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PINNACLE WEST CAPITAL CORPORATION
----------------------------------------
(Name of Registrant as Specified in Its Charter)
Michael Ash
-----------
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PINNACLE WEST CAPITAL CORPORATION
P.O. BOX 52132
PHOENIX, ARIZONA 85072-2132
NOTICE AND PROXY STATEMENT
For Annual Meeting of Shareholders to Be Held on
Wednesday, May 22, 1996
To Shareholders:
The 1996 annual meeting of shareholders of Pinnacle West Capital
Corporation will be held in the Regency Ballroom of the Hyatt Regency at 122
North Second Street in Phoenix, Arizona at 10:30 a.m. on Wednesday, May 22, 1996
for the following purposes:
1) To elect three Class II Directors; and
2) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Each of the 87,430,441 shares of the Company's common stock outstanding at
the close of business on March 13, 1996 entitles the holder to notice of and to
vote at this meeting or any adjournment thereof, but shares can be voted at the
meeting only if the holder is present or represented by proxy.
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Company's Board of Directors. So far as management is
aware, the matters described in this Proxy Statement will be the only ones to be
acted upon at the meeting. If any other matters properly come before the meeting
or any adjournment thereof, the proxy committee named in the enclosed proxy will
vote on those matters in accordance with its judgement.
Shareholders are requested to mark, date, sign and mail promptly the
enclosed proxy. A postage-paid envelope is provided for mailing in the United
States. Being entitled to revoke your proxy at any time before it is exercised,
you may do so and vote your shares in person if you attend the meeting.
By order of the Board of Directors
FAYE WIDENMANN
Vice President and Secretary
Approximate date of mailing to shareholders:
April 1, 1996
ITEM 1 - ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide for the division of the
Board of Directors into three classes of approximately equal size. The term of
each directorship is three years and the terms of the three classes are
staggered so that only one class is elected by the shareholders annually.
Three Class II directors are to be elected this year to serve as members of
the Board of Directors until the annual meeting of shareholders in 1999 or until
their successors are elected and qualified. Should one or more of the three
nominees listed below become unavailable to serve as a director prior to the
meeting date, the proxy committee will vote the shares it represents for the
election of such other persons as the Board may recommend unless the Board
reduces the number of directors in Class II.
Directors in the other two classes are identified on the following pages.
Information given for all directors has been furnished by each of them as of
March 13, 1996. The term "APS" refers to Arizona Public Service Company, the
Company's largest subsidiary.
Nominees
- - --------------------------------------------------------------------------------
Nominees for Election as Class II Directors
(Term to expire at 1999 Annual Meeting)
- - --------------------------------------------------------------------------------
O. Mark DeMichele, 62, has since January 1988 been President and Chief Executive
Officer of APS. Mr. DeMichele previously served as a director of the Company
from February 1985 to July 1986 and was reelected as a director in May 1990. He
is also a director of APS.
John R. Norton III, 66, is Chairman of the Board and Chief Executive Officer of
J.R. Norton Company (agricultural production), Phoenix, Arizona and was first
elected as a director in February 1985. Mr. Norton resigned as a director of the
Company in May 1985 to accept appointment as U.S. Deputy Secretary of
Agriculture, a position he held until February 1986. In February 1986 he was
reelected as a director of the Company. Mr. Norton is also a director of Aztar
Corporation, Terra Industries Inc. and APS.
Douglas J. Wall, 68, has been a director since 1985. He is of counsel to the law
firm of Mangum, Wall, Stoops & Warden. Mr. Wall is past President of the Arizona
Board of Regents.
2
Directors Continuing in Office
- - --------------------------------------------------------------------------------
Class I Directors
(Term to expire at 1998 Annual Meeting)
- - --------------------------------------------------------------------------------
Roy A. Herberger, Jr., 53, has been a director since 1992. He has been President
of the American Graduate School of International Management, "Thunderbird,"
since 1989. Mr. Herberger is also a director of Bank of America, Arizona,
MicroAge, Inc. and Express America Holdings Corporation.
Henry B. Sargent, 61, has been a director since 1985. In June of 1995 Mr.
Sargent retired as Executive Vice President and Chief Financial Officer of the
Company, a position he had held since 1985. He is currently the President of El
Dorado Investment Company, a subsidiary of the Company. He is also a director of
Megafoods Stores, Inc. and APS.
Humberto S. Lopez, 50, has been a director since May 1995. He is President of
HSL Properties (real estate development and investment), Tucson, Arizona. Of
some 40 real estate concerns Mr. Lopez has been affiliated with, four filed
petitions for court protection from creditors under Chapter 11 of the Bankruptcy
Code between April 1990 and June 1992 in order to provide these entities the
opportunity to reorganize debt associated with the properties they held. Mr.
