Statement; and
o To transact such other business as may properly come before the meeting
or any adjournment thereof.
Each of the 87,429,642 shares of the Company's common stock outstanding at
the close of business on March 24, 1995 (the "Record Date") entitles the holder
to notice of and to vote at this meeting or any adjournment thereof, but shares
can be voted at the meeting only if the holder is present or represented by
proxy.
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Company's Board of Directors. So far as management is
aware, the matters described 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 on those matters in accordance with its judgement.
Shareholders are requested to mark, date, sign and mail promptly the
enclosed proxy. A postage paid envelope is provided for mailing in the United
States. Being entitled to revoke your proxy at any time before it is exercised,
you may do so and vote your shares in person if you attend the meeting.
By order of the Board of Directors
FAYE WIDENMANN
Vice President and Secretary
Approximate date of mailing to shareholders:
April 17, 1995
ITEM 1 - ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide for the division of the
Board of Directors into three classes of approximately equal size. The term of
each directorship is three years and the terms of the three classes are
staggered so that only one class is elected by the shareholders annually.
Three Class I directors are to be elected this year to serve as members of
the Board of Directors until the annual meeting of shareholders in 1998 or until
their successors are elected and qualified. Should one or more of the three
nominees listed below become unavailable to serve as a director prior to the
meeting date, the proxy committee will vote the shares they represent for the
election of such other persons as the Board may recommend unless the Board
reduces the number of directors in Class I.
Directors in the other two classes are identified on the following pages.
Information given for all directors has been furnished by each of them as of
March 24, 1995. The term "APS" refers to Arizona Public Service Company, the
Company's principal subsidiary.
Nominees
- --------------------------------------------------------------------------------
Nominees for Election as Class I Directors
(Term to expire at 1998 Annual Meeting)
- --------------------------------------------------------------------------------
Roy A. Herberger, Jr., 52, has been a director since May 1992. He has been
President of the American Graduate School of International Management,
"Thunderbird", since 1989. Mr. Herberger is also a director of Bank of America
of Arizona, Masimo's, Inc. and Express America Holdings.
Henry B. Sargent, 60, has been a director since 1985. He is Executive Vice
President and Chief Financial Officer of the Company. He is also a director of
APS, Magma Copper Company and Megafoods Stores, Inc.
Humberto S. Lopez, 49, is President of HSL Properties (real estate development
and investment), Tucson, Arizona. Of some 40 real estate concerns Mr. Lopez has
been affiliated with, four filed petitions for court protection from creditors
under Chapter 11 of the Bankruptcy Code between April 1990 and June 1992 in
order to provide these entities the opportunity to reorganize debt associated
with the properties they held. Three of these proceedings resulted in confirmed
plans of reorganization and one was dismissed following a negotiated settlement
with the lender.
Directors Continuing in Office
- --------------------------------------------------------------------------------
Class II Directors
(Term to expire at 1996 Annual Meeting)
- --------------------------------------------------------------------------------
O. Mark DeMichele, 61, has since January 1988 been President and Chief Executive
Officer of APS. Mr. DeMichele previously served as a director of the Company
from February 1985 to July 1986 and was re- elected as a director in May 1990.
He is also a director of APS.
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 in February 1985. Mr. Norton resigned as a director of the
Company 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 Aztar
Corporation, Terra Industries Inc. and APS.
Douglas J. Wall, 68, has been a director since 1985. He is of counsel to the law
firm of Mangum, Wall, Stoops & Warden. Mr. Wall is also a member, and past
President, of the Arizona Board of Regents.
- --------------------------------------------------------------------------------
Class III Directors
(Term to expire at 1997 Annual Meeting)
- --------------------------------------------------------------------------------
Pamela Grant, 56, has been a director since 1985. She is a civic leader and from
July 1989 through January 1995 was President of TableScapes, Inc. (party supply
rentals). Ms. Grant was President and Chief Executive Officer of Goldwaters, a
Division of May Department Stores, until April 1988.
Martha O. Hesse, 52, has been a director since 1991. She is President of Hesse
Gas Company and Dolan Energy Corporation. 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. She is
also a director of APS, Sithe Energies, Health Funding, Mutual Trust Life and
American Natural Resources Co., a subsidiary of Coastal Corp.
