SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT 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
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] 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, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
[ ] Fee paid previously with preliminary materials:
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[ ] 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 Statement No.:
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3) Filing Party:
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4) Date Filed:
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PINNACLE WEST CAPITAL CORPORATION
Post Office Box 52132
PHOENIX, ARIZONA 85072-2132
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
WEDNESDAY, MAY 19, 1999
To Shareholders:
The 1999 annual meeting of shareholders of Pinnacle West Capital
Corporation will be held at the Wigwam Resort located at 300 Wigwam Boulevard,
in Litchfield Park, Arizona at 10:30 a.m. on Wednesday, May 19, 1999 for the
following purposes:
1) To elect three Class II Directors;
2) To act upon a shareholder proposal related to nuclear power; and
3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Each of the 84,644,979 shares of the Company's common stock outstanding at
the close of business on March 12, 1999 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 judgment.
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, 1999
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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 II directors are to be elected this year to serve as members of
the Board of Directors until the annual meeting of shareholders in 2002 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 II.
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 12, 1999. The term "APS" refers to Arizona Public Service Company, the
Company's largest subsidiary.
NOMINEES
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NOMINEES FOR ELECTION AS CLASS II DIRECTORS
(TERM TO EXPIRE AT 2002 ANNUAL MEETING)
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EDWARD N. BASHA, 61, is Chairman of the Board of Bashas' supermarket chain and
an Arizona civic leader dedicated to multiple community projects. He is also a
director of Samaritan Health Services and the Arizona Ecumenical Foundation.
MICHAEL L. GALLAGHER, 54, is an attorney-at-law and president of Gallagher &
Kennedy, P.A., Phoenix, Arizona. Mr. Gallagher is also a director of APS and the
Omaha World-Herald Company, and he is a Trustee of the Peter Kiewit Foundation.
WILLIAM J. POST, 48, has been a director since February 1997. In February 1999
he assumed the position of Chief Executive Officer of the Company, after having
served as its President since February 1997. Prior to that he served as the
Company's Executive Vice President since June 1995. Mr. Post was elected
President and Chief Executive Officer of APS in 1997. In October 1998, he
resigned as APS' President and maintained the position of Chief Executive
Officer. He was APS' Chief Operating Officer since September 1994, as well as a
Senior Vice President since June 1993. Prior to that time, he served as a Vice
President and officer of APS since 1982. Mr. Post is also a director of APS and
Blue Cross-Blue Shield of Arizona.
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DIRECTORS CONTINUING IN OFFICE
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CLASS III DIRECTORS
(TERM TO EXPIRE AT 2000 ANNUAL MEETING)
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PAMELA GRANT, 60, 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 CEO of Goldwaters Department Stores
(general mercantile), a division of May Department Stores, from January 1987 to
April 1988. Prior to that, she was President, Chairman and CEO of Goldwaters
Department Stores, a division of Associated Dry Goods, from November 1978 to
January 1987.
MARTHA O. HESSE, 56, 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 Aqua Alliance,
Inc., Laidlaw Inc., Mutual Trust Life Insurance Company, and APS.
WILLIAM S. JAMIESON, JR., 55, has been a director since 1991. Since January
1999, he has been President of the Institute for Servant Leadership of
Asheville, North Carolina. Prior to that, he was Vice President of the Institute
of Servant Leadership and an Adjunct Member of the Bishop's staff of the
Episcopal Diocese of Arizona. Formerly, he was also the Archdeacon of the
Episcopal Diocese of Arizona.
RICHARD SNELL, 68, has been a director since 1985. He has been Chairman of the
Board of the Company and Chairman of the Board of APS since February 1990. Until
February 1999, he was also Chief Executive Officer of the Company and he was
Company President until February 1997. He is also a director of Aztar
Corporation and Central Newspapers, Inc.
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CLASS I DIRECTORS
(TERM TO EXPIRE AT 2001 ANNUAL MEETING)
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ROY A. HERBERGER, JR., 56, has been a director since 1992. He has been President
of Thunderbird, The American Graduate School of International Management, since
1989. Mr. Herberger is also a director of MicroAge, Inc. and Pilgrim America
Capital Corporation.
