Exhibit 1.3
EXECUTION COPY
PINNACLE WEST CAPITAL CORPORATION
Common Stock
UNDERWRITING AGREEMENT
April 27, 2005
Lehman Brothers Inc.
Citigroup Global Markets Inc.
Credit Suisse First Boston LLC
c/o Lehman Brothers Inc.
745 Seventh Avenue
New York, New York 10019
Dear Sir or Madam:
1. Introduction. Pinnacle West Capital Corporation, an Arizona corporation
(the "COMPANY"), proposes to issue and sell to Lehman Brothers Inc. (the
"REPRESENTATIVE") and the other several Underwriters named in Schedule A hereto
(collectively, the "UNDERWRITERS") an aggregate of 5,300,000 shares (the "FIRM
SHARES") and, at the election of the Underwriters, up to 795,000 additional
shares (the "OPTIONAL SHARES") of Common Stock, no par value per share (the
"STOCK") of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase being collectively called the "SHARES"). All
obligations of the Underwriters hereunder are several and not joint.
2. Representations and Warranties of the Company. In connection with each
offering of the Shares, the Company represents and warrants to, and agrees with,
the several Underwriters that:
(a) Two registration statements on Form S-3 (File Nos. 333-101457
and 333-121510) in respect of the Shares (and certain other securities) have
been filed with the Securities and Exchange Commission (the "COMMISSION") (the
earliest of such registration statements being sometimes called the "FIRST
REGISTRATION STATEMENT" and the later the "SECOND REGISTRATION STATEMENT") and
have become effective. Each such registration statement, as amended as of the
date hereof, together with any related Rule 462(b) registration statement or
amendment thereto, including all exhibits thereto and the documents incorporated
by reference in the prospectus contained in the registration statements, are
hereinafter collectively called the "REGISTRATION STATEMENT" and the combined
prospectus included in the Second Registration Statement when it became
effective, as supplemented as of the date hereof, including by a Prospectus
Supplement (as defined below), to reflect the terms of the Shares and the terms
of the offering thereof, including all material incorporated by reference
therein, is hereinafter referred to as the "PROSPECTUS." The details of the
terms of offering of the Shares shall be reflected in the prospectus supplement
relating to the offering of the Shares and filed with the Commission pursuant to
Rule 424(b) under the Securities Act of 1933, as amended (the "ACT") in
accordance with Section 4(a) of this Agreement (the "PROSPECTUS SUPPLEMENT").
Any reference herein to any preliminary prospectus relating to the Shares, the
Prospectus, or any
amendment or supplement thereto, shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to the applicable form
under the Act, as of the date of such preliminary prospectus, the Prospectus, or
any amendment or supplement thereto, as the case may be; any reference to any
amendment or supplement to any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, shall be deemed to refer to and include any
documents filed after the date of such preliminary prospectus, Prospectus, or
any amendment or supplement thereto, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and incorporated by
reference in such preliminary prospectus, the Prospectus, or any amendment or
supplement thereto, as the case may be; and any reference to any amendment to
the Registration Statement shall be deemed to refer to and include any report of
the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after
the effective date of the Registration Statement that is incorporated by
reference in the Registration Statement.
(b) Each part of the Registration Statement relating to the Shares,
when the Company filed its most recent Annual Report on Form 10-K, conformed in
all material respects to the requirements of the Act and the rules and
regulations (the "RULES AND REGULATIONS") of the Commission and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; any preliminary prospectus filed pursuant to Rule 424(b) under the
Act complied when so filed in all material respects with the Act and the Rules
and Regulations. On the date of the Prospectus and on the date hereof, the
Registration Statement and the Prospectus will conform in all material respects
to the requirements of the Act and the Rules and Regulations, and at such date
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading; provided, however, that the foregoing does not apply to
statements in or omissions from any such documents based upon written
information furnished to the Company by any Underwriter specifically for use
therein. The Company hereby consents to the use of the Prospectus in connection
with the sale and distribution of the Shares by the Underwriters.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Arizona and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification, and where the failure to be so qualified
would have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operation of the Company
and its consolidated subsidiaries, taken as a whole ("MATERIAL ADVERSE EFFECT").
(d) Each of Arizona Public Service Company ("APS") and Pinnacle West
Energy Corporation ("PWEC" and, together with APS, the "MATERIAL SUBSIDIARIES")
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each Material Subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
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(e) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the consolidated financial position, stockholders'
equity or results of operations of the Company and its consolidated
subsidiaries, taken as a whole, other than as set forth or contemplated in the
Prospectus.