Lopez is also a director of Bank of Tucson.
- - --------------------------------------------------------------------------------
Class III Directors
(Term to expire at 1997 Annual Meeting)
- - --------------------------------------------------------------------------------
Pamela Grant, 57, has been a director since 1985. She is a civic leader and from
July 1989 through January 1995 was President of TableScapes, Inc. (party supply
rentals). Ms. Grant was President and Chief Executive Officer of Goldwaters, a
Division of May Department Stores, until April 1988.
Martha O. Hesse, 53, has been a director since 1991. She is President of Hesse
Gas Company. In 1990 Ms. Hesse served as Senior Vice President of First Chicago
Corporation (financial services) and from 1986 to 1989 she was Chairman of the
Federal Energy Regulatory Commission. She is also a director of American Natural
Resources Co. and ANR Pipeline Company, subsidiaries of Coastal Corp., and of
Sithe Energies, Mutual Trust Life Insurance, Laidlaw Inc. and APS.
William S. Jamieson, Jr., 52, has been a director since 1991. Since January 1996
he has been an Associate with the Institute for Servant Leadership of
Hendersonville, NC and an Adjunct Member of the Bishop's staff of the Episcopal
Diocese of Phoenix. Prior to that he was Archdeacon of the Episcopal Diocese of
Arizona. Mr. Jamieson is also a member of the Special Committee of the Board of
Amerco, the parent company of U-Haul International.
Richard Snell, 65, has been a director since 1985. He has been Chairman of the
Board, President and Chief Executive Officer of the Company and Chairman of the
Board of APS since February 1990. He is also a director of Aztar Corporation,
Banc One Arizona Corporation and Bank One Arizona, N.A.
3
CERTAIN SECURITIES OWNERSHIP
At March 1, 1996, shares of the Company's common stock beneficially owned
by the indicated persons or groups were as follows:
Shares
Beneficially Percent
Owned (1) of Class
--------- --------
Non-Employee Directors and Nominees
- - -----------------------------------
Pamela Grant 26,300
Roy A. Herberger, Jr. 1,500
Martha O. Hesse 16,200
William S. Jamieson, Jr. (2) 3,615
Humberto S. Lopez 1,500
John R. Norton III (2) 33,500
Douglas J. Wall 28,205
Employee Directors and Officers
- - -------------------------------
O. Mark DeMichele (2) 208,261
Henry B. Sargent (2)(3) 37,094
Richard Snell 412,573
Other Officers Named on Page 9
- - ------------------------------
Michael S. Ash 21,382
Arlyn J. Larson (2) 27,053
Nancy E. Newquist 19,315
William J. Post 56,565
Faye Widenmann 26,887
All directors, nominees and executive 919,950 1.05%
officers as a group (15 persons) (2)
--------------------------------
- - ----------
(1) Includes shares which may be acquired by the exercise of stock options
within 60 days as follows: 24,500 each for Ms. Grant and Mr. Wall; 17,500
for Mr. Norton; 14,000 for Ms. Hesse; 96,208 for Mr. DeMichele; 10,500 for
Mr. Sargent; 364,166 for Mr. Snell; 10,004 for Mr. Ash; 9,604 for Mr.
Larson; 9,126 for Ms. Newquist; 32,043 for Mr. Post; 12,951 for Ms.
Widenmann; and 625,102 for all directors and officers as a group. In the
case of officers, also includes shares of restricted stock and vested
shares in the Company's employees' savings plan.
(2) Includes in the cases of: Mr. DeMichele, 51,037 shares held in a trust in
which investment and voting power is shared; Mr. Sargent, 21,369 shares
held in a trust in which investment and voting power is shared; Mr.
Jamieson, 615 shares held by his wife; Mr. Norton, 500 shares held by his
wife, 500 shares in a profit-sharing plan and 2,000 shares held in a trust
for Mr. Norton's late mother for which he serves as trustee; Mr. Larson,
9,137 shares held in joint tenancy with his wife; and in the case of the
group, 85,158 shares as to which voting or investment power is shared with
others.
4
(3) Mr. Sargent, although still a member of the Board, retired as an executive
officer of the Company on June 30, 1995.
THE BOARD AND ITS COMMITTEES
The full Board of Directors met 13 times during 1995. No director attended
fewer than 75% of the meetings of the full Board and of the committees on which
he or she served.
The Audit Committee of the Board reviews the performance and independence
of the Company's independent accounting firm, makes an annual recommendation to
the full Board with respect to the appointment of the firm for the following
year, approves the scope of the work to be performed and solicits and reviews
the firm's recommendations. The Committee also consults with the Company's
internal audit group and periodically reviews the relationship among that group,
management of the Company and its subsidiaries and its independent accountants.
