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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
Pinnacle West Capital Corporation
(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. | |||||
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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. | |||||
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Post Office Box 53999
PHOENIX, ARIZONA 85072-3999
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
Wednesday, May 17, 2006
(1) | Election of four (4) directors; | ||
(2) | Ratification of the appointment of the Company’s independent auditors for the fiscal year ending 2006; and | ||
(3) | Consideration of a shareholder proposal, if properly presented at the meeting. |
By order of the Board of Directors, | ||
NANCY C. LOFTIN | ||
Vice President, General Counsel and Secretary |
April 10, 2006
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• | FORelection of the nominated slate of directors (see Proposal 1); | ||
• | FORratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending 2006 (see Proposal 2); and | ||
• | AGAINSTapproval of the shareholder proposal (see Proposal 3). |
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AND OUR CORPORATE GOVERNANCE
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Human | Corporate | Finance and | ||||||||||||||
Audit | Resources | Governance | Operating | |||||||||||||
Director | Committee | Committee | Committee | Committee | ||||||||||||
Edward N. Basha, Jr. | * | * | * | |||||||||||||
Jack E. Davis | * | |||||||||||||||
Michael L. Gallagher | * | * | ||||||||||||||
Pamela Grant | * | * | * | |||||||||||||
Roy A. Herberger, Jr. | * | * | * | * | ||||||||||||
Martha O. Hesse | * | * | * | * | ||||||||||||
William S. Jamieson, Jr. | * | * | * | |||||||||||||
Humberto S. Lopez | * | * | * | |||||||||||||
Kathryn L. Munro | * | * | * | * | ||||||||||||
Bruce J. Nordstrom | * | * | * | |||||||||||||
William J. Post | * | |||||||||||||||
William L. Stewart | * | |||||||||||||||
* | Member | |
** | Chair |
• | the integrity of the financial statements of the Company; | ||
• | the independent auditors’ qualifications, independence and performance; | ||
• | the performance of the Company’s internal audit function; and | ||
• | the compliance by the Company with legal and regulatory requirements. |
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• | review the Company’s general compensation strategy; | ||
• | review and approve policies on compensation, benefits, and perquisites, including incentive cash-compensation plans, equity participation, or other forms of executive incentives; | ||
• | recommend to the full Board non-CEO executive officer compensation; | ||
• | review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer (the “CEO”), assess the CEO’s performance in light of these goals and objectives, and set the CEO’s compensation level based on this assessment; | ||
• | recommend persons to the full Board for election or appointment as officers; and | ||
• | recommend to the full Board the form and amount of director compensation. |
• | reviewing the Company’s historical and projected financial performance and annual budgets; | ||
• | reviewing and recommending approval of short-term investments and borrowing guidelines; | ||
• | reviewing the Company’s financing plan and recommending approval of the issuance of long-term debt, common equity, and other credit facilities; | ||
• | reviewing and recommending to the Board the Company’s dividend actions, including, stock dividends and other distributions; | ||
• | reviewing and monitoring the performance of the Company’s environmental policies; and | ||
• | reviewing and monitoring the customer and power plant operations of the Company, including all aspects of the Company’s nuclear program. |
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Pinnacle West Capital Corporation
400 North 5th Street
Mail Station 9068
Phoenix, Arizona 85004
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Stewart, and Mmes. Grant, Hesse and Munro
PWEC: Mr. Post
APSES: Messrs. Post and Stewart
SunCor: Messrs. Gallagher, Lopez and Post, and Ms. Grant
El Dorado: Messrs. Gallagher, Herberger and Post
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(TERM EXPIRING AT 2009 ANNUAL MEETING)
Director | ||||||||||
Name | Age | Occupation, Business & Directorships | Since | |||||||
Jack E. Davis | 59 | Chief Operating Officer of the Company since September 2003 and President of the Company since February 2001. President and Chief Executive Officer of APS since September 2002. From October 1998 until September 2002, Mr. Davis served as President, Energy Delivery and Sales of APS. Mr. Davis served as Executive Vice President and Chief Operating Officer of the Company from April 2000 to February 2001. Mr. Davis served in various APS positions as follows: Executive Vice President of Commercial Operations from September 1996 to October 1998; and Vice President, Generation and Transmission from June 1993 to September 1996. | 2001 | |||||||
Pamela Grant | 67 | Civic leader. President of TableScapes, Inc. (party supply rentals) from July 1989 through January 1995. Ms. Grant was President and CEO of Goldwaters Department Stores (general mercantile), a division of May Department Stores, from January 1987 to April 1988. From November 1978 to January 1987, Ms. Grant was President, Chairman and CEO of Goldwaters Department Stores, a division of Associated Dry Goods. | 1985 | |||||||
Martha O. Hesse | 63 | President of Hesse Gas Company from 1990 to 2003. In 1990, Ms. Hesse served as Senior Vice President of First Chicago Corporation (financial services), and from 1986 to 1989, she was Chairman of the Federal Energy Regulatory Commission. Ms. Hesse is also a director of Terra Industries Inc., Enbridge Energy Partners, L.P. and AMEC plc. | 1991 | |||||||
William S. Jamieson, Jr. | 62 | President of Micah Institute of Asheville, North Carolina since January 2005. From January 1999 to December 2004, Mr. Jamieson was President of the Institute of Servant Leadership. | 1991 |
THE NOMINATED SLATE OF DIRECTORS.
