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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrantRegistrant /X/
Filed by a partyParty other than the registrantRegistrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ARIZONA PUBLIC SERVICE COMPANY
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Arizona Public Service Company
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(Name of Registrant as Specified inIn Its Charter)
JEROME BENNETT
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(Name of Person(s) Filing Proxy Statement)Statement, if other than the Registrant)
Payment of filing feeFiling Fee (Check the appropriate box):
/X/ $125 per Exchange Act RuleRules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)14a-6(i)(2).
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactionstransaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:10-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the formForm or scheduleSchedule and the date of its filing.
(1) Amount previously paid:Previously Paid:
N/A
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(2) Form, scheduleSchedule or registration statement no.Registration Statement No.:
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(4) Date filed:Filed:
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1Set forth the amount on which the filing fee is calculated and state how it
was determined.------------------------------------------------------------------------
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ARIZONA PUBLIC SERVICE COMPANY
P.O. BOX 53999
PHOENIX, ARIZONA 85072-3999
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, APRIL 19, 1994MAY 16, 1995
To the Shareholders:
The seventy-fourthseventy-fifth annual meeting of shareholders of Arizona Public Service
Company (the "Company") will be held at the offices of the Company at 400 North
Fifth Street in Phoenix, Arizona, on Tuesday, April 19, 1994,May 16, 1995, at 10:00 a.m., for
the following purposes:
1. To elect a Board of Directors to serve for the ensuing year or until
their successors are elected and qualified; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Company's Board of Directors of proxies in the accompanying form.Directors. The cost of solicitation, which
will be by mail, will be borne by the Company. It is also anticipated that
brokerage houses and others will be reimbursed for their out-of-pocket expenses
in forwarding documents to beneficial owners of stock held in their names. Directors, officers, or employees of the Company may
possibly solicit proxies by telephone or in person without extra compensation
therefor.
So far as management is aware, the matters set out 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 thereon in accordance with its judgment.
The management of the Company cordially invites you to attend the meeting.
By order of the Board of Directors
NANCY C. LOFTIN
Secretary
Approximate date of mailing to shareholders:
March 18, 1994April 14, 1995
IMPORTANT!
SHAREHOLDERS ARE EARNESTLY REQUESTED TO DATE, SIGN AND MAIL PROMPTLY THE
ENCLOSED PROXY. A POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED
STATES. YOU ARE ENTITLED TO REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED
AND VOTE YOUR SHARES IN PERSON IF YOU ATTEND THE MEETING.
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ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed proxy to vote for
the nominees listed below to serve as members of the Board of Directors until
the next annual meeting of shareholders or until their successors are elected
and qualified. If, between the mailing of this Proxy Statement and the meeting
date, any such individual becomes unavailable to serve (which is not
anticipated), the proxies may be voted for a person properly nominated or the
number of directors to be elected will be reduced accordingly. The following
information has been furnished by the respective nominees as of March 24, 1995.
Pinnacle West Capital Corporation, the parent of the Company, is referred to
herein as "Pinnacle West."
NOMINEES
DATE FIRST
NAME, AGE, BUSINESS EXPERIENCE, AND DIRECTORSHIPS BECAME A DIRECTOR
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KENNETH M. CARR, 70, is retired. Between June 1991 and August 1991, December 1991
Mr. Carr acted as Special Assistant to the Nuclear Regulatory
Commission (NRC). From August 1986 to June 1991, he served as a
commissioner of the NRC, holding the position of Chairman during the
last two years of his term. Prior to serving as a commissioner, Mr.
Carr was a career naval officer, retiring in 1985 as a Vice
Admiral.(1)
O. MARK DEMICHELE, 61, is President and Chief Executive Officer of the September 1982
Company. Mr. DeMichele was elected President and Chief Operating
Officer of the Company in 1982 and became Chief Executive Officer in
January 1988. Mr. DeMichele is also a director of Pinnacle West.
MARTHA O. HESSE, 52, is President of Hesse Gas Company and Dolan December 1991
Energy Corporation, Houston, Texas (marketing of gas and other fuels).