The Committee met four times in 1995; its members were Ms. Hesse and Messrs.
Herberger, Jamieson, Lopez and Wall (Chairman).
The Human Resources Committee makes recommendations to the full Board with
respect to prospective Board members and officers and with respect to executive
salaries, bonuses and benefits. (See page 14 for the procedures for proposing
nominations to the Board). The Committee also makes stock option and restricted
stock grants, and regularly reviews the Company's policies in all of the
foregoing areas. Its report on executive compensation policy follows, and its
members are identified at the end of that report. The Committee met four times
in 1995.
Non-employee directors receive an annual retainer consisting of $12,000
cash and 500 shares of Pinnacle West common stock; to receive the 500 shares a
director is required to already own 500 shares in his or her first year on the
board, and that ownership requirement increases by 500 shares annually until it
reaches 2,500 shares. With certain exceptions, non-employee directors also
receive $900 for each board meeting attended and $700 for each committee meeting
attended.
The Company has a directors' retirement plan which provides, with certain
exceptions, to non-employee directors over the age of 65 upon their retirement
from the Board, an annual payment of $12,000. The length of time to which a
non-employee director is entitled to receive this benefit is limited to the
number of years he or she served on the Board prior to age 65.
Henry B. Sargent, a director of the Company, is currently employed by
Anderson & Wells Investment Companies which provides asset management services
to El Dorado Investment Company, the Company's venture capital subsidiary of
which Mr. Sargent is the President. Anderson & Wells' management fees include a
$130,000 annual payment that terminates on June 30, 1997 or upon the earlier
occurrence of certain events, including the cessation of Mr. Sargent's
employment with Anderson & Wells.
HUMAN RESOURCES COMMITTEE REPORT
The Human Resources Committee, composed solely of outside directors, is
responsible for making decisions regarding executive compensation. The
Committee's overall compensation philosophy is to (i) attract and retain
qualified individuals critical to the Company's success, (ii) reinforce
strategic objectives through the use of incentive compensation programs and
(iii) promote long-term stock ownership by executives and directors.
5
The Committee applies its own compensation philosophy (and specifically its
bias toward rewarding performance) to comparative information provided by
independent consultants. In 1995 it retained a nationally recognized consulting
firm to report on how its executive compensation practices compare to those of
similar companies. Information was provided for ten other organizations engaged
primarily in the electric utility business and having characteristics similar to
the Company in terms of size, nuclear generation and non-utility operations. In
addition, information was provided for a general industry group consisting of 25
companies of similar size.
Finally, the committee formulates its own views as to the responsibilities,
skills, experience and performance of the respective executive officers, with
input from Mr. Snell as to performances other than his own, and applies these
views to the information provided by its consultant.
Base Salaries. Base salaries for Company officers who served throughout
1995 were at or below median salaries in the utility group and considerably
below those in the general industry group. Salary increases of 3% were awarded
to these Company officers other than Mr. Snell (whose salary remained as
before). Mr. Sargent was an officer for the first half of 1995 at a salary
unchanged from the prior year. Mr. Post became an officer at midyear, but his
compensation continues to be paid by APS (where he remains an executive officer)
and reviewed by the APS Human Resources Committee as discussed below.
Bonuses. Cash bonuses payable for any year are predicated on weighted,
targeted levels of corporate performance established by the Committee at the
beginning of the year. Performance is assessed by the Committee after the end of
the year; discretion is exercised in limited areas where the Committee's
judgement is called for by the bonus plan.
For 1995 the plan stipulated that no bonuses would be paid unless a
dividend on common stock had been declared at an increased annual rate. Provided
this stipulation was met, the determinants of bonus levels, in order of
importance, were per-share earnings, the development of strategies for
positioning the Company within the changing business environment, corporate net
cash flow and non-utility subsidiary earnings in comparison to parent company
operating expenses.
At the end of the year the Committee awarded an attainment factor to each
objective based upon the degree to which it was accomplished. The Committee then
totaled the weighted individual attainment factors to produce a composite
attainment factor common to all officers and multiplied that by a predetermined
percentage of salary (50% for Mr. Snell and 25% for all other officers) to
determine actual bonuses. Based upon the work done by Mr. Sargent prior to his
retirement, the Committee decided to award him a bonus based upon 35% (the
percentage that would have been used but for his retirement) of one-half of his
annual salary. The bonuses so arrived at and paid reflect a composite attainment
factor slightly below the maximum level in the 1995 plan.