GEORGE A. SCHREIBER, JR., 50, 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. In February
1999 he was elected President of the Company and continues to serve as the
Company's Chief Financial Officer and Executive Vice President and Chief
Financial Officer of APS. From 1990 to January 1997 he was Managing Director at
PaineWebber, Inc. He is also a director of APS.
HUMBERTO S. LOPEZ, 53, 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, Sun Community Bank and TransAmerica
Holdings LLC.
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CERTAIN SECURITIES OWNERSHIP
As of March 12, 1999, 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
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NON-EMPLOYEE DIRECTORS AND NOMINEES
Edward N. Basha (2) 500
Michael L. Gallagher (2) 991
Pamela Grant 26,000
Roy A. Herberger, Jr 3,000
Martha O. Hesse 17,400
William S. Jamieson, Jr. (2) 5,115
Humberto S. Lopez (2) 6,731
John R. Norton III (2) (3) 30,633
Douglas J. Wall (3) 18,705
EMPLOYEE DIRECTORS AND OFFICERS
William J. Post 106,742
George A. Schreiber, Jr 35,341
Richard Snell 516,585
OTHER OFFICERS NAMED ON PAGE 10
Jack E. Davis 39,873
William L. Stewart (2) 37,177
ALL DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP (17 PERSONS) (2) 895,930 1.06%
5% BENEFICIAL OWNERS
Mellon Bank Corporation (4) 4,588,798 5.42%
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258-0001
Wellington Management Company, LLP (4) 8,037,648 9.49%
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: 17,833 for Mr. Davis; 24,500 for Ms. Grant;
14,000 for Ms. Hesse; 17,500 for Mr. Norton; 73,333 for Mr. Post; 8,500 for
Mr. Schreiber; 462,500 for Mr. Snell; 14,000 for
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Mr. Wall; and 656,609 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 February 26, 1999.
(2) Includes in the cases of: Mr. Basha, 500 shares held in joint tenancy with
his wife; Mr. Gallagher, 991 shares held in joint tenancy with his wife;
Mr. Jamieson, 2,115 shares held in a family trust in which voting power is
shared; Mr. Lopez, 5,231 shares held in a family trust in which voting
power is shared; Mr. Norton, 500 shares held by his wife and 2,000 shares
held in a trust for Mr. Norton's late mother for which he serves as
trustee; Mr. Stewart, 18,353 shares held in joint tenancy with his wife;
and the group, 28,122 shares as to which voting or investment power is
shared with others.
(3) Messrs. Norton and Wall, at mandatory retirement age, are not standing for
re-election as directors.
(4) Mellon Bank Corporation's amended Schedule 13G filing with the Securities
and Exchange Commission as of February 24, 1999 reported sole voting power
as to 3,931,691 shares, shared voting power as to 37,643 shares, sole
dispositive power as to 4,438,662 shares and shared dispositive power as to
75,442 shares. Wellington Management Company's amended Schedule 13G filing
with the Securities and Exchange Commission as of February 10, 1999
reported shared voting power as to 4,100,302 shares and shared dispositive
power as to 8,037,348 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 1998. 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 two times in 1998; 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 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 two times in
1998.
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 own 500 shares in advance of his or her first year on
the board, and that ownership requirement increases by 500 shares annually until
it reaches 2,500 shares. Non-employee directors also receive $900 for each board
meeting attended and $700 for each committee meeting attended.
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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.
HUMAN RESOURCES COMMITTEE REPORT
THE COMMITTEE'S RESPONSIBILITIES
The Pinnacle West Human Resources Committee, composed solely of outside
directors (the "Committee") is responsible for compensation decisions regarding
Pinnacle West executive officers. The APS Human Resources Committee (the "APS
Committee") initially is responsible for salary and bonus decisions for Messrs.
Davis and Stewart (who are APS officers) and for Messrs. Post and Schreiber (who
are officers of both Pinnacle West and APS). However, the Committee reviews the
APS Committee's compensation decisions and is responsible for all stock-based
compensation.
PHILOSOPHY
The Committee's overall compensation philosophy is to attract, retain,
and reward qualified individuals critical to the Company's success; reinforce
Company objectives through the use of performance-based compensation; and
promote long-term ownership of Company stock to align the interests of the
Company's executive officers more closely with those of its shareholders.