William S. Jamieson, Jr., 51, has been a director since 1991. He is an
Archdeacon of the Episcopal Diocese of Arizona. Mr. Jamieson was a partner in
the management, political and public affairs consulting firm of Jamieson and
Gutierrez from 1984 through April 1990, and he continued with the firm as a
consultant through February 1991.
Richard Snell, 64, has been a director since 1985. He has been Chairman of the
Board, President and Chief Executive Officer of the Company and Chairman of the
Board of APS since February 1990. He is also a director of Aztar Corporation,
Bank One Arizona Corporation and Bank One Arizona, N.A.
CERTAIN SECURITIES OWNERSHIP
At March 24, 1995, shares of the Company's common stock beneficially owned
by the indicated persons, groups or entities were as follows:
Shares
Beneficially Percent
Owned (1) of Class
Non-Employee Directors and Nominees ------------ -------
- -----------------------------------
Pamela Grant (2) 26,200
Roy A. Herberger, Jr. 1,000
Martha O. Hesse 15,700
William S. Jamieson, Jr. (2) 3,115
Humberto S. Lopez 1,000
John R. Norton III (2) 33,500
Donald N. Soldwedel (2)(3) 31,326
Douglas J. Wall 27,705
Employee Directors and Officers
- -------------------------------
O. Mark DeMichele (2) 188,636
Henry B. Sargent (2) 133,558
Richard Snell 382,410
Other Officers Named on Page 9
- ------------------------------
Michael S. Ash 20,223
Arlyn J. Larson (2) 34,693
Nancy E. Newquist 15,931
Faye Widenmann 29,031
All directors, nominees and executive 944,028 1.08%
officers as a group (15 persons) (2)
- -------------------------------------
5% Beneficial Owners (4)
- ------------------------
Mellon Bank 7,674,000 (4) 8.78%
One Mellon Bank Center
Pittsburgh, PA 15258
- ------------
(1) Includes shares which may be acquired by the exercise of stock options
within 60 days as follows: 24,500 each for Ms. Grant and Messrs. Soldwedel
and Wall; 17,500 for Mr. Norton; 14,000 for Ms. Hesse; 95,506 for Mr.
DeMichele; 81,793 for Mr. Sargent; 337,499 for Mr. Snell; 5,004 for Mr.
Ash; 21,096 for Mr. Larson; 7,033 for Ms. Newquist; 13,510 for Ms.
Widenmann; and 666,441 for all directors and officers as a group. In the
case of officers, also includes shares of restricted stock and vested
shares in the Company's employee savings plan.
(2) Includes in the cases of: Mr. DeMichele, 43,005 shares held in a trust in
which investment and voting power is shared; Mr. Sargent, 23,681 shares
held in a trust in which investment and voting power is shared; Ms. Grant,
400 shares owned by a trust as to which she disclaims beneficial interest;
Mr. Jamieson, 615 shares held by his wife; Mr. Norton, 500 shares held by
his wife, 500 shares in a profit-sharing plan and 2,500 shares held in a
trust for Mr. Norton's late mother for which he serves as trustee; Mr.
Soldwedel, 6,826 shares held in a trust in which investment and voting
power is shared; Mr. Larson, 5,576 shares held in joint tenancy with his
spouse; and in the case of the group, 81,588 shares as to which voting or
investment power is shared with others.
(3) Mr. Soldwedel, at mandatory retirement age, is not standing for re-
election as a director.
(4) A joint Schedule 13G filing with the Securities and Exchange Commission as
of December 31, 1994 by Mellon Bank and certain of its subsidiaries,
reporting sole voting power as to 5,564,000 shares; shared voting power as
to 3,000 shares; sole dispositive power as to 6,848,000 shares; and shared
dispositive power as to 826,000 shares. The Company makes no
representations as to the accuracy or completeness of such information.
THE BOARD AND ITS COMMITTEES
The full Board of Directors met 13 times during 1994. No director attended
fewer than 75% of the meetings of the full Board and of the committees on which
he or she served.
The Audit Committee of the Board 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 for the following
year, approves the scope of the work to be performed and solicits and reviews
the firm's recommendations. The Committee also consults with the Company's
internal audit group and periodically reviews the relationship among that group,
management of the Company and its subsidiaries and its independent accountants.
The Committee met 3 times in 1994; its members were Ms. Hesse and Messrs.
Herberger, Jamieson, Soldwedel and Wall (Chairman).