(f) The Company has an authorized capitalization as set forth in the
Prospectus; all of the issued shares of capital stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable and
conform to the description thereof contained in the Prospectus; and the
stockholders and other security holders of the Company have no preemptive rights
with respect to any shares of capital stock of the Company except as described
in the Prospectus.
(g) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and nonassessable and will conform to the
description of the Stock contained in the Prospectus.
(h) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture or mortgage or other material deed of
trust, loan agreement or other material agreement or instrument to which the
Company or any of its Material Subsidiaries is a party or by which the Company
or any of its Material Subsidiaries is bound or to which any of the property or
assets of the Company or any of its Material Subsidiaries is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or By-laws of the Company or any law, statute or any order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the Underwriters.
(i) The statements set forth in the Prospectus under the captions
"Description of Capital Stock" and "Description of Common Stock", insofar as
they purport to constitute a summary of the terms of the Stock, are accurate,
complete and fair.
(j) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party which, if determined adversely to the Company or any of its
subsidiaries, would have a Material Adverse Effect and, to the Company's
knowledge, no such proceedings are threatened by governmental authorities or
others.
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(k) Except as disclosed in the Prospectus, the Company and each of
its Material Subsidiaries has all corporate and other legal powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, except where the failure to have any
such license, authorization, consent or approval would not have a Material
Adverse Effect, and, as to APS, except that (a) APS from time to time may make
minor extensions of its lines, plants, services or systems prior to the time a
related franchise, certificate of convenience and necessity, license or permit
is procured, (b) from time to time communities served by APS may become
incorporated and considerable time may elapse before such a franchise is
procured, (c) certain such franchises may have expired prior to the
renegotiation thereof, (d) certain minor defects and exceptions may exist which,
individually and in the aggregate, are not material and (e) certain franchises,
certificates, licenses and permits may not be specific as to their geographical
scope.
(l) To the extent material to the Company and its Material
Subsidiaries taken as a whole, they have good and marketable title to the real
and personal property owned by them, and any real properties and buildings held
under lease by the Company or its Material Subsidiaries are held under valid and
enforceable leases, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not and
will not have a Material Adverse Effect; provided, however, that this
representation and warranty as to leases shall not extend to property held under
lease from the Navajo Nation or under easement from the Federal Government,
certain issues with respect to which are set forth in the Company's latest
annual report on Form 10-K, as amended, as filed with the Commission.
(m) Except as disclosed in the Prospectus, the operations and
properties of the Company and its Material Subsidiaries comply in all material
respects with all applicable foreign, federal, state or local laws and
regulations and any decision or order of any governmental agency or body or any
court relating to the environment, the effect of the environment on human health
or hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), except where the necessity of compliance therewith is
being contested in good faith by appropriate proceedings or such noncompliance
with Environmental Laws is not reasonably likely to have a Material Adverse
Effect.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY
ACT").
(o) The financial statements included in the Registration Statements
and the Prospectus present fairly in all material respects the financial
position of the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis (except as disclosed therein); and the schedules included in the
Registration Statements present fairly in all material respects the information
required to be stated therein; and the Company and its subsidiaries maintain
systems of internal accounting controls and processes sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit
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preparation of financial statements in conformity with generally accepted
accounting principles; and (iii) assets are safeguarded from loss or
unauthorized use.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(q) Not later than the earliest Closing Date hereunder, the Shares
will have been approved for listing on the New York Stock Exchange subject to
notice of issuance.
(r) This Agreement has been duly authorized, executed and delivered
by the Company.
(s) The Company (i) is a "holding company", as such term is defined
in the Public Utility Holding Company Act of 1935, as amended, and (ii) is
currently exempt from all provisions of the Public Utility Holding Company Act
of 1935, as amended, except Section 9(a)(2) thereof.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, and subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $42.00 per share, the respective
numbers of Firm Shares set forth opposite the names of the Underwriters in
Schedule A hereto.
In addition, upon written notice from the Representative given to the
Company from time to time not more than 30 days subsequent to the date of this
Agreement, the Underwriters may purchase all or less than all of the Optional
Shares at the purchase price per share to be paid for the Firm Shares less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Firm Shares but not payable on the Optional Shares. The
Company agrees to sell to the Underwriters the number of Optional Shares
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Shares. Such Optional Shares shall be purchased for
the account of each Underwriter in proportion to the number of Firm Shares set
forth opposite such Underwriter's name in Schedule A (subject to adjustment to
eliminate fractions). Such option is granted for the purpose of covering
over-allotments in connection with the sale of the Firm Shares. The right to
purchase the Optional Shares or any portion thereof may be exercised from time
to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by the Representative to the Company.