TYPES OF COMPENSATION
There are two main types of compensation:
+ Annual compensation. This consists of salary and bonuses. Bonuses
are awarded only when certain performance objectives are met.
+ Long-term compensation. This includes stock options and restricted
stock. The value of these awards depends on the Company's
performance as translated into future stock values.
FACTORS CONSIDERED IN DETERMINING COMPENSATION
The Committee wants the compensation of the Company's executive
officers to be competitive within the utility industry. The Committee also pays
increasing attention to trends within a general industry group. Consistent with
past practice, during 1998 the Committee met with an outside consultant and
reviewed its report regarding the compensation program for the Company's
executive officers. The consultant provided the Committee with compensation
information for the electric utility and general industry groups, adjusted for
size. The APS Committee reviewed a similar report from the same outside
consultant. The Committee formulated its views about the responsibilities,
skills, expertise, and performance of the Company's executive officers, with
input from Mr. Snell as to performances other than his own, and applied these
views to the information provided by the consultant and the APS Committee.
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ANNUAL COMPENSATION
BASE SALARIES
Overall, the base salaries paid to the Company's executive officers
during 1998 were competitive with the median salaries in the utility and general
industry groups.
BONUSES
The cash bonuses paid to the Company's executive officers for 1998 were
based on weighted performance objectives the Committee established at the
beginning of the year. These were based primarily on 1998 earnings, matters
related to electric utility industry restructuring, and strategic planning, in
that order of importance. The APS Committee established performance objectives
for APS officers, including Messrs. Davis, Post, Schreiber, and Stewart, that
were based primarily on APS' earnings and operational performance. Although
Messrs. Post and Schreiber are officers of both Pinnacle West and APS, their
1998 bonuses were based on the performance objectives established by the APS
Committee.
The attainment levels of the several objectives were assessed by each
Committee in early 1999 and these assessments were factored into an arithmetical
formula that included predetermined percentages of the officers' respective
salaries to result in their respective bonuses. The bonuses approved by the APS
Committee were at the maximum level in the 1998 APS plan, and the Committee
approved bonuses at approximately mid-point levels in the 1998 Pinnacle West
plan.
LONG-TERM COMPENSATION
The Committee believes that the best 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 intends that grants of stock options and restricted stock serve as a
significant piece of the total compensation package for officers and key
management employees of the Company and its subsidiaries.
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 used 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 Committee determines the size of awards made to participants by
making assumptions as to how, generally, the stock should perform if the Company
achieves its longer-term goals. The Committee then determines individual grants
by focusing on the recipient's total compensation, taking into consideration
compensation data from the utility and general industry groups discussed above,
assuming that the stock performs as assumed.
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CEO COMPENSATION
The Committee has not increased Mr. Snell's salary since 1991.
Consistent with the Committee's compensation philosophy, the Committee has,
instead, emphasized reward-for-performance through the bonus plan and stock
option and restricted stock grants to him.
GENERAL
As the Company moves forward in its efforts to continue to increase
shareholder value in the continuing restructuring of the utility industry, the
Committee will continue to review, monitor, and evaluate the Company's program
for executive compensation to assure that it effectively supports the Company's
strategy, is competitive in the marketplace to attract, retain, and motivate the
talent needed to succeed, and appropriately rewards creation of value for the
Company's shareholders.
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.
The foregoing report of the Human Resources Committee is provided by
its members: Ms. Grant (Chairman), Ms. Hesse and Messrs. Lopez, Norton and Wall.
8
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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
1993 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 Investor-Owned
Electrics), and that any dividends were reinvested.