Equity Participation. The Committee believes that the ultimate measure of
management's performance is its ability to deliver rewards to shareholders in
the form of share price appreciation and rising dividends over time. To those
ends, the Committee began in the fall of 1990 to make systematic grants of stock
options and restricted stock to officers and key management employees of
Pinnacle West and its subsidiaries in order that they could participate in those
rewards through stock ownership. The value of the 1995 awards was higher than
the median in the utility group, but was substantially lower than the median
level in the general industry group. Given the changes in the utility industry,
the Committee pays greater attention to trends within the general industry
group.
The Committee believes that senior management personnel of the Company and
its subsidiaries should have a significant, ongoing personal investment in the
Company. To that end, restricted stock grants,
6
besides being compensatory in nature, are utilized by the Committee to encourage
the attainment and retention of targeted levels of individual stock ownership by
conditioning their vesting upon the ownership of certain numbers of shares for
predetermined periods of time. This restriction provides a financial incentive
for employees to maintain a value of stock ownership that, for officers, ranges
from 1 to 1.25 times annual salary.
The size of awards made to participants in the program is determined by
making assumptions as to how, generally, the stock should perform if the Company
achieves its longer-term goals, and individual grants were then determined by
bringing the recipient's total compensation to a level approximately equal to or
slightly ahead of median levels within the utility comparison group, provided
that the stock performs as assumed. The size of awards made in late 1995 was
scaled downward to reflect the increase in the value of awards due to the
increase in Company stock price in 1995.
Tax Consideration. Pursuant to a law enacted in 1993, publicly-traded
corporations generally will not be permitted to deduct, for federal income tax
purposes, annual compensation in excess of $1 million paid to any of certain top
executives, except to the extent the compensation qualifies as
"performance-based." While the Committee is biased toward rewarding performance
through the bonus and equity participation programs, certain features of these
programs do not fit the law's stringent definition of "performance-based," and
limited amounts of compensation may therefore not be deductible.
CEO Compensation. Mr. Snell's annual salary level and initial equity
participation (stock option and restricted stock awards) were negotiated in
January of 1990 as part of the employment agreement summarized on page 13. In
those negotiations, the compensation levels and equity participation he was
leaving behind at his former employer were taken into account, along with then
prevailing practices at Pinnacle West.
In the five years that Mr. Snell has been with the Company, he has received
a single base salary increase of 3%. Consistent with its compensation
philosophy, the Committee has, instead, emphasized reward-for-performance
through the bonus plan and equity participation grants.
Mr. Post's Compensation. Although Mr. Post is an executive officer of the
Company, his compensation is paid by APS based upon his position as Senior Vice
President and Chief Operating Officer of this subsidiary of the Company. Two
members of this Committee, Mr. Norton and Ms. Hesse, are also members of APS'
Human Resources Committee and both committees share similar compensation
philosophies. Determination of Mr. Post's base salary and bonus was made much in
the same manner as described above except that his bonus was largely based upon
APS' earnings. Mr. Post's equity participation was determined in the same manner
as that for other Pinnacle West executive officers.
The foregoing report of the Human Resources Committee is provided by its
members: Ms. Grant (Chairman), Ms. Hesse and Messrs. Lopez, Norton and Wall.
7
STOCK PERFORMANCE COMPARISONS
The annual changes for the five-year period shown in the following graph
are based on the assumption that $100 was invested on the last trading day in
1990 in Pinnacle West stock and in the market represented by each of two indices
(the Dow Jones Equity Market Index and the Edison Electric Institute Index of
100 Investor-Owned Electrics), and that any dividends were reinvested.
Date DJ EEI PNW
12/90 100 100 100
12/91 132.44 128.87 173.75
12/92 143.83 138.69 203.75
12/93 158.14 154.11 225.75
12/94 159.36 136.28 206.50
12/95 220.51 178.55 307.00
8
EXECUTIVE COMPENSATION
The following tables on compensation and stock options relate to the
executive officers of the Company for services rendered in all capacities to the
Company and its subsidiaries.