The time and date of delivery and payment shall be, with respect to the
Firm Shares, 10:00 a.m., New York time, on May 2, 2005 or such other time and
date as the Representative and the Company may agree upon in writing, and with
respect to the Optional Shares, 10:00 a.m., New York time, on the date specified
by the Representative in the written notice given by the Representative of the
Underwriters' election to purchase such Optional Shares, or such other
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time and date as the Representative and the Company may agree upon in writing.
The time and date for delivery of the Firm Shares is herein called the "FIRST
CLOSING DATE". Each time for the delivery of and payment for the Optional
Shares, the "OPTIONAL CLOSING DATE", which may be the First Closing Date, shall
be determined by the Representative but shall be not later than five full
business days after written notice of election to purchase Optional Shares is
given. Each such date for delivery is herein called a "CLOSING DATE".
The Shares to be purchased by each Underwriter on the applicable Closing
Date, shall be registered in such names as the Representative may request upon
at least forty-eight hours' prior notice to the Company and shall be delivered
by or on behalf of the Company to the Representative, through the facilities of
the Depository Trust Company ("DTC"), for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of Federal (same-day) funds to the account specified
by the Company to the Representative at least forty-eight hours in advance. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the applicable
Closing Date with respect thereto at the office of DTC or its designated
custodian.
4. Covenants of the Company. The Company covenants and agrees with each
Underwriter that:
(a) The Company will file the Prospectus with the Commission
pursuant to and in accordance with Rule 424(b) under the Act not later than the
second business day following the execution of this Agreement.
(b) The Company will advise the Representative promptly of any
proposed amendment or supplementation of the Registration Statement, or the
Prospectus (other than any periodic report to be filed by the Company under the
Exchange Act). The Company will also advise the Representative of the
institution by the Commission of any stop order proceedings in respect of the
Registration Statement or of any part thereof, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact, or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Registration Statement or the Prospectus to comply with applicable law, the
Company promptly will prepare and file with the Commission an amendment or
supplement that will correct such statement or omission or an amendment that
will effect such compliance. Neither the Representative's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any conditions set forth in Section 5 hereof.
(d) As soon as practicable, but not later than 18 months, after the
date of this Agreement, the Company will make generally available to its
security holders an earning statement or statements (which need not be audited)
covering a period of at least 12 months beginning after the effective date of
the Registration Statement (as defined in Rule 158(c) under
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the Act), which will satisfy the provisions of Section 11(a) of the Act and the
rules and regulations thereunder.
(e) The Company will furnish to the Underwriters or the
Representative such copies of the Registration Statement (including one copy of
the Registration Statement for the Representative and for the counsel for the
Underwriters, which is signed and includes all exhibits), any preliminary
prospectus related to the Shares and the Prospectus, and all amendments or
supplements to such documents, as may be reasonably requested; provided that the
Company will not be required to deliver documents filed by it pursuant to the
Exchange Act and thereby incorporated by reference in the Prospectus.
(f) The Company will arrange or cooperate in arrangements for the
qualification of the Shares for sale under the securities or Blue Sky laws of
such jurisdictions as the Representative designate and will continue such
qualifications in effect so long as required for the distribution of the Shares,
provided that the Company shall not be required to qualify as a foreign
corporation in any State, to consent to service of process in any State other
than with respect to claims arising out of the offering or sale of the Shares,
or to meet other requirements deemed by it to be unduly burdensome.
(g) The Company agrees to pay all costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing with
the Commission of the Registration Statement (including financial statements and
exhibits thereto), each preliminary prospectus related to the Shares, the
Prospectus, or any amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
preliminary prospectus related to the Shares, the Prospectus, or any amendment
or supplement thereto or any document incorporated by reference therein, as may,
in each case, be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp or
transfer taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, any blue sky
memorandum and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the registration of
the Shares under the Exchange Act and the listing of the Shares on the New York
Stock Exchange; (vi) any registration or qualification of the Shares for offer
and sale under the securities or blue sky laws of the several states (including
filing fees and the reasonable fees and expenses of counsel for the Underwriters
relating to such registration and qualification); (vii) the transportation and
other expenses incurred by or on behalf of Company representatives (other than
the Underwriters) in connection with presentations to prospective purchasers of
the Shares; (viii) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company; and (ix) all other costs and expenses incident to the performance by
the Company of its obligations hereunder. It is understood, however, that,
except as provided in this Section 4(g) and Section 6 and 7, the Underwriters
will pay all of their own costs and expenses.