The Human Resources Committee makes recommendations to the full Board with
respect to prospective Board members and officers and with respect to executive
salaries, bonuses and benefits. (See page 17 for the procedures for proposing
nominations to the Board). The Committee also makes stock option and restricted
stock grants, and regularly reviews the Company's policies in all of the
foregoing areas. Its report on executive compensation policy follows, and its
members are identified at the end of that report. The Committee met 4 times in
1994.
Non-employee directors receive an annual retainer consisting of $12,000
cash and 500 shares of Pinnacle West common stock; to receive the 500 shares a
director is required to already own 500 shares in his or her first year on the
board, and that ownership requirement increases by 500 shares annually until it
reaches 2,500 shares. With certain exceptions, non-employee directors also
receive $900 for each board meeting attended and $700 for each committee meeting
attended.
Effective January 1, 1995, the Company adopted a retirement plan for
non-employee directors which provides, with certain exceptions, to non-employee
directors over the age of 65 upon their retirement from the Board, for the
payment of a $12,000 annual benefit for each year that he or she served on the
Board prior to age 65.
HUMAN RESOURCES COMMITTEE REPORT
The Human Resources Committee, composed solely of outside directors, is
responsible for making decisions regarding executive compensation. The
Committee's overall compensation philosophy is to (i) attract and retain
qualified individuals critical to the Company's success, (ii) reinforce
strategic objectives through the use of incentive compensation programs and
(iii) promote long-term stock ownership by executives and directors.
The Committee applies its own compensation philosophy (and specifically its
preference to shift total compensation toward rewarding performance) to
comparative information provided by its consultants. In 1994 the Committee used
the services of two independent compensation consulting firms selected by it
after an interview process conducted by the Committee's Chairman. Both firms
provided the Committee with comparative practices of other organizations engaged
primarily in the electric utility business and having characteristics similar to
the Company in terms of size (including assets under management), nuclear
generation and diversification. Additional information from market surveys was
also provided to the Committee.
Finally, the Committee formulates its own views as to the responsibilities,
skills, experience and performance of the respective executive officers, with
input from Mr. Snell as to performances other than his own.
Base Salaries. Based on the foregoing, in 1994 the Committee approved a
salary increase for one executive officer as a result of her increased
responsibilities and minor salary adjustments for other executive officers. The
base salaries of Messrs. Sargent and Snell were left unchanged.
Bonuses. Cash bonuses payable for any year are predicated on targeted
levels of corporate performance established by the Committee at the beginning of
the year. Performance is assessed by the Committee after the end of the year;
discretion is exercised in limited areas where the Committee's judgment is
called for by the bonus plan.
For 1994 the plan stipulated that no bonuses would be paid unless a
dividend on common stock had been declared at an increased annual rate. Provided
this stipulation was met, the predominant determinants of bonus levels were
per-share earnings, corporate net cash flow and the formulation of objectives
for guiding the Company's future direction.
At the end of the year the Committee totalled the attainment factors for
the several determinants to produce a composite attainment factor common to all
officers and multiplied that by a predetermined percentage of salary (50% for
Mr. Snell, 35% for Mr. Sargent and 25% for all other officers) to determine
actual bonuses to be paid. The bonuses so arrived at and paid reflect a
composite attainment factor somewhat above that targeted in the 1994 plan.
Equity Participation. The Committee 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 Committee began in the fall of 1990 to make systematic grants of stock
options and restricted stock to officers and key management employees of
Pinnacle West and its subsidiaries in order that they could participate in those
rewards (if earned) through stock ownership.
The Committee further believes that senior management personnel of the
Company and its subsidiaries should have a significant, ongoing personal
investment in the Company. To that end, restricted stock grants, besides being
compensatory in nature, are utilized by the Committee to encourage the
attainment and retention of targeted levels of individual stock ownership by
conditioning their vesting upon the ownership of certain numbers of shares for a
predetermined period of time. This restriction provides a financial incentive
for employees to maintain a value of stock ownership that, for officers, ranges
from 1 to 1.25 times annual salary.
The size of awards made to participants in the program is determined by
making assumptions as to how, generally, the stock should perform if the Company
achieves its longer-term goals, and each grant is then determined by bringing
the recipient's total compensation to a level approximately equal to or slightly
ahead of competitive levels, provided that the stock performs as assumed.