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(TERM EXPIRING AT 2007 ANNUAL MEETING)
Director | ||||||||||
Name | Age | Occupation, Business & Directorships | Since | |||||||
Roy A. Herberger, Jr. | 63 | President Emeritus of Thunderbird, The Garvin School of International Management, since November 2004. Mr. Herberger was President of Thunderbird from 1989 until August 2004. Mr. Herberger is also a director of MedAire, Inc. | 1992 | |||||||
Humberto S. Lopez | 60 | President of HSL Properties, Inc. (real estate development and investment), Tucson, Arizona since 1975. | 1995 | |||||||
Kathryn L. Munro | 57 | Principal of BridgeWest, LLC (investment company) since July 2003. Ms. Munro was Chairman of BridgeWest, LLC from February 1999 until July 2003. From 1996 to 1998 Ms. Munro served as CEO of Bank of America’s Southwest Banking Group and was President of Bank of America Arizona from 1994 to 1996. Ms. Munro is also a director of FLOW International Corporation, Capitol Bancorp, Inc. and Knight Transportation, Inc. | 2000 | |||||||
William L. Stewart | 62 | Mr. Stewart retired from the Company effective November 26, 2003. Mr. Stewart served as Chief Executive Officer of PWEC from October 2002 until January 2003 and President of PWEC from October 1999 until January 2003. Mr. Stewart served as President, Generation, of APS from October 1998 to October 2002. | 2001 |
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(TERM EXPIRING AT 2008 ANNUAL MEETING)
Director | ||||||||||
Name | Age | Occupation, Business & Directorships | Since | |||||||
Edward N. Basha, Jr. | 68 | Chairman of the Board of Bashas’ supermarket chain since 1968. Chief Executive Officer of Bashas’ and an Arizona civic leader dedicated to multiple Arizona community projects. | 1999 | |||||||
Michael L. Gallagher | 61 | Attorney-at-law with Gallagher & Kennedy, P.A., Phoenix, Arizona. Chairman Emeritus of Gallagher & Kennedy since 2001. Mr. Gallagher served as President of Gallagher & Kennedy from 1978 through 2000. | 1999 | |||||||
Bruce J. Nordstrom | 56 | President of and certified public accountant at the firm of Nordstrom and Associates, PC, Flagstaff, Arizona, since 1988. | 2000 | |||||||
William J. Post | 55 | Chairman of the Board of the Company since February 2001 and CEO of the Company since February 1999. Mr. Post has served as an officer of the Company since 1995 in the following additional capacities: from August 1999 to February 2001 as President; from February 1997 to February 1999 as President; and from June 1995 to February 1997 as Executive Vice President. Mr. Post is also Chairman of the Board of APS and has held various officer positions at APS since 1982. Mr. Post is also a director of Phelps Dodge Corporation. | 1997 |
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BY MANAGEMENT AND LARGE SHAREHOLDERS?