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Awards
- - -------------------------------------------------------- ---------------------- ----------------
Name and Restricted
Principal Stock All Other
Position Year Salary Bonus Awards (1) Options Compensation (2)
- - -------- ---- ------ ------ ---------- ------- ----------------
Michael S. Ash 1995 $120,278 $ 44,582 $ 23,324 4,250 $ 5,865
Corporate Counsel 1994 116,946 35,923 19,000 5,000 2,984
1993 114,054 22,609 22,125 5,000 3,459
Arlyn J. Larson 1995 $134,921 $ 50,010 $ 27,440 5,000 $ 9,754
VP Corporate Planning 1994 131,183 40,296 22,800 6,000 6,200
1993 128,075 25,361 24,338 5,500 6,128
Nancy E. Newquist 1995 $130,224 $ 48,269 $ 27,440 5,000 $ 5,659
VP & Treasurer 1994 125,154 38,894 22,800 6,000 3,787
1993 114,054 22,609 22,125 5,000 4,000
William J. Post (3) 1995 $287,500 $175,500 $ 93,296 17,000 $12,229
Sr. VP & COO of APS and
Exec. VP of Company
Henry B. Sargent (3) 1995 $181,834 $ 81,411 $ 0 0 $55,163
Exec. VP & CFO 1994 315,180 135,133 76,000 20,000 33,835
1993 315,181 92,947 95,138 21,500 34,738
Richard Snell 1995 $515,000 $380,070 $137,200 25,000 $53,482
Chairman, President & CEO 1994 515,000 252,350 114,000 30,000 29,560
1993 515,000 202,498 110,625 25,000 37,104
Faye Widenmann 1995 $120,278 $ 44,582 $ 23,324 4,250 $ 5,728
VP Corporate Administration & 1994 116,946 35,923 19,000 5,000 3,139
Secretary 1993 114,054 22,609 22,125 5,000 3,407
(1) The value of the restricted stock is based on the closing price of the
Company's common stock on the date the restricted stock was granted. The
restrictions lapse on most restricted stock awards upon (i) the passage of
three years from date of grant or upon retirement after the age of 60 and
(ii) the holding of certain numbers of unrestricted shares for certain
periods of time, as determined by the Human Resources Committee at the time
of grant. Any dividends paid on restricted stock will be held by the
Company until the restrictions lapse. The number and value (at market) of
aggregate restricted shareholdings as of the end of 1995 were: Mr. Ash -
2,850 shares, $81,937; Mr. Larson - 3,300 shares, $94,875; Ms. Newquist -
3,200 shares, $92,000; Mr. Post - 8,300, $238,625; Mr. Sargent - 0 shares,
$0; Mr. Snell - 16,000 shares, $460,000 and Ms. Widenmann - 2,850 shares,
$81,937.
(2) The figures given in this column for 1995 consist of Company matching
contributions to the Company's employees' savings plan: Mr. Ash - $2,798,
Mr. Larson - $3,971, Ms. Newquist - $3,871, Mr. Post - $4,500, Mr. Sargent
- $2,882, Mr. Snell - $0 and Ms. Widenmann - $2,708; the above-market
portion of interest accrued under a deferred compensation plan: Mr. Ash -
$2,909, Mr. Larson - $3,723, Ms. Newquist - $1,608, Mr. Post - $6,733, Mr.
Sargent - $9,816, Mr. Snell - $16,102 and Ms. Widenmann - $2,673; premiums
paid by the Company for additional term life insurance: Mr. Ash - $158, Mr.
Larson - $2,060, Ms. Newquist - $180, Mr. Post - $996; Mr. Sargent -
$2,265, Mr. Snell - $8,580 and Ms. Widenmann - $347; and $40,200 paid to
Mr. Sargent as a director of APS and as a director of the Company
subsequent to his retirement as an officer and $28,800 paid to Mr. Snell
for service as a director of APS.
(3) Mr. Post was elected Executive Vice President of the Company effective June
30, 1995. Figures shown include compensation for the entire year. Mr.
Sargent retired as an officer of the Company on June 30, 1995.
9
Option Grants in 1995
Percentage of
Options Total Options
Granted Granted to All Exercise Grant Date
in 1995 Employees in Price Expiration Present
Name (Shares)(1) 1995 (per share) Date Value(2)
- - ---- ----------- ------ ----------- ---- --------
Michael S. Ash 4,250 1.23% $27.44 11/15/05 $11,900
Arlyn J. Larson 5,000 1.45% $27.44 11/15/05 $14,000
Nancy E. Newquist 5,000 1.45% $27.44 11/15/05 $14,000
William J. Post 17,000 4.95% $27.44 11/15/05 $47,600
Henry B. Sargent 0 0.00% N/A N/A $0
Richard Snell 25,000 7.29% $27.44 11/15/05 $52,000
Faye Widenmann 4,250 1.23% $27.44 11/15/05 $11,900
(1) All options were granted on November 15, 1995 and become exercisable at the
rate of one-third of the grant annually starting on November 15, 1996. All
options not already exercisable will become exercisable if an individual
retires on or after the age of 60. No SARs have been granted.
