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. 1)
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 Rule 14a-11(c) or Rule 14a-12
PINNACLE WEST CAPITAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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2) Aggregate number of securities to which transaction applies:
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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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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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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2) Form, Schedule or Registration No.
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4) Date filed:
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<PAGE>
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 20, 1998
To Shareholders:
The 1998 annual meeting of shareholders of Pinnacle West Capital
Corporation will be held at the Orpheum Theatre located at 203 West Adams Street
in Phoenix, Arizona at 10:30 a.m. on Wednesday, May 20, 1998 for the following
purposes:
1) To elect three Class I Directors;
2) To act upon a shareholder proposal relating to nuclear power issues;
and
3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Each of the 84,792,541 shares of the Company's common stock outstanding at
the close of business on March 13, 1998 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. 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.
By order of the Board of Directors
FAYE WIDENMANN
Vice President and Secretary
Approximate date of mailing to shareholders:
April 1, 1998
<PAGE>
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 2001 or until
their successors are elected and qualified. Should one or more of the three
nominees listed below become unavailable to serve prior to the meeting date, the
proxy committee will vote the shares it represents 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 13, 1998. The term "APS" refers to Arizona Public Service Company, the
Company's largest subsidiary.
Nominees
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Nominees for Election as Class I Directors
(Term to expire at 2001 Annual Meeting)
- --------------------------------------------------------------------------------
Roy A. Herberger, Jr., 55, has been a director since 1992. He has been President
of the American Graduate School of International Management (Thunderbird) since
1989. Mr. Herberger is also a director of Pilgrim America Capital Corporation
and MicroAge, Inc.
George A. Schreiber, Jr., 49, has been a director since February 1997. Mr.
Schreiber was elected to the positions of Executive Vice President and Chief
Financial Officer of both the Company and APS as of February 1997. From 1990 to
January 1997 he was Managing Director at PaineWebber, Inc. He is also a director
of APS.
Humberto S. Lopez, 52, has been a director since May 1995. He is President of
HSL Properties (real estate development and investment), Tucson, Arizona. Mr.
Lopez is also a director of Bank of Tucson and Sun Community Bancorp.
2
<PAGE>
Directors Continuing in Office
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Class II Directors
(Term to expire at 1999 Annual Meeting)
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John R. Norton III, 68, 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
reelected as a director of the Company. Mr. Norton is also a director of Aztar
Corporation, Terra Industries Inc., Apollo Group, Inc. and APS.
William J. Post, 47, has been a director since February 1997. In February 1997
he assumed the position of President of Pinnacle West after having served as its
Executive Vice President since June 1995. He has also been the President and
Chief Executive Officer of APS since February 1997. He had been APS' Chief
Operating Officer since September 1994, as well as a Senior Vice President since
June 1993. Prior to that time, he had served as a Vice President and officer of
APS since 1982. Mr. Post is also a director of APS.
Douglas J. Wall, 70, has been a director since 1985. He is of counsel to the law
firm of Mangum, Wall, Stoops & Warden. Mr. Wall is past President of the Arizona
Board of Regents.
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Class III Directors
(Term to expire at 2000 Annual Meeting)
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Pamela Grant, 59, 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, 55, has been a director since 1991. She is President of Hesse
Gas Company. 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 Mutual Trust
Life Insurance Company, Laidlaw Inc. and APS.
William S. Jamieson, Jr., 54, has been a director since 1991. Since January 1996
he has been Vice President of the Institute for Servant Leadership of Asheville,
NC and an Adjunct Member of the Bishop's staff of the Episcopal Diocese of
Arizona. Prior to that he was Archdeacon of the Episcopal Diocese of Arizona.
Richard Snell, 67, has been a director since 1985. He has been Chairman of the
Board and Chief Executive Officer of the Company and Chairman of the Board of
APS since February 1990. Until February 1997 he was also President of the
Company. He is also a director of Aztar Corporation, Banc One Arizona
Corporation and Central Newspapers, Inc.