Number of Shares | Shares Acquirable | Percent of | ||||||||||
Name | Beneficially Owned (1) | Within 60 Days (2) | Class | |||||||||
Directors and Nominees: | ||||||||||||
Edward N. Basha, Jr. | 8,695 | 0 | * | |||||||||
Jack E. Davis | 52,327 | 142,583 | * | |||||||||
Michael L. Gallagher | 9,206 | 0 | * | |||||||||
Pamela Grant | 20,856 | 0 | * | |||||||||
Roy A. Herberger, Jr. | 13,160 | 0 | * | |||||||||
Martha O. Hesse | 18,337 | 0 | * | |||||||||
William S. Jamieson, Jr. | 10,490 | 0 | * | |||||||||
Humberto S. Lopez | 31,308 | 0 | * | |||||||||
Kathryn L. Munro | 7,502 | 0 | * | |||||||||
Bruce J. Nordstrom | 10,247 | 0 | * | |||||||||
William J. Post | 68,158 | 484,750 | * | |||||||||
William L. Stewart | 41,363 | 0 | * | |||||||||
Other Executive Officers Named on Page 23: | ||||||||||||
Donald E. Brandt | 3,369 | 5,042 | * | |||||||||
James M. Levine | 38,132 | 69,505 | * | |||||||||
Steven M. Wheeler | 9,842 | 5,042 | * | |||||||||
All Directors, Nominees, Named Executive Officers, and Executive Officers as a Group (20 Persons): | 423,962 | 823,296 | 1.3 | % | ||||||||
5% Beneficial Owners (3): | ||||||||||||
Barclays Global Investors, NA. and certain other entities | ||||||||||||
45 Fremont Street | ||||||||||||
San Francisco, CA 94105 | 7,689,021 | N/A | 7.8 | % |
* Represents less than 1% of the outstanding common stock
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Number of Shares | Shares Acquirable | Percent of | ||||||||||
Name | Beneficially Owned (1) | Within 60 Days (2) | Class | |||||||||
Franklin Resources, Inc. and certain other entities | ||||||||||||
One Franklin Parkway | ||||||||||||
San Mateo, CA 94403-1906 | 5,928,150 | N/A | 6.0 | % | ||||||||
Wellington Management Company, LLP | ||||||||||||
75 State Street | ||||||||||||
Boston, MA 02109 | 5,838,900 | N/A | 5.9 | % | ||||||||
Capital Research and Management Company | ||||||||||||
333 South Hope Street | ||||||||||||
Los Angeles, CA 90071 | 5,277,040 | N/A | 5.3 | % |
* | Represents less than 1% of the outstanding common stock | |
(1) | Does not include shares that could be purchased by the exercise of options available at March 20, 2006 or within 60 days thereof under the Company’s equity incentive plans. Those shares are shown in a separate column on this table. The following shares are held in joint tenancy: Directors and Nominees: Mr. Davis – 44,534; Mr. Gallagher – 9,206; Mr. Herberger – 6,710; Ms. Hesse – 13,955; Mr. Post – 22,192; and Mr. Stewart – 41,363; Other Executive Officers Named on Page 23: Mr. Wheeler – 9,170; and All Directors, Nominees, Named Executive Officers and Executive Officers as a Group: 170,410. The following shares are held in joint trusts: Directors and Nominees: Mr. Lopez – 31,308; and Ms. Munro – 7,502; and All Directors, Nominees, Named Executive Officers and Executive Officers as a Group: 73,527. Mr. Basha has donated all of his shares to a charitable foundation; however, he has shared voting rights with respect to such shares. | |
(2) | Reflects the number of shares that could be purchased by the exercise of options available at March 20, 2006 or within 60 days thereof under the Company’s equity incentive plans. | |
(3) | Barclays Global Investors, NA.; Barclays Global Fund Advisors; Barclays Global Investors, Ltd; and Barclays Global Investors Japan Trust and Banking Company Limited (collectively, “Barclays”); Schedule 13G filing, dated January 31, 2006 and filed with the SEC on January 26, 2006, reports beneficial ownership collectively of 7,689,021 shares, with sole voting power as to 2,119,933 shares and sole dispositive power as to 2,606,126 shares in Barclays Global Investors, NA., sole voting power as to 4,672,570 shares and sole dispositive power as to 4,679,046 shares in Barclays Global Fund Advisors, sole voting power as to 289,340 shares and sole dispositive power as to 319,023 shares in Barclays Global Investors, Ltd., and sole voting power and sole dispositive power as to 84,826 shares in Barclays Global Investors Japan Trust and Banking Company Limited. Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively, “Franklin”) Schedule 13G filing, dated February 2, 2006 and filed with the SEC on February 7, 2006, reports beneficial ownership collectively of 5,928,150 shares, with sole voting power and sole dispositive power as to 5,926,000 shares in Franklin Advisers, Inc., sole voting power and sole dispositive power as to 2,100 shares in Fiduciary Trust Company International, sole voting power and sole dispositive power as to 25 shares in Franklin Templeton Investments Corp., and sole voting power and sole dispositive power as to 25 shares in Franklin Templeton Portfolio Advisers, Inc. Wellington Management Company, LLP (“Wellington”) Schedule 13G/A filing, dated February 14, 2006 and filed with the SEC on February 14, 2006, reports beneficial ownership of 5,838,900 shares with shared voting power as to 1,814,700 shares and shared dispositive power as to 5,838,900 shares. Capital Research and Management Company (“CRM”) Schedule 13GA filing, dated February 6, 2006 and filed with the SEC on February 10, 2006, reports beneficial ownership of 5,277,040 shares, with sole voting power as to 800,000 shares and sole dispositive power as to 5,277,040 shares. The Company makes no representations as to the accuracy or completeness of such information and believes these filings represent share |