PINNACLE WEST S&P 500 EEI
12/31/93 $100.00 $100.00 $100.00
12/31/94 $ 91.71 $101.36 $ 88.43
12/31/95 $139.43 $139.31 $115.86
12/31/96 $159.28 $171.21 $117.25
12/31/97 $219.79 $228.26 $149.33
12/31/98 $225.97 $293.36 $170.07
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EXECUTIVE COMPENSATION
The following tables on compensation and stock options relate to the five
most highly compensated executive officers of the Company 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>
Jack E. Davis 1998 $310,000 $161,200 $125,888 13,500 $11,449
President, Energy 1997 268,364 103,230 107,325 13,500 9,492
Delivery and Sales of APS 1996 193,669 127,142 69,168 11,000 10,016
William J. Post 1998 $450,000 $270,000 $186,500 20,000 $13,317
CEO of Company and CEO 1997 420,834 171,000 131,175 16,500 11,949
of APS 1996 325,000 165,100 106,896 17,000 11,015
George A. Schreiber, Jr. 1998 $375,000 $195,000 $125,888 13,500 $3,885
President and CFO of Company 1997 333,807 124,875 $220,102(3) 145,053 19,500 226,677(4)
and Exec. V.P. & CFO of APS
Richard Snell (5) 1998 $515,000 $356,277 $ 0 0 $34,918
Chairman 1997 515,000 406,953 298,125(1) 20,000 44,866
1996 515,000 373,375 314,400(1) 25,000 47,063
William L. Stewart 1998 $464,000 $291,280 $219,137 13,500 $13,125
President, Generation of APS 1997 432,517 204,512 $35,806(3) 186,825 13,500 10,212
1996 349,693 232,374 285,776 17,000 10,057
</TABLE>
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(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 1998 were: Mr. Davis -
7,600 shares, $322,050; Mr. Post - 10,918 shares, $462,650; Mr. Schreiber -
6,600 shares, $279,675; Mr. Snell - 17,500 shares, $741,563; and Mr.
Stewart - 18,824 shares, $797,667. The grants of restricted stock to Mr.
Snell in 1996 and 1997 fully vested upon his retirement in February 1999.
(2) The figures in this column for 1998 consist of Company matching
contributions to the Company's employees' savings plan: Mr. Davis - $4,669,
Mr. Post - $4,800, Mr. Schreiber - $2,400, Mr. Snell - $0, and Mr. Stewart
- $0; the above-market portion of interest accrued under a deferred
compensation plan: Mr. Davis - $5,552, Mr. Post - $6,211, Mr. Schreiber -
$0, Mr. Snell - $8,434, and Mr. Stewart - $2,919; life insurance premiums
paid by the Company for: Mr. Davis - $1,228, Mr. Post - $2,306, Mr.
Schreiber - $1,485, Mr. Snell - $1,584, and Mr. Stewart - $10,206; and
$24,900 paid to Mr. Snell for service as a director of APS.
(3) These figures represent (i) the reimbursement of taxes on income that was
charged to Mr. Schreiber due to the reimbursement of relocation expenses,
and (ii) the reimbursement of taxes on income that was charged to Mr.
Stewart due to the reimbursement of housing expenses.
(4) This figure represents life insurance premiums ($1,088) and relocation
expense ($225,589) paid by the Company in 1997.
(5) Effective February 5, 1999, the Company's CEO, Richard Snell, completed
service and officially retired from management. Mr. Snell will remain
Chairman of the Company's board and its principal subsidiaries.
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OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
PERCENTAGE OF
OPTIONS TOTAL OPTIONS
GRANTED GRANTED TO ALL EXERCISE GRANT DATE
IN 1998 EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME (SHARES)(1) 1998 (PER SHARE) DATE VALUE(2)
- ---- ----------- ------------ ----------- ---- --------
<S> <C> <C> <C> <C> <C>
Jack E. Davis 13,500 5.53% $46.78 11/17/2008 $108,263
William J. Post 20,000 8.19% $46.78 11/17/2008 $160,390
George A. Schreiber, Jr 13,500 5.53% $46.78 11/17/2008 $108,263
Richard Snell 0 0% N/A N/A $ 0
William L. Stewart 13,500 5.53% $46.78 11/17/2008 $108,263
</TABLE>
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(1) All options were granted on November 18, 1998. 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
18.8%; risk-free rate of return of 4.54%; dividend yield of 3.03%; and time
to exercise of five years.