Tax Consideration. 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". The Committee believes that none of the Company's future
deductions for currently awarded compensation to its executive officers should
be disallowed under this law. However, because the Internal Revenue Service has
not yet promulgated final interpretative regulations, the Company cannot
determine the law's impact with complete certainty. The Committee intends to
review this issue periodically.
CEO Compensation. Mr. Snell's annual salary level and initial equity
participation (stock option and restricted stock awards) were negotiated in
January of 1990 as part of the employment agreement summarized on page 14. In
those negotiations, the compensation levels and equity participation he was
leaving behind at his former employer were taken into account, along with then
prevailing practices at Pinnacle West.
In the five years that Mr. Snell has been with the Company, he has received
a single base salary increase of 3%. Consistent with its compensation
philosophy, the Committee has, instead, emphasized reward-for-performance
through the bonus plan and equity participation grants.
The foregoing report of the Human Resources Committee is provided
by its members: Ms. Grant (Chairman), Ms. Hesse and Messrs. Norton,
Soldwedel and Wall.
STOCK PERFORMANCE COMPARISONS
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
1989 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.
PNW DJ Equity EEI 100
12/31/89 100.00 100.00 100.00
12/31/90 89.89 96.07 101.37
12/31/91 156.18 127.24 130.64
12/31/92 183.15 138.19 140.59
12/31/93 202.92 151.93 156.22
12/31/94 185.62 153.10 138.14
EXECUTIVE COMPENSATION
The following tables on compensation and stock options relate to all of the
executive officers of the Company, including its chief executive officer.
<PAGE>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation
----------------------------
Awards
- -------------------------------------------------------------------------------
Name and Restricted All Other
Principal Stock Compen-
Position Year Salary(1) Bonus Awards(2) Options sation(4)
- -------- ---- --------- ------- ----------- -------- ---------
Michael S. Ash 1994 $116,946 $35,923 $19,000 5,000 $2,984
Corporate Counsel 1993 114,054 22,609 22,125 5,000 3,459
1992 106,615 22,160 19,563 5,000 2,608
Arlyn J. Larson 1994 $131,183 $40,296 $22,800 6,000 $6,200
VP Corporate 1993 128,075 25,361 24,338 5,500 6,128
Planning 1992 126,668 26,416 21,519 5,500 4,737
Nancy E. Newquist 1994 $125,154 $38,894 $22,800 6,000 $3,787
VP & Treasurer 1993 114,054 22,609 22,125 5,000 4,000
1992 103,477 21,480 19,563 5,000 2,876
Henry B. Sargent 1994 $315,180 $135,133 $76,000(3) 20,000 $33,835
Exec. VP & CFO 1993 315,181 92,947 95,138 21,500 34,738
1992 327,302 102,402 84,119 28,500 40,903
Richard Snell 1994 $515,000 $252,350 $114,000 30,000 $29,560
Chairman, 1993 515,000 202,498 110,625 25,000 37,104
President & CEO 1992 534,808 180,000 97,813 32,000 37,699
Faye Widenmann 1994 $116,946 $35,923 $19,000 5,000 $3,139
VP Corporate 1993 114,054 22,609 22,125 5,000 3,407
Administration and 1992 107,595 22,372 19,563 5,000 3,126
Secretary
(1) Employees of the Company are paid every two weeks, which normally results
in their receiving 26 paychecks per year. Approximately once every 11 years
an extra pay period occurs; 1992 was such a year.
(2) The value of the restricted stock is based on the closing price of the
Company's common stock on the date the restricted stock was granted. The
restrictions lapse on most restricted stock awards 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 Human Resources Committee at the time
of grant. Any dividends paid on restricted stock will be held by the
Company until the restrictions lapse. The number and value (at market) of
aggregate restricted shareholdings as of the end of 1994 were: Mr. Ash -
3,000 shares, $58,875; Mr. Larson - 3,400 shares, $66,725; Ms. Newquist -
3,200 shares, $62,800; Mr. Sargent - 12,600 shares, $247,275; Mr. Snell -
16,000 shares, $314,000; and Ms. Widenmann - 3,000 shares, $58,875.
(3) Mr. Sargent, who is 60 years old, has announced his intention to retire
from the Company at the end of June 1995. Upon Mr. Sargent's retirement,
the "time" restriction on his 1994 restricted stock award (4,000 shares)
will lapse.
(4) The figures given in this column for 1994 consist of Company matching
contributions to the Company's employee savings plan: Mr. Ash - $2,609, Mr.