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ownership as of December 30, 2005 with respect to Wellington and CRM and as of December 31, 2005 with respect to Barclays and Franklin. |
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COMMITTEE CHAIRMAN | COMMITTEE MEMBERS | |
Martha O. Hesse | Edward N. Basha, Jr. | |
Pamela Grant | ||
William S. Jamieson, Jr. | ||
Humberto S. Lopez | ||
Kathryn L. Munro | ||
Bruce J. Nordstrom |
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Type of Service | 2004 | 2005 | ||||||
Audit Fees (1) | $ | 3,065,405 | $ | 3,145,077 | ||||
Audit-Related Fees (2) | 571,000 | 189,400 | ||||||
Tax Fees (3) | 1,579,928 | 33,211 |
(1) | The aggregate fees billed for services rendered for the audit of the Company’s annual financial statements and for review of financial statements included in Forms 10-Q, attestation procedures on internal controls over financial reporting, and services related to SEC matters and filings. | |
(2) | The aggregate fees billed for services that are reasonably related to the performance of the audit or review of the financial statements that are not included in Audit Fees reported above, which primarily consist of fees for auditing of the Company’s benefit plans, auditing of the stock transfer agent and registrar functions and Sarbanes-Oxley Section 404 readiness. | |
(3) | The aggregate fees billed primarily for investment tax credit services, tax compliance and tax planning. |
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(Value of $100 invested on 12/29/00, with Dividends Reinvested)
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||
Pinnacle West | $ | 100 | $ | 91 | $ | 78 | $ | 95 | $ | 111 | $ | 108 | ||||||||||||
S&P500 Index | 100 | 88 | 69 | 88 | 98 | 103 | ||||||||||||||||||
EEI Electric Index | 100 | 91 | 78 | 96 | 118 | 137 |
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• | reviewing management’s plans and programs for the attraction, retention, succession, motivation and development of the human resources the Company needs in order to achieve its corporate objectives; | ||
• | reviewing the goals and performance of all executive officers of the Company, including reviewing all compensation, benefits, and perquisites for such officers, in order to ensure that there is equity in the compensation practices and general integrity in conforming to approved plans and policies; | ||
• | reviewing and approving corporate goals and objectives relevant to CEO compensation, assessing the CEO’s performance in light of those goals and objectives, and setting the CEO’s compensation level based on that assessment; | ||
• | making recommendations to the full Board with respect to non-CEO executive officer compensation and incentive compensation and stock-based plans that are subject to Board approval; and | ||
• | administering the Company’s stock-based incentive plans. |
• | Business Performance Accountability. The Committee believes that compensation should be tied to the financial performance of the Company, so that executives are held accountable through their compensation for the performance of the Company. |
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• | Individual Performance Accountability. The Committee believes that compensation should be tied to the individual’s performance, so that individual contributions to the Company’s performance are rewarded. | ||
• | Alignment with Shareholder Interests. The Committee believes that compensation should be tied to the Company’s stock performance through performance-based stock incentives, which in turn serve to align executives’ interests with those of the Company’s shareholders. | ||
• | Competitiveness. Finally, the Committee believes that the compensation program must be designed to attract, retain and reward key leaders critical to the Company’s success by providing competitive total compensation. |
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• | Performance shares are used to promote long-term performance. Generally, each recipient of performance shares is entitled to receive shares of common stock at the end of a three-year period based upon the Company’s earnings per share growth rate during that three-year period compared to the earnings per share growth rate of all relevant companies in a specified S&P Electric Utilities Index. For the performance shares granted in 2005, the three-year performance period is from |
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January 1, 2005 to December 31, 2007. The earnings per share growth rate for the three-year performance period is the compounded annual-growth rate of a company’s earnings per share from continuing operations (plus SunCor’s discontinued operations for purposes of calculating the Company’s earnings per share growth), on a fully-diluted basis, during the three-year period. The number of shares of common stock a recipient is entitled to receive is determined by the Company’s relative percentile ranking in the Index during the three-year performance period. See the 2005 Performance Share Awards table on page 25 of this proxy statement for additional information regarding 2005 performance share awards. | |||