(2) The Black-Scholes option pricing model was chosen to estimate the options'
value. The basic assumptions used in the model were expected volatility of
.126; risk-free rate of return of 5.46%; dividend yield of 4.5%; and time
to exercise of five years, though in the case of Mr. Snell, the time to
exercise and corresponding risk-free rate of return were two and a half
years and 5.21% respectively.
Option Exercises in 1995 and Year-End Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at Fiscal Year-End at Fiscal Year-End (1)
------------------ ----------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Michael S. Ash 0 $0 10,004 9,251 $90,674 $49,117
Arlyn J. Larson 17,347 $127,427 8,715 10,834 $56,113 $57,700
Nancy E. Newquist 6,668 $29,172 8,646 10,667 $61,011 $56,593
William J. Post 703 $4,679 30,603 30,834 $267,117 $149,339
Henry B. Sargent 91,608 $526,692 10,500 0 $118,125 $0
Richard Snell 0 $0 364,166 53,334 $5,669,033 $282,962
Faye Widenmann 5,718 $68,408 12,285 9,251 $89,977 $49,117
(1) The value of options equals the market value of Pinnacle West common stock
at December 31, 1995 ($28.75 per share), minus the exercise price of
options, and includes only those options the exercise price of which was
less than market value at year-end.
10
Executive Benefit Plans
All of the plans described below relate to the Company. Mr. Post is covered
by executive benefit plans provided by APS; however, those plans are
substantially identical to the plans described for the Company, and the benefits
provided to him would be the same as if he were a participant in the Company's
plans.
Employees' Retirement Plan and Supplemental Excess Benefit Retirement Plan.
The Company maintains a retirement plan and a supplemental excess benefit
retirement plan for employees and employees of certain subsidiaries. The
following table illustrates the annual benefits, calculated on a straight-life
annuity basis, that would be provided under these plans to the Company's
officers who retire at the indicated compensation and longevity levels.
Years of Service
Average Annual --------------------------------------------------------
Compensation(a) 5(b) 10 20 25(c)
- - --------------------------------------------------------------------------------
$ 100,000 $ 15,000 $ 30,000 $ 50,000 $ 60,000
150,000 22,500 45,000 75,000 90,000
200,000 30,000 60,000 100,000 120,000
250,000 37,500 75,000 125,000 150,000
300,000 45,000 90,000 150,000 180,000
350,000 52,500 105,000 175,000 210,000
400,000 60,000 120,000 200,000 240,000
450,000 67,500 135,000 225,000 270,000
500,000 75,000 150,000 250,000 300,000
550,000 82,500 165,000 275,000 330,000
600,000 90,000 180,000 300,000 360,000
650,000 97,500 195,000 325,000 390,000
750,000 112,500 225,000 375,000 450,000
800,000 120,000 240,000 400,000 480,000
- - ----------
(a) Compensation under the retirement plan consists solely of base salary,
including any amounts voluntarily deferred under the Company's 401(k) plan.
While the retirement plan does not include amounts voluntarily deferred
under other deferred compensation plans, bonuses or incentive pay, the
supplemental excess benefit retirement plan does include, subject to
certain exceptions, these additional components of compensation. For
purposes of the employees' retirement plan, compensation in excess of
$150,000 (as adjusted for cost-of-living) is disregarded.
(b) Although years of service begin accumulating on the date of employment,
benefits do not vest until the completion of five years of service.
11
(c) Although the maximum number of years used in calculating benefits under the
employees' retirement plan is 33 1/3, a greater maximum benefit is achieved
under the supplemental excess benefit retirement plan after 25 years of
service.
For officers, the Company's supplemental excess benefit retirement plan,
amended effective January 1, 1994, provides enhanced benefits. Benefits payable
under this plan that are in excess of the benefits payable under the Company's
retirement plan (which, as a qualified defined benefit pension plan, is limited
pursuant to the Internal Revenue Code), are payable from the general assets of
the Company. The number of credited years of service for each of the individuals
named on page 9 and their 1995 remuneration covered by plans of the Company are
as follows: Mr. Ash - 11 years, $156,742; Mr. Larson - 15 years, $175,824; Ms.
Newquist - 9 years, $169,704; Mr. Post - 23 years, $433,172; Mr. Snell - 6 years
(see description of Mr. Snell's employment agreement on page 13), $767,350; and
Ms. Widenmann - 18 years, $156,742. The amounts shown in the table above are not
expected to be subject to any reduction or offset for Social Security benefits
or other significant amounts.
Supplemental Executive Benefit Plan. Effective January 1, 1992, the Company
established a supplemental executive benefit plan to provide certain benefits to
directors and officers of the Company and its subsidiaries upon the occurrence
of certain events, which generally include bankruptcy, the sale of substantially
all of the Company's assets, a merger or consolidation in which the Company is
not the surviving entity, certain changes in the composition of the Board of
Directors or someone acquiring 20% or more of the Company's voting stock. Assets
to be used to fund the plan are held in an irrevocable trust.