Larson - $3,936, Ms. Newquist - $3,466, Mr. Sargent - $4,864, Mr. Snell -
$0, and Ms. Widenmann - $2,609; the above-market portion of interest
accrued under a deferred compensation plan: Mr. Ash - $224, Mr. Larson -
$282, Ms. Newquist - $151, Mr. Sargent - $727, Mr. Snell - $1,636, and Ms.
Widenmann - $199; premiums paid by the Company for additional term life
insurance: Mr. Ash - $151, Mr. Larson - $1,983, Ms. Newquist - $169, Mr.
Sargent - $4,243, Mr. Snell - $4,674, and Ms. Widenmann - $332; and amounts
paid to Messrs. Sargent and Snell for service as directors of APS in the
amounts of $24,000 and $23,250 respectively.
Option Grants in 1994
- --------------------------------------------------------------------------------
Individual Grants
Percentage of
Options Total Options
Granted Granted to All Exercise Grant Date
in 1994 Employees in Price Expiration Present
Name (Shares)(1) 1994 (per share) Date Value(2)
- ----------------- ----------- ------------- ----------- ---------- ---------
Michael S. Ash 5,000 1.08% $19.00 11/16/2004 $19,000
Arlyn J. Larson 6,000 1.29% $19.00 11/16/2004 $22,800
Nancy E. Newquist 6,000 1.29% $19.00 11/16/2004 $22,800
Henry B. Sargent 20,000 4.32% $19.00 11/16/2004 $50,200
Richard Snell 30,000 6.48% $19.00 11/16/2004 $105,000
Faye Widenmann 5,000 1.08% $19.00 11/16/2004 $19,000
(1) All options were granted on November 16, 1994 and become exercisable at the
rate of one-third of the grant annually starting on November 16, 1995. All
options not already exercisable will become exercisable if an individual
retires on or after the age of 60, as Mr. Sargent intends to do in June
1995. No SARs have been granted.
(2) The Black-Scholes option pricing model was chosen to estimate the options'
value. The basic assumptions used in the model were expected volatility of
.215; risk-free rate of return of 7.74%; dividend yield of 4.5%; and time
to exercise of five years, though in the case of Mr. Sargent and Mr. Snell,
the time to exercise and corresponding risk-free rates of return were two
years, 7.45% and four years, 7.81%, respectively.
<TABLE>
Option Exercises in 1994 and Year-End Values
<CAPTION>
===========================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at Fiscal Year-End at Fiscal Year-End (1)
----------------------------------------------------------------
Shares
Acquired On Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Ash 5,000 $47,500 5,004 10,001 $6,575 $3,229
- ----------------------------------------------------------------------------------------------------------
Arlyn J. Larson 0 0 20,247 11,501 $71,372 $3,864
- ----------------------------------------------------------------------------------------------------------
Nancy E. Newquist 0 0 9,980 11,001 $13,131 $3,854
- ----------------------------------------------------------------------------------------------------------
Henry B. Sargent 0 0 75,190 41,501 $106,520 $12,947
- ----------------------------------------------------------------------------------------------------------
Richard Snell 0 0 337,499 55,001 $2,380,913 $19,270
- ----------------------------------------------------------------------------------------------------------
Faye Widenmann 0 0 12,735 10,001 $19,583 $3,229
==========================================================================================================
(1) The value of options equals the market value of Pinnacle West common stock
at December 31, 1994 ($19.625 per share), minus the exercise price of
options, and includes only those options the exercise price of which was
less than market value at year-end.
</TABLE>
Executive Benefit Plans
Employees' Retirement Plan and Supplemental Excess Benefit Retirement Plan.
The Company maintains a retirement plan and a supplemental excess benefit
retirement plan for employees and employees of certain subsidiaries. The
following table illustrates the annual benefits, calculated on a straight-life
annuity basis, that would be provided under these plans to the Company's
officers who retire at the indicated compensation and longevity levels.
Average Annual Years of Service
-----------------------------------------------------------
Compensation(a) 5(b) 10 20 25(c)
- -------------------------------------------------------------------------------
$ 100,000 $ 15,000 $ 30,000 $ 50,000 $ 60,000
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
750,000 112,500 225,000 375,000 450,000
- ------------
(a) 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 deferred compensation plans, bonuses or incentive pay, the
supplemental excess benefit retirement plan does include, subject to
certain exceptions, these additional components of compensation in addition
to base salary. For purposes of the employee's retirement plan,
compensation in excess of $150,000 (as adjusted for cost-of-living) is
disregarded.