• | Stock ownership incentives are used to promote annual performance and stock ownership. Each recipient who owned an amount of stock equal to a specified multiple of such individual’s base salary was entitled to receive 4% of the average number of shares of common stock owned by the recipient during 2005 if the Company’s 2005 earnings met a specified threshold. The share ownership requirements for executive officers are 5 times base salary in the case of the CEO; 3 times base salary in the case of the president of the Company; 2.5 times base salary in the case of Mr. Levine; 2 times base salary in the case of the president of APSES and executive vice presidents; and 1.75 times base salary in the case of all other officers. The 2005 earnings threshold was met, so those executive officers who held the requisite number of shares were granted their corresponding stock ownership awards. In the case of the Named Executive Officers, Mr. Levine met the required share ownership level, so he received a total of 1,395 shares of Company common stock in early 2006. The value of this common stock is included in the Restricted Stock Awards column of the Summary Compensation Table on page 23 of this proxy statement. |
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COMMITTEE CHAIRMAN | COMMITTEE MEMBERS | |||
Roy A. Herberger, Jr. | Edward N. Basha, Jr. | |||
Pamela Grant | ||||
William S. Jamieson, Jr. | ||||
Humberto S. Lopez |
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All Other | ||||||||||||||||||||||||||||||||||||||
Compen- | ||||||||||||||||||||||||||||||||||||||
Name and Principal | sation | |||||||||||||||||||||||||||||||||||||
Position | Year | Annual Compensation | Long-Term Compensation | ($) (1) | ||||||||||||||||||||||||||||||||||
Other | Awards | Payouts | ||||||||||||||||||||||||||||||||||||
Annual | Restricted | |||||||||||||||||||||||||||||||||||||
Compen- | Stock | LTIP | ||||||||||||||||||||||||||||||||||||
Salary | sation | Awards ($) | Options | Payouts | ||||||||||||||||||||||||||||||||||
($) | Bonus ($) | ($)(2) | (3) | (#) | ($) (4) | |||||||||||||||||||||||||||||||||
Annual | Other | |||||||||||||||||||||||||||||||||||||
Incentives | Awards | |||||||||||||||||||||||||||||||||||||
($)(5) | ($) | |||||||||||||||||||||||||||||||||||||
William J. Post | 2005 | 950,004 | 0 | 0 | 11,071 | 0 | 0 | 0 | 38,030 | |||||||||||||||||||||||||||||
Chairman of the Board | 2004 | 870,174 | 1,350,000 | 0 | 89,779 | 0 | 0 | 551,837 | 30,682 | |||||||||||||||||||||||||||||
and CEO of the | 2003 | 774,926 | 0 | 0 | 8,812 | 0 | 85,750 | 0 | 31,301 | |||||||||||||||||||||||||||||
Company and Chairman of the Board of APS | ||||||||||||||||||||||||||||||||||||||
Jack E. Davis | 2005 | 800,004 | 0 | 85,600 | (6) | 11,071 | 0 | 0 | 0 | 33,084 | ||||||||||||||||||||||||||||
President and COO of | 2004 | 716,674 | 1,000,000 | 0 | 47,539 | 75,700 | 0 | 263,144 | 25,059 | |||||||||||||||||||||||||||||
the Company and | 2003 | 665,450 | 0 | 0 | 8,735 | 64,620 | 34,750 | 0 | 26,724 | |||||||||||||||||||||||||||||
President and CEO of APS | ||||||||||||||||||||||||||||||||||||||
James M. Levine | 2005 | 600,012 | 0 | 85,600 | (6) | 11,071 | 57,962 | 0 | 0 | 48,621 | ||||||||||||||||||||||||||||
Executive Vice | 2004 | 561,342 | 313,206 | 0 | 20,719 | 129,303 | 11,130 | 79,838 | 34,932 | |||||||||||||||||||||||||||||
President, Generation | 2003 | 557,503 | 0 | 112,000 | 16,578 | 64,620 | 17,250 | 0 | 38,593 | |||||||||||||||||||||||||||||
of APS | ||||||||||||||||||||||||||||||||||||||
Donald E. Brandt | 2005 | 416,467 | 0 | 0 | 14,934 | 0 | 0 | 0 | 11,663 | |||||||||||||||||||||||||||||
Executive Vice | 2004 | 372,668 | 180,196 | 0 | 12,675 | 0 | 0 | 0 | 9,762 | |||||||||||||||||||||||||||||
President and CFO of | 2003 | 324,660 | 0 | 50,000 | 41,059 | 0 | 15,125 | 0 | 7,385 | |||||||||||||||||||||||||||||
the Company and APS | ||||||||||||||||||||||||||||||||||||||
Steven M. Wheeler | 2005 | 380,849 | 0 | 0 | 23,091 | 0 | 0 | 0 | 12,787 | |||||||||||||||||||||||||||||
Executive Vice | 2004 | 356,676 | 168,955 | 0 | 22,876 | 0 | 0 | 70,257 | 9,390 | |||||||||||||||||||||||||||||
President, Customer | 2003 | 317,669 | 0 | 0 | 10,065 | 0 | 15,125 | 0 | 9,285 | |||||||||||||||||||||||||||||
Service and Regulation of APS |
(1) | The amounts in this column for 2005 consist of Company matching contributions to the Company’s employees’ savings plan: Mr. Post – $9,344, Mr. Davis – $9,450, Mr. Levine – $6,300, Mr. Brandt – $9,450 and Mr. Wheeler – $6,300; the above-market portion of interest accrued under a deferred compensation plan: Mr. Post – $22,191, Mr. Davis – $23,634, Mr. Levine – $38,767, Mr. Brandt – $2,213 and Mr. Wheeler – $6,487; and life insurance premiums paid by the Company under an executive life insurance plan for: Mr. Post – $6,495 and Mr. Levine – $3,554. |