(h) For a period of 90 days after the date of this Agreement, the
Company will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the Commission a registration statement
under the Act relating to, any additional shares of its
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Common Stock or securities convertible into or exchangeable or exercisable for
any shares of its Stock, or publicly disclose the intention to make any such
offer, sale, pledge, disposition or filing, without the prior written consent of
the Representative; provided, however, that the Company may issue and sell the
Shares or Stock, or grant stock options and other stock-based awards, in
connection with its existing equity incentive and compensation plans, its
savings plan, and its direct stock purchase and dividend reinvestment plan and
may file a registration statement with respect to its revised deferred
compensation plan.
(i) During the period of two years after the date of this Agreement,
the Company will furnish to the Representative and, upon request, each of the
other Underwriters, (i) as soon as practicable after the end of each fiscal
year, a balance sheet and statements of income and changes in common stock
equity of the Company as at the end of and for such year, all in reasonable
detail and certified by independent registered public accountants, and (ii) (A)
as soon as practicable after the end of each quarterly fiscal period (except for
the last quarterly fiscal period of each fiscal year), a balance sheet and
statement of income of the Company as at the end of and for such period, all in
reasonable detail and certified by a principal financial or accounting officer
of the Company, (B) as soon as available, a copy of each report of the Company
filed with the Commission, and (C) from time to time, such other information
concerning the Company as may reasonably be requested. So long as the Company
has active subsidiaries, such financial statements will be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated. Information required to be delivered pursuant to this provision
will be deemed to have been delivered on the date on which the Company provides
notice to the Representative that such information has been posted on the
Company's website at www.pinnaclewest.com, on the Internet at
sec.gov/edaux/searches.htm, or at another website identified in such notice and
accessible by the Representative.
5. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Shares on the First
Closing Date and the Optional Shares to be purchased on each Optional Closing
Date will be subject to the accuracy of the representations and warranties on
the part of the Company herein, to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to the following additional conditions
precedent:
(a) On the date of this Agreement, the Representative shall have
received a letter, dated the date hereof, of Deloitte & Touche confirming that
they are independent registered public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating to the
effect that:
(i) in their opinion the consolidated financial statements and
financial statement schedule audited by them and incorporated by reference
in the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No.
100, Interim Financial Information, on any unaudited financial statements,
if any, included in the Registration Statement;
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(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited condensed financial statements, if
any, included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
and summary of earnings for them to be in conformity with generally
accepted accounting principles;
(B) if any unaudited "capsule" information is contained
in the Prospectus, the unaudited consolidated operating revenues,
gross income, net income and net income per share amounts or other
amounts constituting such "capsule" information and described in
such letter do not agree with the corresponding amounts set forth in
the unaudited consolidated financial statements or were not
determined on a basis substantially consistent with that of the
corresponding amounts in the audited statements of income;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date not more
than three business days prior to the date of such letter, there was
any change in the amounts of common stock, redeemable preferred
stock, or non-redeemable preferred stock of the Company or any
increase, exceeding $10,000,000, in long-term debt of the Company
or, at the date of the most recent available unaudited financial
statements there was any decrease in consolidated net current assets
or common stock equity as compared with amounts shown in the most
recent financial statements included in the Prospectus, except in
all cases for changes, increases or decreases which result from the
declaration or payment of dividends; or
(D) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date of
the latest available income statement read by such accountants there
were any decreases, as compared with the corresponding period of the
previous year and with the period of corresponding length ended the
date of the latest income statement included in the Prospectus, in
the amounts of consolidated total revenues or net income;
except in all cases set forth in clauses (C) and (D) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Prospectus (in each case to the extent that
such dollar amounts, percentages and other financial information are
derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's accounting
system
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or are derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such letter.
All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Prospectus for
purposes of this subsection.
(b) No stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued, and no order directed to
the adequacy of any document incorporated by reference in the Prospectus, and no
proceedings for either purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Underwriters, shall be contemplated by the
Commission.