3
<PAGE>
CERTAIN SECURITIES OWNERSHIP
As of March 13, 1998, shares of the Company's common stock beneficially
owned by the indicated persons or groups were as follows:
Shares
Beneficially Percent
Owned (1) of Class
--------- --------
Non-Employee Directors and Nominees
- -----------------------------------
Pamela Grant 27,300
Roy A. Herberger, Jr. 2,500
Martha O. Hesse 17,400
William S. Jamieson, Jr. (2) 4,615
Humberto S. Lopez (2) 4,576
John R. Norton III (2) 30,000
Douglas J. Wall 29,205
Employee Directors and Officers
- -------------------------------
William J. Post 87,368
George A. Schreiber, Jr. 25,900
Richard Snell 476,418
Other Officers Named on Page 9
- ------------------------------
Michael S. Ash 13,951
Arlyn J. Larson (2) 15,332
All directors, nominees and executive
officers as a group (15 persons) (2) 778,690 0.92%
------------------------------------
5% Beneficial Owners (3)
- ------------------------
Wellington Management Company, LLP 6,852,327 8.09%
75 State Street
Boston, MA 02109
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(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 Mr. Wall; 17,500
for Mr. Norton; 14,000 for Ms. Hesse; 56,499 for Mr. Post; 2,000 for Mr.
Schreiber; 417,499 for Mr. Snell; 1,666 for Mr. Larson; and 577,605 for all
directors and officers as a group. In the case of officers, this also
includes shares of restricted stock and vested shares in the Company's
employees' savings plan as of December 31, 1997.
(2) Includes in the cases of: Mr. Jamieson, 615 shares held by his wife; Mr.
Lopez, 4,576 shares held in a family trust in which voting power is shared;
Mr. Norton, 500 shares held by his wife
4
<PAGE>
and 2,000 shares held in a trust for Mr. Norton's late mother for which he
serves as trustee; Mr. Larson, 6,013 shares held in a family trust in which
voting power is shared; and the group, 13,704 shares as to which voting or
investment power is shared with others.
(3) A Schedule 13G filing with the Securities and Exchange Commission as of
December 31, 1997 reporting shared voting power as to 3,139,540 shares and
shared dispositive power as to 6,852,327 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 twelve times during 1997. 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 three times in 1997; its members were Ms. Hesse and Messrs.
Herberger, Jamieson, Lopez 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 16 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 three times
in 1997.
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.
The Company has a directors' retirement plan which provides, with certain
exceptions, to non-employee directors over the age of 65, upon their retirement
from the Board, an annual payment of $12,000. The length of time to which a
non-employee director is entitled to receive this benefit is limited to the
number of years he or she served on the Board prior to age 65.
5
<PAGE>
HUMAN RESOURCES COMMITTEE REPORT
The Pinnacle West Human Resources Committee, composed solely of outside
directors, is responsible for making decisions regarding executive compensation.
Three of the Company's officers (Messrs. Post, Schreiber and Palmeri) also hold
executive positions with APS, and the APS human resources committee has salary
and bonus responsibilities with respect to them as specifically discussed below;
therefore, some of the general commentary regarding officer compensation does
not fully apply to them.
The Committee's overall compensation philosophy is to (i) attract and
retain qualified individuals critical to the Company's success, (ii) reinforce
enterprise objectives through the use of performance-based compensation programs
and (iii) promote long-term stock ownership by executives and directors.
The Committee applies its own compensation philosophy (and specifically its
bias toward rewarding performance) to comparative information provided by
independent consultants selected by the Committee. In 1997 information was
provided for a number of other organizations engaged primarily in the electric
utility business and having characteristics similar to the Company. In addition,
information was provided for a general industry group consisting of companies of
similar size.
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, and applies these views to the
information provided by its consultants.
Base Salaries. Base salaries for Company officers who served throughout
1997 were at or below median salaries in the utility group and considerably
below those in the general industry group. A salary increase of 7.6% to Ms.
Widenmann (for a market adjustment) was the only change made in 1997 to officer
salaries.
Bonuses. Cash bonuses payable for any year are predicated on weighted,
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
judgement is called for by the bonus plan.
For 1997 the determinants of bonus levels, in order of importance, were
per-share earnings, 1998 budgeted per-share earnings, and matters related to
utility industry restructuring.