OPTION EXERCISES IN 1998 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END (2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Davis 5,000 $96,094 17,833 26,167 $181,609 $63,724
William J. Post 0 -- 73,333 36,667 $1,312,290 $90,844
George A. Schreiber, Jr. 0 -- 6,500 26,500 $33,683 $67,365
Richard Snell 0 -- 440,832 21,668 $11,840,175 $126,134
William L. Stewart 17,500 $268,643 15,667 28,167 $155,924 $85,594
</TABLE>
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(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, 1998 ($42.375 per share) minus the exercise
price of options.
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EXECUTIVE BENEFIT PLANS
All of the plans described below relate to the Company. Messrs. Davis,
Post, Schreiber and Stewart 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. Accordingly, for purposes of this section's
discussion of the plans, the term "Company" refers to Pinnacle West or APS,
except as otherwise noted.
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.
AVERAGE ANNUAL YEARS OF SERVICE
COMPENSATION (A) 5(B) 10 20 25
- --------------------------------------------------------------------------------
$ 100,000 $ 15,000 $ 30,000 $ 50,000 $ 60,000
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
- ----------
(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 and salary reduction
contributions under the Company's flexible benefits 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.
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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 credited years
of service for each of the individuals named on page 10 and their 1998
remuneration covered by the Company's plans and individual employment agreements
are as follows: Mr. Davis - 26 years, $413,230; Mr. Post, 26 years, $621,000;
Mr. Schreiber - 15 years, $499,875 (see description of Mr. Schreiber's
employment agreement below); Mr. Snell - 38 years, $921,953 (see description of
Mr. Snell's employment agreement below); and Mr. Stewart - 5 years, $618,512
(see description of Mr. Stewart's employment agreement below). 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 were
parties to an employment agreement setting forth the terms of his employment as
Chief Executive Officer of the Company. This agreement expired on February 5,
1999 and Mr. Snell's employment has ended, although he remains as Chairman of
the Company's Board of Directors. The contract allowed 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, and provided him with 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. Mr. Snell's credited years of service disclosed above (38) include
the 29 years of awarded service.
As Chairman, Mr. Snell will be paid $200,000 annually, on a non-employee
basis, for continuing chairman responsibilities. In addition, effective March 1,
1999, Mr. Snell became entitled to a monthly pension from the retirement plan,
the supplemental pension plan and his employment contract equal to $39,039. In
accordance with his employment agreement, the Company reimburses Mr. Snell each
month for a portion of the cost of his retiree medical coverage and has
purchased a $100,000 life insurance policy for Mr. Snell at a cost of $1,270.
The Company also reimburses Mr. Snell for any additional taxes he may be
required to pay as a result of the Company's payment of a portion of his retiree
medical coverage and its purchase of the life insurance policy.
Mr. Schreiber and the Company are parties to an agreement entered in
February 1999 as part of his promotion to President of the Company. The
agreement replaces his earlier employment agreement with APS. The new agreement
awards Mr. Schreiber 35,000 Pinnacle West stock options issued at the price in
effect on February 10, 1999, subject to vesting at the rate of 20% annually over
five years. To make up for retirement benefits Mr. Schreiber lost as a result of
his decision to accept employment as an officer of the Company, he is also
credited with 15 years of service for pension purposes.
In August 1996, APS entered into an agreement with Mr. Stewart which
provided a supplemental pension benefit calculated by adding a base amount of
20% of his average monthly wage (as determined by the highest 36 consecutive
months) and 10% of his average monthly wage for each year of service up to a
maximum of 100% of his average monthly salary. This benefit vested in November
1998. In addition, Mr. Stewart is to receive 2,000 shares of restricted Pinnacle
West stock annually.
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The Company has entered into severance agreements, which are identical in
content, with each of its executive officers except Mr. Post and Mr. Schreiber
(see below). 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.
Messrs. Davis, Post, Schreiber and Stewart have entered into severance
agreements with APS which are identical to the Company's severance agreements
with its executive officers, except the term is for two years following a change
of control, and the filing of any voluntary or involuntary petition of
bankruptcy is not a "change of control" event.
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% 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.
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ITEM 2 - SHAREHOLDER PROPOSAL
The Company has been advised that the Arizona Safe Energy Coalition (owner
of record of 57.196 shares), c/o Betty Schroeder, 5349 West Bar X Street,
Tucson, Arizona 85713 intends to present the following proposal at the 1999
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 pages 16 and 17.