(c) Subsequent to the execution of this Agreement and prior to the
Closing Date, (i) there shall not have occurred any change, or any development
involving a prospective change, in or affecting particularly the consolidated
financial position, business or properties of the Company and its subsidiaries
taken as a whole which, in the reasonable judgment of the Representative,
materially impairs the investment quality of the Shares, (ii) there shall not
have occurred a suspension of trading in the Company's Stock by the Commission
or the New York Stock Exchange or a suspension or material limitation in trading
in securities generally on the New York Stock Exchange, (iii) there shall not
have occurred any downgrading or withdrawal, nor shall any notice have been
given of any intended or potential downgrading or withdrawal or of any review
for a possible change that does not indicate the direction of the possible
change, and there shall have been no public announcement that any such debt
securities have been placed on CreditWatch, Watchlist, or under any similar
surveillance or review, in each case with negative implications, in the rating
accorded any of the Company's securities by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. or Moody's Investor Service's, Inc., (iv) there
shall not have occurred a general moratorium on commercial banking activities in
New York declared by either Federal or New York State authorities, (v) there
shall not have occurred any material disruption of settlements of securities or
clearance services in the United States, and (vi) there shall not have occurred
any outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of the
Representative, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the sale of and payment for the Shares. If the Underwriters elect
not to purchase the Shares as a result of the occurrence of one of the events
specified in this Section 5(c), the Representative will promptly notify the
Company.
(d) The Underwriters shall have received an opinion of Snell &
Wilmer L.L.P., counsel for the Company, dated the relevant Closing Date, to the
effect that:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Arizona with
the corporate power and authority to carry on its business as described in
the Prospectus;
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(ii) The Company has authorized capitalization as set forth in
the Prospectus, and the Shares have been duly and validly authorized,
executed, issued and delivered, and are fully paid and nonassessable, and
conform to the description thereof in the Prospectus;
(iii) APS and PWEC have been duly incorporated and are validly
existing as corporations in good standing under the laws of their
jurisdictions of incorporation; APS and PWEC are duly qualified as a
foreign corporations to do business, and are in good standing, in the
States of (a) California, Montana, New Mexico, Oregon, Texas, Washington
and Wyoming and (b) California, Nevada and New Mexico, respectively; and
all of the issued shares of capital stock of each such subsidiary are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and
in respect to matters of fact upon certificates of officers of the Company
or its subsidiaries, UCC searches or other appropriate information,
provided that such counsel shall specify in its opinion the items relied
upon);
(iv) To such counsel's knowledge, except as described in the
Prospectus, there are no pending or overtly threatened actions or
proceedings before any court or governmental agency in which the Company
or any of its subsidiaries is a party or in which any property of the
Company or any of its subsidiaries is the subject, which are likely to
have a materially adverse effect on the current or future consolidated
financial position, stockholders equity or results of operations of the
Company and its consolidated subsidiaries, taken as a whole. With respect
to the matters discussed in the immediately preceding sentence, the
standard of materiality considered is that provided for in Item 103 (Reg.
Section 229.103) of Regulation S-K promulgated under the Act;
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issue and sale of the Shares and the compliance by
the Company with all of the provisions of this Agreement does not (a)
violate or result in a breach of any law, administrative regulation or, to
our knowledge, court decree applicable to the Company, (b) contravene or
constitute a default under (i) the Articles or the By-laws of the Company,
or (ii) any contractual or legal restriction contained in any document
listed in the Certificate (as defined in and attached to such opinion). In
giving the opinion expressed in clause (b)(ii) of the immediately
preceding sentence, such counsel may express no opinion regarding
compliance by the Company or any subsidiary with any financial covenants
required to be maintained by the Company or any subsidiary under any
agreement or document;
(vii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be
11
required under state securities or Blue Sky laws, as to which such counsel
shall not be required to express an opinion;
(viii) The statements set forth in the Prospectus under the
captions "Description of Capital Stock" and "Description of Common Stock",
insofar as they purport to constitute a summary of the terms of the Stock
are accurate, complete and fair in all material respects;
(ix) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company", as
such term is defined in the Investment Company Act;
(x) The documents incorporated by reference in the Prospectus
as amended or supplemented as of the Closing Date (other than financial
statements and schedules and other financial, statistical or accounting
data included or incorporated by reference therein or omitted therefrom,
as to which such counsel expresses no opinion), when they were filed with
the Commission complied as to form in all material respects with the
requirements of the Exchange Act and the Rules and Regulations of the
Commission thereunder; and
(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of the Closing Date (other than
financial statements and schedules and other financial, statistical or
accounting data included or incorporated by reference therein or omitted
therefrom, as to which such counsel expresses no opinion) comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations thereunder. Although such counsel does not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statements or the Prospectus,
except for those referred to in the opinion in subsection (viii) hereof
and has not independently verified any such statement, such counsel has no
reason to believe that the Registration Statement, at the date the Company
filed its most recent Annual Report on Form 10-K, or the Prospectus, as of
the date of the Prospectus Supplement, or any amendment thereto, or, in
each case, as of the Closing Date, excluding in all cases financial
statements and schedules and other financial, statistical or accounting
data included or incorporated by reference therein or omitted therefrom,
as to which such counsel expresses no opinion, contained or contains any
untrue statement of material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. To such counsel's knowledge, there are
no legal or governmental proceedings required to be described in the
Prospectus that are not described as required, nor any contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described and filed as required.