At the end of the year the Committee awarded an attainment factor to each
objective based upon the degree to which it was accomplished. The Committee then
totaled the weighted individual attainment factors to produce a composite
attainment factor common to all officers and multiplied that by a predetermined
percentage of salary (60% for Mr. Snell and 30% for all other officers) to
determine actual bonuses. The bonuses so arrived at and paid reflect a composite
attainment factor approximately midway between the target and the maximum levels
in the 1997 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 makes systematic grants of stock options and restricted
stock to officers and key management employees of
6
<PAGE>
Pinnacle West and its subsidiaries in order that they may participate in those
rewards through stock ownership. This program is generally competitive with
long-term incentive practices in the utility industry, but less so with those in
the general industry group. Given the changes in the utility industry, the
Committee pays increasing attention to trends within the general industry group.
The Committee 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 predetermined periods of
time.
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 individual grants are then determined by
bringing the recipient's total compensation to a target level relative to the
comparator groups, provided that the stock performs as assumed. The actual
per-share size of individual grants was reduced in 1997 because appreciation in
the Pinnacle West stock price allowed the Committee to deliver the same value to
executives with fewer shares.
Tax Consideration. Publicly-traded corporations generally are not 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 definition of
"performance-based," and limited amounts of compensation could therefore not be
deductible.
Mr. Snell. Mr. Snell's salary has not been changed for several years.
Consistent with its compensation philosophy, the Committee has, instead,
emphasized reward-for-performance through the bonus plan and equity
participation grants to him.
Messrs. Post, Schreiber and Palmeri . Although these individuals are
executive officers of the Company, their compensation is paid by APS and is
based upon their positions at APS. Cash compensation comparisons are made, and
bonus goals are established for officers of APS by its board's human resources
committee, which shares the compensation philosophies described above. The
equity participation for these individuals is determined by the Pinnacle West
Human Resources Committee in the same manner as for other executive officers of
the Company and its subsidiaries.
The foregoing report of the Human Resources Committee is provided by its
members: Ms. Grant (Chairman), Ms. Hesse and Messrs. Lopez, Norton and Wall.
7
<PAGE>
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
1992 in Pinnacle West stock and in the market represented by each of two indices
(the S&P 500 Index and the Edison Electric Institute Index of 100 Investor-Owned
Electrics), and that any dividends were reinvested.
Pinnacle West EEI 100 S&P 500
------------- ------- -------
12/31/92 $ 100.00 $ 100.00 $ 100.00
12/31/93 110.80 111.15 109.92
12/31/94 101.27 98.29 111.34
12/31/95 153.12 128.78 152.66
12/31/96 174.56 130.32 187.28
12/31/97 239.16 166.00 249.28
8
<PAGE>
EXECUTIVE COMPENSATION
The following tables on compensation and stock options relate to the five
most highly compensated executive officers of the Company for services rendered
in all capacities to the Company and its subsidiaries.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
- -----------------------------------------------------------------------------------------------------------------------
Other
Name and Annual Restricted
Principal Compen- Stock All Other
Position Year Salary Bonus sation Awards (1) Options Compensation (2)
- -------- ---- ------ ----- -------- ---------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael S. Ash 1997 $130,000 $51,363 $29,813 3,750 $5,078
Corporate Counsel 1996 128,587 47,125 26,724 4,250 4,651
1995 120,278 44,582 23,324 4,250 5,865
Arlyn J. Larson 1997 $150,000 $59,265 $0 0 $8,512
VP Corporate Planning 1996 147,774 54,375 31,440 5,000 9,138
1995 134,921 50,010 27,440 5,000 9,754
William J. Post (3) 1997 $420,834 $171,000 $131,175 16,500 $11,949
President of Company and 1996 325,000 165,100 106,896 17,000 11,015
President & CEO of APS 1995 287,500 175,500 93,296 17,000 12,229
George A. Schreiber, Jr. 1997 $333,807 $124,875 $220,102(4) $145,053 19,500 $226,677
Exec. VP and CFO of Company
and of APS (3)
Richard Snell (3) 1997 $515,000 $406,953 $298,125 20,000 $44,866
Chairman & CEO 1996 515,000 373,375 314,400 25,000 47,063
1995 515,000 380,070 137,200 25,000 53,482
</TABLE>
(1) 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 1997 were: Mr. Ash -
2,450 shares, $103,819; Mr. Larson - 2,000 shares, $84,750; Mr. Post -
10,426, $441,802; Mr. Schreiber - 3,900 shares, $165,263 and Mr. Snell -
22,500 shares, $953,438.