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(2) | In accordance with SEC rules, no disclosure is required if total perquisites are less than $50,000 or 10 percent of the total annual salary and bonuses for the Named Executive Officer. However, the Company has voluntarily disclosed these amounts, with the following exception: Each of the Named Executive Officers is offered an annual physical. The amount included in the Summary Compensation Table includes the maximum benefit available for the physical, not the actual cost. For Mr. Wheeler in 2005, the amount in this column includes a tax gross-up payment of $3,161. For 2004, the amount shown includes the dividend cash equivalent and interest payments received by the Named Executive Officers in connection with the performance share awards granted in 2002 as follows: Mr. Post – $80,741; Mr. Davis – $38,501; Mr. Levine – $11,681; Mr. Brandt – $0; and Mr. Wheeler – $10,280. For Mr. Brandt for 2003, this amount includes a tax gross-up payment of $23,827. | |
(3) | 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. During each of 2004 and 2003, Messrs. Davis and Levine received 2,000 shares of restricted stock that vested upon the date of the grant. Dividends are paid on the restricted stock, but are held by the Company until the restrictions lapse. At the end of 2005, none of the Named Executive Officers held restricted stock. As shown on page 25 of this proxy statement, in the 2005 Performance Share Awards table, the Named Executive Officers were granted long-term incentive plan awards. Similar awards were granted to the Named Executive Officers in 2004 (the “2004 Performance Share Awards”). Under the terms of the grants, whether a common stock payment, if any, is made will not be determined until after the end of the performance period. However, in accordance with SEC reporting requirements, the number (based on target) and value (at market) of the 2005 Performance Share Awards as of the end of 2005 were: Mr. Post – 30,850 shares, $1,275,648; Mr. Davis – 12,500 shares, $516,875; Mr. Levine – 8,150 shares, $337,003; Mr. Brandt – 5,450 shares, $225,358 and Mr. Wheeler – 5,450 shares, $225,358. The number (based on target) and value (at market) of the 2004 Performance Share Awards as of the end of 2005 were: Mr. Post – 30,850 shares, $1,275,648; Mr. Davis – 12,500 shares, $516,875; Mr. Levine – 9,225 shares, $381,454; Mr. Brandt – 5,450 shares, $225,358 and Mr. Wheeler – 5,450 shares, $225,358. See also the information in footnote (4) to this table. In 2005, each of the Named Executive Officers received a stock ownership incentive award entitling the officer to receive, following the award period described below, a number of shares of common stock equal to 4% of the average number of shares owned by the officer during the award period (January 1, 2005 to December 31, 2005) if both (i) a threshold performance goal based on the Company’s earnings from continuing operations plus SunCor’s earnings from discontinued operations (the “Threshold Performance Goal”) is satisfied, and (ii) the value of the average number of shares owned by the officer is at least a set multiple of the base salary of the officer (the “Ownership Requirement”). The ownership multiple in the case of Mr. Post is 5 times base salary; for Mr. Davis, 3 times base salary; for Mr. Levine, 2.5 times base salary; and for Messrs. Brandt and Wheeler, 2 times base salary. Although the Threshold Performance Goal was satisfied for 2005, only Mr. Levine satisfied the Ownership Requirement and received 1,395 shares of common stock pursuant to this award, which amount is included in the amount in this column for 2005. | |
(4) | The amount in this column for 2004 and 2005 consists of the common stock payout in respect of the 2002 and 2003 performance share awards, respectively. For 2005, the amount is an estimate based on the earnings per share reported by the comparator companies in their Form 10-K filings filed with the SEC. | |
(5) | See “Report of the Human Resources Committee” on page 18 of this proxy statement for information regarding the officer incentive plans. | |
(6) | Mr. Levine’s employment agreement provides that the Human Resources Committee is to consider an annual equity grant to Mr. Levine. On December 14, 2005, the Company’s Board of Directors, acting on the recommendation of the Human Resources Committee and consistent with the intent of Mr. Levine’s agreement, approved a cash payment of equivalent value to Mr. Levine in lieu of Mr. Levine receiving the annual grant during 2005. The Board of Directors, also acting on the recommendation of the Human Resources Committee, approved an identical cash payment to Mr. Davis. |
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Number of Securities | Value of Unexercised In-The- | |||||||||||||||||||||||
Underlying Unexercised | Money Options at Fiscal Year- | |||||||||||||||||||||||
Options at Fiscal Year-End | End (2) | |||||||||||||||||||||||
Shares | ||||||||||||||||||||||||
Acquired on | Value | |||||||||||||||||||||||