Whenever the opinions required by this Agreement are stated to be "to the
knowledge of such counsel" or "to such counsel's knowledge", such statements are
intended to signify that those attorneys in the firm responsible for preparing
the opinion or who have given substantive attention to the transactions
contemplated by this Agreement, after consultation with such other attorneys in
such firm who have worked on legal matters related to the Company and its
12
subsidiaries as they considered appropriate, do not have current actual
knowledge of the inaccuracy of such statement. However, except where expressly
stated otherwise, such counsel need not undertake any special or independent
investigation to determine the existence or absence of such facts, and no
inference as to such counsel's knowledge of the existence or absence of such
facts should be drawn from its representation of the Company in connection with
this transaction or otherwise.
In giving such opinion, Snell & Wilmer L.L.P. may rely to the extent such
counsel deems appropriate upon certificates of the Company as to any factual
matters upon which any such opinions are based and may rely on the opinion of
Pillsbury Winthrop Shaw Pittman LLP, counsel to the Underwriters, as to all
matters governed by the law of the State of New York, and further may rely upon
the opinion of Morgan, Lewis & Bockius LLP, delivered to you at the Closing
Date, as to all matters under the Public Utility Holding Company Act of 1935, as
amended, and the Federal Power Act, as amended.
(e) The Underwriters shall have received from Pillsbury Winthrop
Shaw Pittman LLP, counsel for the Underwriters, an opinion or opinions, dated
the relevant Closing Date, with respect to such matters as they may reasonably
require, and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters. In
rendering such opinion, such counsel may rely as to the incorporation of the
Company and all other matters governed by the laws of the State of Arizona upon
the opinion of Snell & Wilmer L.L.P.
(f) The Underwriters shall have received a certificate of the
President or any Vice President and a principal financial or accounting officer
of the Company, dated the relevant Closing Date, in which such officers, to the
best of their knowledge after reasonable investigation, shall state that the
representations and warranties of the Company in this Agreement are true and
correct, that the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to such Closing
Date, that no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission, and that, subsequent to the
date of the most recent financial statements in the Prospectus, there has been
no material adverse change in, or any development involving a prospective
material adverse change, in or affecting the consolidated financial position,
stockholders' equity or results of operations of the Company and its
consolidated subsidiaries, otherwise than as set forth or contemplated in the
Prospectus or as described in such certificate.
(g) The Underwriters shall have received a letter of Deloitte &
Touche LLP, dated the relevant Closing Date, which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to the Closing
Date for the purposes of this subsection.
(h) The Representative shall have received signed lockup agreements
in the form attached hereto as Exhibit A, dated the date of this Agreement, from
each of the directors and executive officers (as defined under Section 16 of the
Exchange Act) of the Company.
13
(i) The Company will furnish the Underwriters with such conformed
copies of such opinions, certificates, letters, and documents as may be
reasonably requested.
6. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
and each person, if any, who controls such Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter or such controlling person may become subject, under the
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any part of the
Registration Statement relating to the Shares, when such part became effective,
any preliminary prospectus relating the Shares, the Prospectus, or any amendment
or supplement thereto, or any materials or information provided to investors by,
or with the written approval of, the Company in connection with the marketing of
the Shares, including any roadshow or investor presentations made to investors
by the Company (whether in person or electronically) (the "MARKETING MATERIALS")
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, not misleading; and will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representative specifically for use therein and provided, further, that with
respect to any untrue statement or alleged untrue statement in or omission or
alleged omission from any preliminary prospectus relating to the Shares or the
Prospectus, as amended or supplemented, the indemnity agreement contained in
this subsection (a) shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages or liabilities purchased
the Shares concerned, insofar as such indemnity relates to an untrue statement
or alleged untrue statement in or omission or alleged omission from any
preliminary prospectus relating to the Shares or the Prospectus, but eliminated
or remedied prior to the consummation of such sale in the Prospectus, or any
amendment or supplement thereto, furnished on a timely basis by the Company to
the Underwriters, unless a copy of the Prospectus (in the case of such a
statement or omission made in such preliminary prospectus) or such amendment or
supplement (in the case of such a statement or omission made in the Prospectus)
(excluding, however, any document then incorporated or deemed to be incorporated
by reference in the Prospectus or such amendment or supplement) is furnished, if
legally required to be furnished, by such Underwriter to such person (i) with or
prior to the written confirmation of the sale involved or (ii) as soon as
available after such written confirmation (if it is made available to the
Underwriters prior to settlement of such sale). This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any
14
losses, claims, damages, or liabilities to which the Company or any such
director, officer, or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any part of the
Registration Statement relating to the Shares, when such part became effective,
any preliminary prospectus relating to the Shares, the Prospectus, or any
amendment or supplement thereto or any Marketing Materials, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representative specifically for use
therein; and will reimburse any legal or other expenses reasonably incurred, as
incurred, by the Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the failure to notify the indemnifying party shall not relieve it from any
liability that it may have under subsection (a) or (b) above except to the
extent that it has been materially prejudiced (including through the forfeiture
of substantive rights or defenses) by such failure; and provided further that
the failure to notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party otherwise than under
subsection (a) or (b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, without the consent of the indemnified party,
be counsel to the indemnifying party), and after notice from the indemnifying
party to such indemnified party of its assumption of the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. It is understood that the indemnifying party shall
not, in
15
respect of the legal expenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties. Such firm shall be designated in
writing by the Representative, in the case of parties indemnified pursuant to
Section 6(a) above, and by the Company, in the case of parties indemnified
pursuant to Section 6(b) above. An indemnifying party shall not be liable for
any settlement of a claim or action effected without its written consent, which
shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party for any loss,
claim, damage, liability, or action described in subsection (a) or (b) above,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above on the following basis: (i) if such
loss, claim, damage, liability, or action arises under subsection (a) above,
then (A) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Shares or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (A) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations; and (ii) if such loss, claim, damage, liability, or action
arises under subsection (b) above, then in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and the Underwriter on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations. For the purposes of clause (i) above, the relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters. For the
purposes of clauses (i) and (ii) above, the relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and each of the Underwriters agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount in excess of the underwriting
discount or commission applicable to the Shares purchased by such Underwriter
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
16
7. Default of Underwriters; Termination by Underwriters. If any
Underwriter or Underwriters default in their obligations to purchase Shares
pursuant to this Agreement and the number of Shares that such defaulting
Underwriter or Underwriters agreed but failed to purchase is ten percent (10%)
or less of the number of Shares that the Underwriters are obligated to purchase,
the Underwriters may make arrangements satisfactory to the Company for the
purchase of such Shares by other persons, including any of the Underwriters, but
if no such arrangements are made by the Closing Date the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Shares that such defaulting Underwriter
or Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters so default and the number of Shares with respect to which such
default or defaults occur is more than the above-described amount and
arrangements satisfactory to the remaining Underwriters and the Company for the
purchase of such Shares by other persons are not made within thirty-six hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company, except as provided in Section
8. In any such case either the Representative or the Company shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
If this Agreement shall be terminated by the Underwriters because of any
failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, or if for any reason the
Company shall be unable to perform its obligations under this Agreement, the
Company shall not be liable to any Underwriter or to any member of any selling
group for the loss of anticipated profits from the transactions contemplated by
this Agreement. However, in such an event, the Company will reimburse the
Underwriters for all out of pocket expenses (including reasonable fees and
disbursements of their counsel) reasonably incurred by the Underwriters in
connection with this Agreement and the offering contemplated hereunder;
provided, however, that if the Shares are not delivered by or on behalf of the
Company solely as a result of the failure to satisfy the condition set forth in
Section 5(c) hereof, the Company shall have no liability to the Underwriters
except as provided in Sections 4(g) and 6 of this Agreement.
8. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties, and other statements of
the Company or its officers and of the Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of the Underwriters or the Company or any of its officers or directors or any
controlling person, and will survive delivery of and payment for the Shares. If
this Agreement is terminated pursuant to Section 7, or if for any reason a
purchase pursuant to this Agreement is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
4 and the respective obligations of the Company and the Underwriters pursuant to
Section 6 shall remain in effect.