(2) The figures given in this column for 1997 consist of Company matching
contributions to the Company's employees' savings plan: Mr. Ash - $3,630,
Mr. Larson - $4,500, Mr. Post - $4,750, Mr. Schreiber - $0 and Mr. Snell -
$0; the above-market portion of interest accrued under a deferred
compensation plan: Mr. Ash - $1,363, Mr. Larson - $2,698, Mr. Post -
$4,893, Mr. Schreiber - $0 and Mr. Snell - $7,636; premiums paid by the
Company for additional term life insurance: Mr. Ash - $85, Mr. Larson -
$1,314, Mr. Post - $2,306, Mr. Schreiber - $1,088 and Mr. Snell - $8,580;
relocation expenses of $225,589 on behalf of Mr. Schreiber and $28,650 paid
to Mr. Snell for service as a director of APS.
(3) Mr. Post was elected President of the Company and President and Chief
Executive Officer of APS effective February 1997. Mr. Snell resigned as
President of the Company in February 1997; he remains Chairman of the Board
and Chief Executive Officer. Mr. Schreiber was elected Executive Vice
President and Chief Financial Officer of the Company and of APS effective
February 3, 1997.
(4) The figure shown in this column represents the reimbursement of taxes on
income that was charged to Mr. Schreiber due to the reimbursement of
relocation expenses
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<PAGE>
Option Grants in 1997
<TABLE>
<CAPTION>
Percentage of
Options Total Options
Granted Granted to All Exercise Grant Date
in 1997 Employees in Price Expiration Present
Name (Shares)(1) 1997 (per share) Date Value(2)
- ---- ----------- ------ ----------- ---- --------
<S> <C> <C> <C> <C> <C>
Michael S. Ash 3,750 1.43% $39.75 12/17/07 $22,013
Arlyn J. Larson 0 0% N/A N/A $0
William J. Post 16,500 6.33% $39.75 12/17/07 $96,855
George A. Schreiber, Jr. 6,000 2.30% $31.44 2/3/07 $26,100
13,500 5.18% $39.75 12/17/07 79,245
Richard Snell 20,000 7.67% $39.75 12/17/07 $66,600
</TABLE>
(1) All options were granted on December 17, 1997 except for a 6,000 share
grant made to Mr. Schreiber on February 3, 1997 as an inducement to accept
a position with the Company. All grants become exercisable at the rate of
one-third of the grant annually. All options not already exercisable will
become exercisable if an individual retires on or after the age of 60. No
SARs have been granted.
(2) The Black-Scholes option pricing model was chosen to estimate the present
value. The basic assumptions used in the model were expected volatility of
15.6%; risk-free rate of return of 5.66%; dividend yield of 3.71%; and time
to exercise of five years, though in the case of Mr. Snell, the time to
exercise and corresponding risk-free rate of return were one and one-half
years and 5.65% respectively.
Option Exercises in 1997 and Year-End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-The-Money Options
at Fiscal Year-End at Fiscal Year-End (2)
------------------ ----------------------
Shares
Acquired on Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Ash 4,750 $41,323 4,500 8,001 $75,894 $62,496
Arlyn J. Larson 12,215 $143,477 1,666 5,001 $18,321 $61,666
William J. Post 4,937 $53,517 56,499 33,501 $1,154,778 $253,980
George A. Schreiber, Jr. 0 $0 0 19,500 $0 $102,266
Richard Snell 0 $0 417,499 45,001 $11,633,180 $362,034
</TABLE>
(1) Value of options exercised is the market value of the shares on the
exercise date minus the exercise price.
(2) The value of unexercised options equals the market value of Pinnacle West
common stock on December 31, 1997 ($42.375 per share) minus the exercise
price of options.