The plan provides two benefits -- a participant's benefit and an employer's
benefit. The participant's benefit, to be determined annually by the plan's
administrative committee, will be paid in a lump sum to a participant in January
of the year following the date of the occurrence of one of the above-mentioned
events, provided that the participant meets certain conditions of employment.
The employer benefit is the amount in the trust that is not needed to pay a
participant's benefit. It will be paid in a lump sum to the Company when one of
the participants terminates employment for reasons which prevent him or her from
qualifying for a participant's benefit, or when there is an asset balance
remaining in the trust after payment of the benefit and such assets are not
necessary to fund any other participant's plan benefits.
Executive Severance Arrangements. The Company has entered into severance
agreements, which are identical in content, with each of its executive officers
except Mr. Snell (see the discussion of his employment agreement below). These
agreements are intended to provide stability in key management of the Company.
Under the agreements each officer will receive a payment and other severance
benefits having an aggregate value of not more than 2.99 times the officer's
"base income" (the average of the officer's annual compensation over the five
years preceding the year of a "change of control") if, during the three-year
period following a change of control of the Company, the officer's employment is
terminated or the terms and conditions of his or her employment are
significantly and detrimentally altered. "Change of control" includes any change
of control event required to be reported under the Securities Exchange Act of
1934, an unrelated third party's acquisition of 20% or more of the Company's
voting stock or substantially all of the assets of the Company, a merger or
acquisition of the Company in which the Company is not the surviving
corporation, a change in the majority of the members of the Company's Board of
Directors over a two-year period, which change is not approved by two-thirds of
the members of the Board then serving who were members immediately prior to the
change, or the filing of a voluntary or involuntary petition of bankruptcy
(other than for liquidation or dissolution) which is not dismissed within 30
days. No severance benefits will be payable to an officer who has attained age
65 or whose termination is on account of retirement, voluntary termination,
disability or death or for
12
"cause" as defined in the agreements. Each of the agreements terminates on
December 31st of each year upon six months' advance notice by the Company to the
officer; if the six months' advance notice is not given, the agreements will
continue for successive one-year periods until the notice is given.
Mr. Snell's Employment Agreement. Mr. Snell and the Company are parties to
an employment agreement setting forth the terms of his employment as President
and Chief Executive Officer of the Company. The agreement was for a term of five
years, beginning on February 5, 1990, and was amended to extend his term of
employment by an additional two years. The agreement may be terminated by Mr.
Snell at any time upon 120 days' prior written notice to the Company. Under the
agreement Mr. Snell is entitled to a base salary of $500,000 per year, subject
to periodic appraisal by the Board or a committee thereof, as well as to such
bonus payments as may be declared from time to time by the Board. The agreement
entitles Mr. Snell to participate in the employee benefit plans generally
available to Company employees, and in the Company's deferred compensation plan,
supplemental excess benefit retirement plan, and stock option plan. Mr. Snell is
also entitled to a supplemental pension under the agreement. For purposes of
determining his supplemental pension benefits, Mr. Snell's years of service on
February 5, 1990 were assumed to be 29 years, and he will be credited with an
additional year for each year of employment thereafter, not to exceed 33 1/3
years. The supplemental pension benefit is not payable, however, if there is a
final determination that he has breached the agreement. The agreement also
contains "change of control" benefit provisions which are in all material
respects identical to those contained in the severance agreements entered into
between the Company and each of its other executive officers (see page 12).
SECTION 16 REQUIREMENTS
The Securities Exchange Act of 1934 requires officers and directors to file
reports of ownership of the Company's equity securities with the Securities and
Exchange Commission and the New York Stock Exchange. To the best of the
Company's knowledge, during 1995 its officers and directors complied with these
filing requirements, except as follows. Mr. DeMichele filed a Form 4, Statement
of Changes in Beneficial Ownership, to report the sale of shares resulting from
a withdrawal of after-tax funds from his Employee Savings Plan account two
months after it was due. Ms. Grant failed to timely report the sale of shares,
which she had previously disclaimed any beneficial interest in, that were owned
by a trust of which her spouse was the trustee.
GENERAL
Cost of Solicitation. The cost of the solicitation of proxies, which will
be by mail, will be borne by the Company. Brokerage houses and others will be
reimbursed for their out-of-pocket expenses in forwarding documents to
beneficial owners of stock.