9. Notices. All communications hereunder relating to any offering of
Shares will be in writing, and, if sent to the Underwriters, may be mailed,
delivered, or telecopied and
17
confirmed to the Representative, c/o Lehman Brothers Inc., 745 Seventh Avenue,
New York, New York 10019 Attention: Syndicate Registration Department (Fax:
212-526-0943), with a copy, in the case of any notice pursuant to Section 6(c),
to the Director of Litigation, Office of General Counsel, Lehman Brothers Inc.,
399 Park Avenue, 10th Floor, New York, New York 10022 (Fax: 212-520-0421);
provided, however, that any notice to an Underwriter pursuant to Section 6 will
be mailed, delivered, or telecopied and confirmed to each such Underwriter at
its own address. All communications hereunder to the Company shall be mailed to
the Company, Attention: Treasurer, at P.O. Box 53999, Phoenix, Arizona
85072-3999, or delivered, or telecopied and confirmed to the Company at 400
North Fifth Street, Phoenix, Arizona 85004 (fax: 602-250-5640).
10. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and the Underwriter or Underwriters as are named in
Schedule A hereto and their respective successors and the officers and directors
and controlling persons referred to in Section 6, and no other person will have
any right or obligation hereunder.
11. Representation of Underwriters. The Representative may act for the
Underwriters in connection with the offering contemplated by this Agreement, and
any action under this Agreement taken by the Representative will be binding upon
the Underwriters.
12. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute a single instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
18
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon
it will become a binding agreement between the Company and the Underwriters in
accordance with its terms.
Very truly Yours,
PINNACLE WEST CAPITAL CORPORATION
By: /s/ Barbara M. Gomez
---------------------------------
Name: Barbara M. Gomez
Title: Vice President and
Treasurer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written, on behalf of
themselves and the other several Underwriters
named in Schedule A.
Lehman Brothers Inc.
Citigroup Global Markets Inc.
Credit Suisse First Boston LLC
By: Lehman Brothers Inc.
By: /s/ James C. Penrose
-------------------------------------------
Name: James C. Penrose
Title: Managing Director
As Representative of the Several Underwriters
EXECUTION COPY
SCHEDULE A
UNDERWRITER NUMBER OF FIRM SHARES
- --------------------------------- ---------------------
Lehman Brothers Inc.............. 3,180,000
Citigroup Global Markets Inc..... 1,060,000
Credit Suisse First Boston LLC... 1,060,000
Total............................ 5,300,000
Schedule A
EXHIBIT A
[Form of Lock-up]
April 27, 2005
Lehman Brothers Inc.
Citigroup Global Markets Inc.
Credit Suisse First Boston LLC
Ladies and Gentlemen:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made that is intended to result
in an orderly market for the Common Stock, no par value per share (the
"SECURITIES") of Pinnacle West Capital Corporation, and any successor (by merger
or otherwise) thereto, (the "COMPANY"), the undersigned hereby agrees that from
the date hereof and until 90 days after the public offering date set forth on
the final prospectus used to sell the Securities (the "PUBLIC OFFERING DATE")
pursuant to the Underwriting Agreement (the "LOCK-UP PERIOD"), to which you are
or expect to become parties, the undersigned will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
Securities or securities convertible into or exchangeable or exercisable for any
shares of Securities, enter into a transaction which would have the same effect,
or enter into any swap, hedge or other arrangement that transfers, in whole or
in part, any of the economic consequences of ownership of the Securities,
whether any such aforementioned transaction is to be settled by delivery of the
Securities or such other securities, in cash or otherwise, or publicly disclose
the intention to make any such offer, sale, pledge or disposition, or to enter
into any such transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent of Lehman Brothers Inc.; provided, however, that
the undersigned may allow the Company to withhold a portion of the Securities
which the undersigned would otherwise be entitled to receive upon the vesting or
exercise of an equity incentive award to satisfy applicable tax withholding
requirements. In addition, the undersigned agrees that, without the prior
written consent of Lehman Brothers Inc., the undersigned will not, during the
Lock-Up Period, make any demand for or exercise any right with respect to, the
registration of any Securities or any security convertible into or exercisable
or exchangeable for the Securities.
Any Securities received upon exercise of options granted to the
undersigned will also be subject to this Agreement. Any Securities acquired by
the undersigned in the open market after the completion of the offering of the
Securities will not be subject to this Agreement. A bona fide gift or a transfer
of Securities to a family member or trust may be made, provided the gift
recipient or transferee agrees to be bound in writing by the terms of this
Agreement.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall lapse and become null and void if the Public Offering
Date shall not have occurred on or before April 27, 2005.
This Agreement shall be binding on the undersigned and the successors,
heirs, personal representative and assigns of the undersigned.
Very truly yours,
-----------------
Name:
22