10
<PAGE>
EXECUTIVE BENEFIT PLANS
All of the plans described below relate to the Company. Messrs. Post and
Schreiber are covered by executive benefit plans provided by APS; however, those
plans are substantially identical to the plans described for the Company, and
the benefits provided to them would be the same as if they were participants in
the Company's plans.
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 the
Company's officers who retire at age 65 or later at the indicated compensation
and years of service levels.
<TABLE>
<CAPTION>
Years of Service
Average Annual -------------------------------------------------------------------------
Compensation (a) 5(b) 10 20 25
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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
300,000 45,000 90,000 150,000 180,000
400,000 60,000 120,000 200,000 240,000
500,000 75,000 150,000 250,000 300,000
600,000 90,000 180,000 300,000 360,000
700,000 105,000 210,000 350,000 420,000
800,000 120,000 240,000 400,000 480,000
900,000 135,000 270,000 450,000 540,000
1,000,000 150,000 300,000 500,000 600,000
</TABLE>
- --------
(a) Compensation under the retirement plan consists solely of base salary up to
$160,000 (as adjusted for cost-of-living), including any amounts
voluntarily deferred under the Company's 401(k) 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 plus base salary beyond the $160,000
limit.
(b) Although years of service begin accumulating on the date of employment,
benefits do not vest until the completion of five years of service.
The Company's Supplemental Excess Benefit Retirement Plan 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
11
<PAGE>
credited years of service for each of the individuals named on page 9 and their
1997 remuneration covered by the Company's plans are as follows: Mr. Ash - 13
years, $177,125; Mr. Larson - 24 years (see description of Mr. Larson's
agreement below), $204,375; Mr. Post - 25 years, $585,934; Mr. Schreiber - 11
years (see description of Mr. Schreiber's agreement below), $333,807 and Mr.
Snell - 37 years (see description of Mr. Snell's employment agreement below),
$888,375. 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.
Employment and Severance Arrangements. Mr. Snell and the Company are
parties to an employment agreement setting forth the terms of his employment as
Chief Executive Officer of the Company. The agreement was for a term of five
years, beginning on February 5, 1990, and was amended twice, each time to extend
his term of employment by two additional 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 Company 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 was credited
with an additional year for each year of employment thereafter, up to 33 1/3
years. Mr. Snell's credited years of service disclosed above (37) include the 29
years of awarded service. 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,
discussed below, between the Company and each of its other executive officers.
In an effort to attract and retain senior management critical to the
success of the Company, certain officers were provided with special deferred
compensation agreements under which they will be credited with additional years
of service for purposes of determining their retirement benefits. Under Mr.
Schreiber's agreement, to make up for the retirement benefits he lost as a
result of his decision to accept employment as an officer of the Company, he
will receive deferred compensation equal to the difference between his actual
pension benefit and the pension benefit that he would have been entitled to
receive upon his retirement if his actual "years of service" were increased by
ten. Under Mr. Larson's agreement, to give him an incentive to defer his
retirement until the end of a transitional period during which he is assisting
his replacement, he will receive deferred compensation equal to the difference
between his actual pension benefit and the pension benefit that he would have
been entitled to receive upon his retirement if his actual "years of service"
were increased by six.
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 above). 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
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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.
Effective January 1, 1992 the Company established a deferred compensation
plan for directors and officers of the Company. Effective January 1, 1996 the
Company established a revocable trust for the purpose of funding the benefits
under the deferred compensation plan. Upon the occurrence of certain events,
which generally include 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 percent or more of the Company's voting stock, the trust will
become irrevocable and the Company will be required to fully fund the benefits
earned under the deferred compensation plan within 60 days after the occurrence
of that event.
ITEM 2 - SHAREHOLDER PROPOSAL
The Company has been advised that the Arizona Safe Energy Coalition (owner
of record of 42.75 shares), c/o Betty Schroeder, 5349 West Bar X Street, Tucson,
Arizona 85713 intends to present the following proposal at the 1998 annual
meeting. The proposal and supporting statement, for which the Board of Directors
and the Company accept no responsibility, are set forth below. The Board opposes
this proposal for the reasons stated on page 14.