REFUSE PLUTONIUM FUEL & TRITIUM PRODUCTION AT PALO VERDE 1, 2, & 3
"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 (APS) has expressed interest in both;
"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
greater proliferation potential than immobilization; (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 component aging; (4) fail to substantially reduce the quantity of plutonium
since nearly 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;
"The DOE has a poor track record over the last 23 years, managing large
projects;
"The potential financial rewards are too small to justify the large risks;
and
"Electrical utility deregulation and the resulting cost-cutting by
utilities further shakes public confidence in APS' ability to maintain safety
and security for either MOX or tritium operations;
"THEREFORE BE IT RESOLVED that the shareholders request the Company to establish
a firm policy to: (1.) refuse to use plutonium (MOX) fuel; and (2.) refuse to
generate tritium."
SUPPORTING STATEMENT:
MOX: Three corporations (ComEd, Entergy and General Electric) recently
canceled their interest in MOX, recognizing large risks with doubtful payback.
MOX's 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. Regulatory
uncertainties between the DOE and the Nuclear Regulatory Commission (NRC) could
complicate the process, introducing further adverse economic conditions.
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 a driving force of MOX fuel, though public support
has
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dropped. The U.S. should lead Europe and Russia in improving immobilization for
all plutonium disposition.
TRITIUM: Greater volumes of both high and low level radioactive waste would
be generated in reactors producing tritium than normal reactor operations.
Current need for tritium is unproven. Resuming tritium production implies that
the U.S. plans to maintain a nuclear arsenal indefinitely, counter to our treaty
obligations.
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 economic, safety, environmental, and nonproliferation reasons, please
vote YES.
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION
Although the Company is fully supportive of the proponent's ideals of
supporting environmental safety, the statements made in the proposal and its
accompanying documentation are incomplete and in some cases misleading.
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 fissioning MOX fuel is
a reduction in the total amount of easily obtainable 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 weapons-usable material may be obtained from MOX
fuel, the Company does not believe that MOX fuel should be characterized as
still "weapons-usable," because complex chemical reprocessing would be required
to obtain "weapons-usable" material from MOX fuel.
As such, spent MOX fuel should provide no more of a security risk than
normal nuclear fuels. 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.
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 safety, 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.
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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.
THE BOARD THEREFORE RECOMMENDS A VOTE AGAINST THE ABOVE SHAREHOLDER PROPOSAL.
GENERAL
BUSINESS RELATIONSHIP. Mr. Gallagher is President of Gallagher & Kennedy,
P.A., a law firm which provided legal services to the Company in 1998 and which
will provide such services in 1999.
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, 1999 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. 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.
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 12, 1999 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 a number of votes equal to the number of shares of common stock owned by
such shareholder as of the record date.
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 22,
1999. Copies of the Company's Articles of Incorporation and Bylaws are 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.
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SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING. In order to be considered
for inclusion in the proxy statement and form of proxy relating to the 2000
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, 1999.
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.
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PINNACLE WEST CAPITAL CORPORATION
P.O. Box 52135
Phoenix, Arizona 85072
April 1, 1999
Dear Shareholders:
The 1999 Annual Meeting of Shareholders of Pinnacle West Capital Corporation
will be held at The Wigwam Resort, 300 Wigwam Boulevard, Litchfield Park,
Arizona, on May 19, 1999, at 10:30 a.m. Mountain Standard Time. At the meeting,
shareholders will be asked to elect three Class II Directors to serve until the
2002 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
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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 19, 1999.
The undersigned hereby appoints Richard Snell and Faye Widenmann, individually
and together, as 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 19, 1999, 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: EDWARD N. (EDDIE) BASHA, MICHAEL L.
GALLAGHER AND WILLIAM J. POST.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
1. ELECTION OF DIRECTORS [ ] FOR* [ ] WITHHOLD
(See other side)
*For all nominees, except vote withheld from the following:
- -----------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
2. SHAREHOLDER PROPOSAL RELATED TO NUCLEAR POWER
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
Any proxy given previously is hereby revoked.