(b) Although years of service begin accumulating on the date of employment,
there is no vesting of interests under the plan until the completion of
five years of service.
(c) Although the maximum number of years used in calculating benefits under the
employees' retirement plan is 33 1/3, a greater maximum benefit is achieved
under the supplemental excess benefit retirement plan after 25 years of
service.
For officers, the Company's supplemental excess benefit retirement plan,
amended effective January 1, 1994, provides enhanced benefits. Benefits payable
under this plan that are in excess of the benefits payable under the Company's
retirement plan (which, as a qualified defined benefit pension plan, is limited
pursuant to the Internal Revenue Code), are payable from the general assets of
the Company. The number of credited years of service for each of the individuals
named on page 9 and their 1994 remuneration covered by plans of the Company are
as follows: Mr. Ash -- 10 years, $139,909; Mr. Larson -- 14 years, $156,941; Ms.
Newquist -- 8 years, $149,609; Mr. Sargent -- 33 1/3 years, 408,127; Mr. Snell
- -- 5 years (see description of Mr. Snell's employment agreement on page 14),
$717,498; and Ms. Widenmann -- 17 years, $139,909. The amounts shown in the
table above are not expected to be subject to any reduction or offset for Social
Security benefits or other significant amounts.
Supplemental Executive Benefit Plan. Effective January 1, 1992, the Company
established a supplemental executive benefit plan to provide certain benefits to
directors and officers of the Company and its subsidiaries upon the occurrence
of certain events, which generally include bankruptcy, the sale of substantially
all of the Company's assets, a merger or consolidation in which the Company is
not the surviving entity, certain changes in the composition of the Board of
Directors or someone acquiring 20% or more of the Company's voting stock. Assets
to be used to fund the plan are held in an irrevocable trust.
The plan provides two benefits -- a participant's benefit and an employer's
benefit. The participant's benefit, to be determined annually by the plan's
administrative committee, will be paid in a lump sum to a participant in January
of the year following the date of the occurrence of one of the above mentioned
events, provided that the participant meets certain conditions of employment.
The employer benefit is the amount in the trust that is not needed to pay a
participant's benefit. It will be paid in a lump sum to the Company when one of
the participants terminates employment for reasons which prevent him or her from
qualifying for a participant's benefit, or when there is an asset balance
remaining in the trust after payment of the benefit and such assets are not
necessary to fund any other participant's plan benefits.
Executive Severance Arrangements. The Company has entered into severance
agreements, which are identical in content, with each of its executive officers
except Mr. Snell (see the discussion of his employment agreement on page 14).
These agreements are intended to provide stability in key management of 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 of the officer's annual compensation over
the five years preceding the year of a "change of control") if, during the
three-year period following a change of 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 of control" includes any
change of 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, 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, or the filing of a voluntary or involuntary petition of bankruptcy
(other than for liquidation or dissolution) which is not dismissed within 30
days. 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. Each of the
agreements terminates on December 31st of each year upon six months' advance
notice by the Company to the officer; if the six months' advance notice is not
given, the agreements will continue for successive one-year periods until the
notice is given.
Mr. Snell's Employment Agreement. Mr. Snell and the Company are parties to
an employment agreement setting forth the terms of his employment as President
and Chief Executive Officer of the Company. The agreement was for a term of five
years, beginning on February 5, 1990, and was recently amended to extend his
term of employment by an additional two years. The agreement may be terminated
by Mr. Snell at any time upon 120 days' prior written notice to the Company.
Under the agreement Mr. Snell is entitled to a base salary of $500,000 per year,
subject to periodic appraisal by the Board or a committee thereof, as well as to
such bonus payments as may be declared from time to time by the Board. The
agreement entitles Mr. Snell to participate in the employee benefit plans
generally available to the Company's employees, and in the Company's deferred
compensation plan, supplemental excess benefit retirement plan, and stock option
plan. Mr. Snell is also entitled to a supplemental pension under the agreement.
For purposes of determining his supplemental pension benefits, Mr. Snell's years
of service on February 5, 1990 were assumed to be 29 years, and he will be
credited with an additional year for each year of employment thereafter, not to
exceed 33 1/3 years. The supplemental pension benefit is not payable, however,
if there is a final determination that he has breached the agreement. The
agreement also contains "change of control" benefit provisions which are in all
material respects identical to those contained in the severance agreements
entered into between the Company and each of its other executive officers (see
page 13).