"REFUSE PLUTONIUM FUEL & TRITIUM PRODUCTION AT PALO VERDE I, II, & III
"Whereas:
"The Department of Energy (DOE) plans to dispose of surplus weapons plutonium by
immobilization in ceramics and possibly as plutonium/uranium oxide (MOX) fuel
for commercial reactors;
"The DOE is also seeking a commercial reactor to produce tritium for nuclear
warheads;
"Arizona Public Service has expressed interest in both options; and
"We strongly oppose both because we believe both would: (1) violate the barrier
between nuclear power and nuclear weapons, and (2) generate great quantities of
radioactive waste, exacerbating the already critical, unresolved problems of
radioactive waste storage. In addition, MOX fuel would (1) still be
weapons-usable, so would require heavy security in transit and at reactors; (2)
be more costly for fuel fabrication and reactor operation, (3) be too dangerous
because it would be more hazardous to control during fissioning in reactors,
increasing operating risks and
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<PAGE>
component aging; (4) fail to reduce the quantity of plutonium since as much new
plutonium would be generated during fissioning; (5) spread plutonium more widely
than if immobilized directly; and (6) increase the likelihood of locking the
U.S. and the world into a deadly plutonium economy;
"THEREFORE BE IT RESOLVED that the shareholders request the Company to establish
a firm policy to: 1) refuse to use MOX fuel; 2) refuse to generate tritium; and
3) reaffirm the barrier between nuclear power and nuclear weapons."
Shareholder's Supporting Statement.
MOX: Its increased operating risks pose grave dangers of accidents, with
significant negative financial impact on Pinnacle West Capital Corporation.
Weapons plutonium cannot be fissioned directly, but must undergo complicated and
dangerous processing, creating additional radioactive waste. European experience
with MOX fuel is not comparable since theirs is from reprocessed commercial
reactor wastes; none has used weapons plutonium. European reprocessing
corporations are the driving force of MOX fuel, though public support has
dropped. The U.S. should lead Europe and Russia in improving immobilization for
all weapons plutonium.
TRITIUM: The DOE estimates that reactors making tritium would generate three
times more volume of highly radioactive waste and 50% more low level waste than
normal reactor operations. Current need for tritium is unproven. Resuming
tritium production implies the U.S. plans to maintain a nuclear arsenal
indefinitely, counter to our treaty obligations.
BOTH: With Palo Verde I, II, and III's records of violations, fines and safety
problems, the necessary relicensing approval may be difficult to obtain.
Electric utility deregulation and the resulting cost-cutting by utilities
further shakes public confidence in Arizona Public Service's ability to maintain
safety and security for either MOX or tritium operations.
Radiation health scientist Dr. John Gofman warns of public health risks of
cancer and genetic damage from radiation. The safety of hundreds of future
generations depends upon the careful isolation of radioactive materials from the
biosphere. Use of weapons plutonium and generation of weapons tritium in
commercial reactors would create a dangerous precedent. For safety,
environmental, economic and security reasons, we urge your supporting vote for
this proposal.
Board of Directors' Statement in Opposition
Although the Company is fully supportive of the proponent's ideals of
supporting environmental safety, the allegations contained in the proposal and
its accompanying supporting statement are misleading and in many circumstances
factually inaccurate.
By the Department of Energy's own account, the MOX fuel program is designed
to support U.S. nuclear weapons nonproliferation policy by reducing global
stockpiles of excess fissile materials. The net effect of burning MOX fuel is a
reduction in the total amount of weapons-usable plutonium. Indeed, the
fundamental purpose of the MOX fuel program is to ensure that plutonium once
produced for nuclear weapons is never again used for such weapons. While it is
true that weapon-grade material may be obtained from MOX fuel, it is not
accurate to say that MOX fuel is readily "weapons-usable." Complex chemical
reprocessing would be required to obtain "weapons-usable" material from MOX
fuel.
As such, MOX fuel should provide no more of a security risk than normal
nuclear fuels.
14
<PAGE>
Additionally, the DOE's own studies show that no additional spent fuel wastes
are produced by virtue of using fuel fabricated from excess plutonium. Companies
such as APS are at the forefront of efforts to reduce radioactive waste, and
APS, in particular, has long had in place a successful program and continues to
meet its goals for reducing generation of radioactive waste as well as hazardous
and mixed wastes. Additionally, the Company knows of no support for the
proponent's assertion that reactors making tritium would generate three times
more volume of highly radioactive waste and 50% more low level waste than normal
reactor operations.