Name | Exercise | Realized (1) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
William J. Post | 0 | 0 | 456,167 | 28,583 | $ | 1,310,161 | $ | 258,962 | ||||||||||||||||
Jack E. Davis | 17,416 | $ | 234,982 | 131,000 | 11,583 | $ | 175,070 | $ | 104,942 | |||||||||||||||
James M. Levine | 21,500 | $ | 277,891 | 60,045 | 9,460 | $ | 81,333 | $ | 65,080 | |||||||||||||||
Donald E. Brandt | 5,041 | $ | 66,995 | 0 | 5,042 | $ | 0 | $ | 45,681 | |||||||||||||||
Steven M. Wheeler | 21,125 | $ | 136,762 | 0 | 5,042 | $ | 0 | $ | 45,681 |
(1) | Value of options exercised is the market value of the shares on the exercise date minus the exercise price. The officers listed above who exercised options retained all shares received upon the exercise of options, except for those sold solely for the purpose of meeting estimated option exercise costs and tax-withholding requirements. | |
(2) | The value of unexercised options equals the market value of Company common stock on December 30, 2005 ($41.35 per share) minus the exercise price of options. |
Estimated Future Payouts Under Non-Stock Price Based Plans | |||||||||||||||||||||||||||||
Above | |||||||||||||||||||||||||||||
Threshold | Target | Target | Maximum | ||||||||||||||||||||||||||
Number of | Performance Period | Below | 25th | 50th | 75th | 90th | |||||||||||||||||||||||
Name | Shares | Until Payout | Threshold | Percentile | Percentile | Percentile | Percentile | ||||||||||||||||||||||
William J. Post | 30,850 | 1/1/2005 – 12/31/2007 | 0 | 15,425 | 30,850 | 46,275 | 61,700 | ||||||||||||||||||||||
Jack E. Davis | 12,500 | 1/1/2005 – 12/31/2007 | 0 | 6,250 | 12,500 | 18,750 | 25,000 | ||||||||||||||||||||||
James M. Levine | 8,150 | 1/1/2005 – 12/31/2007 | 0 | 4,075 | 8,150 | 12,225 | 16,300 | ||||||||||||||||||||||
Donald E. Brandt | 5,450 | 1/1/2005 – 12/31/2007 | 0 | 2,725 | 5,450 | 8,175 | 10,900 | ||||||||||||||||||||||
Steven M. Wheeler | 5,450 | 1/1/2005 – 12/31/2007 | 0 | 2,725 | 5,450 | 8,175 | 10,900 |
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Average Annual | Years of Service | |||||||||||||||||||||
Compensation (1) | 5 | 10 | 20 | 25 or more | ||||||||||||||||||
$ 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 | ||||||||||||||||||
1,100,000 | 165,000 | 330,000 | 550,000 | 660,000 | ||||||||||||||||||
1,200,000 | 180,000 | 360,000 | 600,000 | 720,000 | ||||||||||||||||||
1,300,000 | 195,000 | 390,000 | 650,000 | 780,000 | ||||||||||||||||||
1,400,000 | 210,000 | 420,000 | 700,000 | 840,000 | ||||||||||||||||||
1,500,000 | 225,000 | 450,000 | 750,000 | 900,000 |
(1) | Benefits are calculated on a straight-life annuity basis. Benefits listed in the Table are not subject to deductions for Social Security or other offset amounts. |
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Age Plus Whole Years Of Service | Transition Credits: Percent Of | ||||||||||
At End Of Plan Year In Which | Base Credits: Percent Of Monthly | Monthly Compensation | |||||||||
Month Occurs | Compensation Contribution Rate | Contribution Rate | |||||||||
Less than 40 | 4 | % | 1 | % | |||||||
40-49 | 5 | % | 1.25 | % | |||||||
50-59 | 6 | % | 1.50 | % | |||||||
60-69 | 7 | % | 1.75 | % | |||||||
70-79 | 9 | % | 2.25 | % | |||||||
80 and over | 11 | % | 2.75 | % |
Age At End Of Plan Year In Which Month Occurs | Percent Of Monthly Compensation Contribution Rate | |||||
Less than 35 | 12 | % | ||||
35-39 | 14 | % | ||||
40-44 | 16 | % | ||||
45-49 | 20 | % | ||||
50-54 | 24 | % | ||||
55 and over | 28 | % |
(1) | Once a participant reaches over 25 years of participation under the Supplemental Plan, that participant is no longer entitled to the monthly credit in the Supplemental Plan. For example, since Messrs. Davis and Post have over 25 years of participation in the Supplemental Plan, they would not be eligible for the Supplemental Plan credits. |
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AS INDEPENDENT AUDITORS OF THE COMPANY
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING 2006.
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• | The Corporate Library (TCL), an independent investment research firm in Portland, Maine rated our company: |
• | We had two insiders on our board compounded by two directors who had non-director links with our company – Independence concern. | ||
• | The chairman of our key Audit Committee had 14 years tenure – Independence concern. | ||
• | Of the 7 members of our key Audit Committee only the Audit Chairman was an Audit Financial Expert. |
• | We had no Independent Board Chairman – Independent oversight concern. | ||
• | We were allowed to vote on individual directors only once in 3-years – Accountability concern. | ||
• | We had to marshal an awesome 67% shareholder vote to make certain key changes – Entrenchment concern. | ||
• | Our directors were still protected by a poison pill with a 15% threshold. | ||
• | Our CEO’s personal shareholdings declined over the past year according to the Corporate Library. |
In my view it’s best for the investor if the entire board is elected once a year. Without annual election of each director shareholders have far less control over who represents them.