LEGAL PROCEEDINGS
In 1989 a shareholder derivative lawsuit was filed in the United States
District Court for Arizona naming certain of the Company's current and former
directors as defendants. The lawsuit generally alleged breach of fiduciary
duties by the directors in connection with the Company's diversification
activities, and alleged violation of federal securities laws by a former
director in connection with the sale of MeraBank to the Company in 1986. The
plaintiffs requested, on the Company's behalf, unspecified compensatory and
punitive damages. A settlement agreement that would resolve this lawsuit along
with others to which the Company or its officers and directors have been
parties, has been approved by the court. That settlement was appealed by two
non-settling individuals, and in March 1995 the appeals court affirmed the
settlement.
ITEM 2 - SHAREHOLDER PROPOSAL
The Company has been advised that Ms. Jeanne Rossi (owner of record of 300
shares), P.O. Box 249, Boonville, California 95415, intends to present the
following proposal at the 1995 annual meeting. The proposal, for which the Board
of Directors and the Company accept no responsibility, is set forth below. The
Board opposes this proposal for the reasons stated following the proposal.
Proposal Text
"The shareholders of Pinnacle West Capital request the Board of Directors
take the necessary steps to amend the company's governing instruments to adopt
the following: Beginning on the 1996 Pinnacle West Capital fiscal year all
members of the Board of Director's total compensation will be 2000 shares of
Pinnacle West Capital common stock each year. No other compensation of any kind
will be paid."
Shareholder's Supporting Statement
"For many years the Rossi family have been submitting for shareholder vote,
at this corporation as well as other corporations, proposals aimed at putting
management on the same playing field as the shareholders. This proposal would do
just that.
'A few corporations have seen the wisdom in paying directors solely in
stock. Most notably, Scott Paper and Travelers. Ownership in the company is the
American way. We feel that this method of compensation should be welcomed by
anyone who feels they have the ability to direct a major corporation's fortunes.
'The directors would receive 2,000 shares each year. If the corporation
does well, the directors will make more money in the value of the stock they
receive and the dividend that usually rise with more profits. If things go bad,
they will be much more inclined to correct things, because it will be coming
directly out of their pockets. Instead of the way it is done now, where
directors receive the same compensation for good or bad performance.
'In 1988 our dividend was 2.80. It is now 90 cents. It is time for
management to take the same consequences up or down as we shareholders. This
proposal does just that."
Board of Directors' Statement in Opposition
From 1990 to 1993 Ms. Rossi has advanced a number of shareholder proposals
similar to the one that is described above. The proposals all sought to align
the financial interests of directors with those of shareholders by proposing
either that a director must own a certain number of shares of Pinnacle West
common stock in order to qualify as a director, or that common stock comprise at
least part of a director's total compensation. All of Ms. Rossi's prior
proposals received less than 20% of the votes cast.
The Board agrees that the directors' proprietary interest in the Company
should be encouraged; that is why it has always been a requirement that each
director be a shareholder in the Company. That is also why the Board proposed at
the 1994 annual meeting the adoption of a Director Equity Participation Plan, a
substantial purpose of which was to encourage stock ownership by directors and
to provide them with further incentive to work for the best interests of the
Company and its shareholders. That plan received the affirmative vote of
approximately 78% of the votes cast at that meeting and was implemented as of
July 1, 1994 (see discussion of director compensation on page 6).
It is interesting to note that, based upon the closing price of Pinnacle
West common stock on March 24, 1995 ($21 per share), directors would have
received a greater value in 1994 under Ms. Rossi's proposal than they actually
did under the Company's current policy.
Given the relatively small percentage of shareholder votes cast in favor of
Ms. Rossi's proposals over the past several years, and the overwhelming approval
and implementation of the Directors' Equity Participation Plan last year, the
Board believes that shareholders have had ample opportunity to consider the
issue of director compensation, and that they have agreed with the Company's
policies.
THE BOARD THEREFORE RECOMMENDS A VOTE AGAINST THE ABOVE SHAREHOLDER
PROPOSAL.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors to file reports of ownership of Company equity securities
with the Securities and Exchange Commission and the New York Stock Exchange. To
the best of the Company's knowledge, during 1994 its officers and directors
complied with all Section 16(a) filing requirements, except as follows. Mr.