Auditors. It is contemplated that the Company's financial statements as of
December 31, 1996 and for the year then ended will be examined by Deloitte &
Touche LLP, independent certified public accountants. Representatives of that
firm are expected to be present at the annual meeting with the opportunity to
make a statement if they so desire and to be available to respond to appropriate
questions.
Voting Procedures. A majority of the outstanding shares entitled to vote in
person or by proxy at the meeting will constitute a quorum for the conduct of
business.
13
For the election of directors, the individuals receiving the highest number
of votes will be elected. The number of votes to which each shareholder will be
entitled is to be determined by multiplying the number of shares of common stock
owned as of the March 13, 1996 record date by the number of directors to be
elected, and any shareholder may cumulate his or her votes by casting them all
in person or by proxy for any one nominee, or by distributing them among two or
more nominees.
Broker "non-votes" with respect to any matter are not considered shares
present and will not affect the outcome of the vote on such matter.
Nominations to the Board. A shareholder wishing to propose the nomination
of an individual for election to the Company's Board of Directors must submit
his or her recommendation to the Company in writing, and in accordance with the
applicable provisions of the Company's Articles of Incorporation and Bylaws, so
as to be received by the Office of the Secretary no later than November 25,
1996. Copies of the Company's Articles of Incorporation and Bylaws are available
upon written request delivered to the Office of the Secretary.
Shareholder Proposals for Next Annual Meeting. In order to be considered
for inclusion in the proxy statement and form of proxy relating to the 1997
annual meeting of the Company's shareholders, a proposal intended by a
shareholder for presentation at that meeting must be submitted in accordance
with the applicable rules of the Securities and Exchange Commission and received
by the Company at its principal executive offices on or before December 2, 1996.
Proposals to be presented at the annual meeting which are not intended for
inclusion in the proxy statement and form of proxy must be submitted in
accordance with the applicable provisions of the Company's Bylaws, a copy of
which is available upon written request delivered to the Office of the
Secretary. The Company suggests that proponents submit their proposals to the
Office of the Secretary by Certified Mail -- Return Receipt Requested.
14
Pinnacle West Capital Corporation
P.O. Box 52135
Phoenix, Arizona 85072
April 1, 1996
Dear Shareholders:
The 1996 Annual Meeting of Shareholders of Pinnacle West Capital Corporation
will be held at the Hyatt Regency, 122 North Second Street, Phoenix, Arizona on
May 22, 1996 at 10:30 a.m. Mountain Standard Time. At the meeting shareholders
will be asked to elect three Class II Directors to serve until the 1999 Annual
Meeting.
Your vote is important. Whether or not you plan to attend the meeting, please
review the enclosed proxy statement, complete the proxy form below and return it
promptly in the envelope provided.
Sincerely,
Faye Widenmann
Vice President and Secretary
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PROXY FORM
Pinnacle West Capital Corporation
PROXY FORM
- - --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on May 22, 1996.
The undersigned hereby appoints Richard Snell and Faye Widenmann, and each of
them, proxies for the undersigned, each with full power of substitution, to
attend the Annual Meeting of Shareholders of Pinnacle West Capital Corporation,
to be held May 22, 1996 at ten-thirty a.m., Phoenix time, and at any adjournment
thereof, and to vote as specified in this Proxy all the shares of stock of the
Company which the undersigned would be entitled to vote if personally present.
The proxies of the undersigned may vote according to their discretion on any
other matter that may properly come before the meeting.
Voting with respect to the election of Directors may be indicated on the reverse
of this card. Nominees for Director are: O. Mark DeMichele, John R. Norton III
and Douglas J. Wall.
This proxy will be voted as specified on the reverse. If no specification
is made, this proxy will be voted FOR the election of Directors.
Election of Directors
- - --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the election of Directors.
- - --------------------------------------------------------------------------------
FOR* WITHHOLD
1. Election of Directors [ ] [ ]
(see other side)
*For all nominees, except vote withheld from the following:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Signature Date
- - --------------------------------------------------------------------------------
Signature Date
Please sign as your name(s) appears below. Joint owners
should both sign. Fiduciaries, attorneys, corporate
officers, etc. should state their capacities.
Any proxy given previously is hereby revoked.
Fold and detach Fold and detach
- - --------------------------------------------------------------------------------
Attending the Meeting
Should you wish to attend the Annual Meeting at the Hyatt
Regency, please park in either the Hyatt parking lot or at the Phoenix Civic
Plaza (lots shaded on the map below and entrances marked by asterisks). The
Company will provide for validation of your Hyatt Regency parking lot ticket at
the registration desk at the meeting. Please be aware that the Company is unable
to validate valet parking.
Please note: Should you plan on parking at the Phoenix Civic
Plaza you must present this stub from your proxy form at the time you enter the
parking garage.
(map)