As to the proponent's assertions of increased operating costs and
significant negative financial impact to the Company, any additional operating
costs of actually using MOX fuel would be borne by the government. The proponent
also ignores the fact that the Company's decisions to participate in new
ventures are based, in part, upon a careful cost-benefit analysis which takes
into account all expected costs, risks and anticipated returns.
With respect to the proponent's reference to APS' "records of violations,
fines and safety problems," APS continues to be one of the top performers in the
U.S. nuclear industry in terms of regulatory safety as indicated by reviews of
the Nuclear Regulatory Commission and the Institute for Nuclear Power Operation.
Also, in 1996, in recognition of its outstanding performance, APS received the
Edison Award for industrial safety.
The Board does not feel that it is in the shareholders' best interest to
adopt policies that limit the Company's ability to explore new ventures,
including those discussed in the proponent's proposal, that could ultimately
prove beneficial to the Company and its shareholders, especially in the new
competitive business environment we find ourselves entering.
THE BOARD THEREFORE RECOMMENDS A VOTE AGAINST THE ABOVE SHAREHOLDER PROPOSAL.
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.
Independent Public Accountants. It is anticipated that the Company's
financial statements as of December 31, 1998 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 March 13, 1998 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 entiled to
cast a number of
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<PAGE>
votes equal to the number of shares of common stock owned by such shareholder as
of the record date. 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 21,
1998. 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 1999
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 2, 1998.
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.
16
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Pinnacle West Capital Corporation
P.O. Box 52135
Phoenix, Arizona 85072
April 1, 1998
Dear Shareholders:
The 1998 Annual Meeting of Shareholders of Pinnacle West
Capital Corporation will be held at the Orpheum Theatre, 203
West Adams Street, Phoenix, Arizona on May 20, 1998 at 10:30
a.m. Mountain Standard Time. At the meeting shareholders
will be asked to elect three Class I Directors to serve
until the 2001 Annual Meeting and vote on a shareholder
proposal.
Your vote is important. Whether or not you plan to attend
the meeting, please review the enclosed proxy statement,
complete the proxy form below and return it promptly in the
envelope provided.
Sincerely,
Faye Widenmann
Vice President and Secretary
- --------------------------------------------------------------------------------
PROXY FORM Pinnacle West Capital Corporation PROXY FORM
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the
Annual Meeting on May 20, 1998.
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 20, 1998 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. The
proxies of the undersigned may vote according to their discretion on
any other matter that may properly come before the meeting.
Voting with respect to the election of Directors may be indicated on
the reverse of this card. Nominees for Director are: Roy A. Herberger,
Jr., George A. Schreiber, Jr. and Humberto S. Lopez.
This proxy will be voted as specified on the reverse. If no
specification is made, this proxy will be voted FOR the election
of Directors and AGAINST the shareholder proposal.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the election | The Board of Directors recommends a vote AGAINST
of Directors. | Item 2.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR* WITHHOLD | FOR AGAINST ABSTAIN
1. Election of Directors [ ] [ ] | 2. Shareholder proposal
(see other side) | relating to nuclear issues [ ] [ ] [ ]
|
*For all nominees, except vote withheld from the following:| ------------------------------------------------------------
|
_________________________________________________________ |
|
- -----------------------------------------------------------|
_________________________________________________________
Signature Date
_________________________________________________________
Signature Date
Please sign as your name(s) appears. Joint owners should
both sign. Fiduciaries, attorneys, corporate officers,
etc. should state their capacities.
Any proxy given previously is hereby revoked.
</TABLE>
- --------------------------------------------------------------------------------
Fold and detach Fold and detach
Attending the Meeting
For those shareholders wishing to attend the meeting, the map below shows the
location of the Orpheum Theatre and the parking lots that have been made
available for your use. This stub from your proxy will serve as your parking
validation, but it will only be accepted at those parking locations shown below.
[MAP AND LEGEND]
THIS STUB IS YOUR PINNACLE WEST PARKING PASS