Snell may have been required to file a Form 4, Statement of Changes in
Beneficial Ownership, to report the sale of 3,500 shares of Company common stock
that had been held by a trust created by his late father. Shortly after his
father's death Mr. Snell assumed the shared responsibility of the trust's
investments; however, the co-trustee, a bank, sold the stock and Mr. Snell was
not informed until after the December 10, 1994 filing deadline. Therefore, the
Form 4 was not filed until January 6, 1995. In addition, one Form 4, for Jaron
Norberg, an officer of APS, should have been filed by June 10, 1994, but was not
filed until October 3, 1994.
GENERAL
Cost of Solicitation. The cost of the solicitation of proxies, which will
be by mail, will be borne by the Company. Brokerage houses and others will be
reimbursed for their out-of-pocket expenses in forwarding documents to
beneficial owners of stock.
Auditors. It is contemplated that the Company's financial statements as of
December 31, 1995 and for the year then ended will be examined by Deloitte &
Touche LLP, independent certified public accountants. Representatives of that
firm are expected to be present at the annual meeting with the opportunity to
make a statement if they so desire and to be available to respond to appropriate
questions.
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 common stock
owned as of the 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.
In voting on the shareholder proposal, each shareholder will be entitled to
cast votes equal to the number of shares of common stock owned by the
shareholder as of the Record Date. Approval of the proposal requires the
affirmative vote of a majority of the shares represented at the meeting. Proxies
returned indicating the shareholder's wish to abstain from voting on the
shareholder proposal are considered to be shares present, and such shares will
be used in determining the percentage of shares that voted on the proposal.
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.
Nominations to the Board. A shareholder wishing to propose the nomination
of an individual for election to the Company's Board of Directors must submit
his or her recommendation to the Company in writing, and in accordance with the
applicable provisions of the Company's Articles of Incorporation and Bylaws, so
as to be received by the Office of the Secretary no later than November 24,
1995. Copies of the Company's Articles of Incorporation and Bylaws are available
upon written request delivered to the Office of the Secretary.
Shareholder Proposals For Next Annual Meeting. In order to be considered
for inclusion in the proxy statement and form of proxy relating to the 1996
annual meeting of the Company's shareholders, a proposal intended by a
shareholder for presentation at that meeting must be submitted in accordance
with the applicable rules of the Securities and Exchange Commission and received
by the Company at its principal executive offices on or before December 21,
1995. Proposals to be presented at the annual meeting which are not intended for
inclusion in the proxy statement and form of proxy must be submitted in
accordance with the applicable provisions of the Company's Bylaws, a copy of
which is available upon written request delivered to the Office of the
Secretary. The Company suggests that proponents submit their proposals to the
Office of the Secretary by Certified Mail -- Return Receipt Requested.
Location of Meeting. For those shareholders wishing to attend the annual
meeting, there are maps depicting the location of the Mesa Community Conference
Center printed on the facing pages just inside the back cover of this document.
Adequate free parking should be available.
<PAGE>
PROXY CARD
PINNACLE WEST CAPITAL CORPORATION
P.O. Box 52135
Phoenix, Arizona 85072
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON MAY 17, 1995
The undersigned hereby appoints Richard Snell and Faye Widenmann, and each of
them, proxies for the undersigned, each with full power of substitution, to
attend the Annual Meeting of Shareholders of Pinnacle West Capital Corporation,
to be held May 17, 1995 at ten-thirty 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 and the shareholder proposal
may be indicated on the reverse of this card. Nominees for Director are: Roy A.
Herberger, Jr., Henry B. Sargent and Humberto S. Lopez.
Your vote is important! Please sign and date on the reverse and return promptly
in the enclosed postage-paid envelope.
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 and
AGAINST proposal 2.
The Board of Directors recommends a vote FOR the election of Directors.
1. Election of Directors FOR* WITHHELD
(see other side)
/ / / /
*For all nominees, except vote withheld from the following:
- ----------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposal 2.
2. Shareholder proposal relating to director compensation.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the Proxies are to vote upon such other business as may
properly come before the meeting.
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Signature Date
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Signature Date
Please sign as your name(s) appear to the left.
Joint owners should both sign. Fiduciaries,
attorneys, corporate officers, etc. should state
their capacities.
ANY PROXY GIVEN PREVIOUSLY IS HEREBY REVOKED.