Yes on 3
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• | A classified Board provides for continuity and experience that protects long-term goals. |
• | A classified Board will not prevent a change in control but can protect shareholder value. |
• | Regardless of the term, a director has a fiduciary duty to the shareholders. |
• | Shareholders’ interest. |
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• | Implementation won’t be automatic. |
• | Statements in the Shareholder proposal. |
• | call the Company’s Shareholder Services at 1-602-250-5511; | ||
• | mail a request to receive separate copies to Shareholder Services at P.O. Box 53999, Mail Station 8602, Phoenix, AZ 85072-3999; or | ||
• | e-mail a request to:shareholderdept@pinnaclewest.com; |
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1. | For purposes of these Director Independence Standards, (a) the term “Independent” has the meaning ascribed to such term in NYSE Rule 303A.02 and (b) the term “Company” means Pinnacle West and its consolidated subsidiaries. | |
2. | Pinnacle West will publicly disclose director independence determinations in accordance with NYSE rules and/or applicable law. | |
3. | No director qualifies as Independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder, or officer of an organization that has a relationship with the Company). The Board may make this determination upon its finding that a director does not have any of the relationships or interests described in Paragraphs 4 – 8 below. | |
4. | A director is not Independent who is, or has been within the last three years, an employee of the Company, or whose immediate family member is, or has been within the last three years, an executive officer, of the Company. | |
5. | A director is not Independent if the director or an immediate family member has received, during any twelve-month period within the last three years, more than $100,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such deferred compensation is not contingent in any way on continued service). | |
6. | A director is not Independent if (a) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (b) the director is a current employee of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (d) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time. | |
7. | A director is not Independent if the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee. | |
8. | A director is not Independent if the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues. In the case of Company contributions to tax-exempt organizations that exceed the threshold in the previous sentence, a director will not be considered Independent only if the director is a paid executive officer (exclusive of expense reimbursements) of any such organization. | |
9. | For purposes of Paragraphs 4 – 8 above, (a) “immediate family members” consist of a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home and (b) the term “executive officer” means Pinnacle West’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any Pinnacle West vice-president in charge of a principal business unit, division or function (such as sales, administration or finance), any |
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10. | Nothing in these Director Independence Standards prohibits the Board of Directors from determining that a director is not Independent based on other relationships or transactions not specifically described in Paragraphs 4 – 8 above. | |
11. | Nothing in these Director Independence Standards prohibits the Board of Directors from adopting additional or different qualifications for director membership on a Board committee, it being understood that such qualifications will be separately approved by the Board and included in such Board committee’s charter. |
/s/ WILLIAM J. POST | ||
William J. Post, Chairman of the Board | ||
and Chief Executive Officer |
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YOUR VOTE IS IMPORTANT VOTE BY INTERNET / TELEPHONE 24 HOURS A DAY, 7 DAYS A WEEK |
• | Go to the website address listed above. | |
• | Have your proxy card ready. | |
• | Follow the simple instructions that appear on your computer screen. |
OR
• | Use any touch-tone telephone. | |
• | Have your proxy card ready. | |
• | Follow the simple recorded instructions. |
OR
• | Mark, sign, and date your proxy card. | |
• | Detach your proxy card. | |
• | Return your proxy card in the postage-paid envelope provided. |
DO NOT mail your proxy card.
Thank you for voting.
the proxy card promptly using
the enclosed envelope.
Votes must be indicated
(x) in black or blue ink.
FOR ALL | o | WITHHOLD ALL | o | FOR ALL ALL EXCEPT | o | |||||||
Nominees: 01 - Jack E. Davis, 02 - Pamela Grant, | ||||||||||||
03 - Martha O. Hesse, 04 - William S. Jamieson, Jr. |
FOR | AGAINST | ABSTAIN | ||||||
2. | Ratification of Deloitte & Touche LLP as the Company’s independent auditors for fiscal year ending December 31, 2006 | o | o | o |
FOR | AGAINST | ABSTAIN | ||||||
3. | Vote on Shareholder Proposal to Elect Directors Annually | o | o | o |
Please indicate if you wish to view meeting materials electronically via the Internet rather than receiving a hard copy. Please note that you will continue to receive a proxy card for voting purposes only. | Yes o | No o | ||
To change your address, please mark this box and indicate new address on the reverse side. | o | |||
To include any comments, please mark this box and comment on reverse side. | o |
Date | Shareholder sign here | Co-Owner sign here |
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Vice President, General Counsel and Secretary
PROXY FORM | Pinnacle West Capital Corporation | PROXY FORM |
P.O. BOX 11130
NEW YORK, N.Y. 10203-0130
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