In 1990, Ms. Hesse served as Senior Vice President of First Chicago
Corporation (financial services), and from 1986 to 1989, she was
Chairman of the Federal Energy Regulatory Commission. Ms. Hesse is
also a director of Pinnacle West, Sithe Energies, Inc., Health
Funding, Mutual Trust Life, and American Natural Resources Company, a
subsidiary of Coastal Corp.
MARIANNE MOODY JENNINGS, 41, is a Professor of Legal and Ethical March 1987
Studies in Business at the College of Business, Arizona State
University, where she has worked for more than five years. In
addition, Ms. Jennings is a textbook author, and since 1977 she has
been a consultant for various firms. Ms. Jennings is also a columnist
for The Arizona Republic.
ROBERT G. MATLOCK, 61, has, since 1984, been an independent management April 1993
consultant to various governmental agencies involved in developing
nuclear energy resources and to utilities operating nuclear
facilities.
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DATE FIRST
NAME, AGE, BUSINESS EXPERIENCE, AND DIRECTORSHIPS BECAME A DIRECTOR
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JARON B. NORBERG, 57, has, for over five years, served as Executive July 1986
Vice President and Chief Financial Officer of the Company.
JOHN R. NORTON III, 66, is Chairman of the Board and Chief Executive January 1984
Officer of J.R. Norton Company (agricultural production), Phoenix,
Arizona. 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
re-elected as a director of the Company. Mr. Norton is also a director
of Pinnacle West, Aztar Corporation (casino hotels), and Terra
Industries Inc. (agricultural chemicals).
WILLIAM J. POST, 44, is Senior Vice President and Chief Operating September 1994
Officer of the Company. From April 1985 to June 1993, Mr. Post
served as Vice President of the Company. In June 1993 he was elected
Senior Vice President. Mr. Post was elected Chief Operating Officer
and member of the Board of the Company in September 1994. Mr. Post is
also a director of Nuclear Electric Insurance Limited (NEIL).
DONALD M. RILEY, 51, is President and General Manager of Gilpin's June 1987
Construction Company, Inc. (general contractor), Yuma, Arizona.
HENRY B. SARGENT, 60, has, for over five years, served as Executive January 1976
Vice President and Chief Financial Officer of Pinnacle West. Mr.
Sargent served as a director of the Company from January 1976 until he
resigned in July 1986. He was reelected as a director in May 1990. Mr.
Sargent is also a director of Pinnacle West, Magma Copper Company and
Megafoods Stores, Inc.
WILMA W. SCHWADA, 68, is a civic leader and homemaker, Phoenix, September 1977
Arizona.
VERNE D. SEIDEL, 70, is a real estate broker and managing partner of June 1987
HMS Properties (property management), Flagstaff, Arizona.(1)
RICHARD SNELL, 64, was elected, as of February 1990, Chairman of the July 1975
Board of the Company and Chairman of the Board, President, and Chief
Executive Officer of Pinnacle West. Mr. Snell was Chairman of the
Board of Aztar Corporation from 1989 to February 1992. He remains a
director of Aztar Corporation and is also a director of Bank One
Arizona Corporation and Bank One, Arizona, N.A.
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DATE FIRST
NAME, AGE, BUSINESS EXPERIENCE, AND DIRECTORSHIPS BECAME A DIRECTOR
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DIANNE C. WALKER, 38, is an independent consultant on electric utility June 1994
mergers and acquisitions and asset purchase transactions. Ms. Walker
served as an electric energy consultant for Bear Stearns from January
1990 to December 1994. Ms. Walker is a director of Satellite
Technology Management, Comdial Corporation, Microtest, Inc. and
Catalina Marketing Corporation.
BEN F. WILLIAMS, JR., 65, practices law as a sole practitioner with December 1970
offices in Douglas and Tucson, Arizona. Mr. Williams was a partner
in the law firm of Lesher and Williams, Tucson, Arizona, from January
1992 to June 1994. Prior to 1992, Mr. Williams practiced law as a sole
practitioner in Douglas, Arizona.
THOMAS G. WOODS, JR., 68, is retired. He served as a consultant to the November 1977
Company between 1985 and 1992. He retired in February 1985 as
Executive Vice President of the Company.
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(1) With respect to Messrs. Carr and Seidel, the Board of Directors temporarily
suspended until after the 1995 Annual Meeting of Shareholders the
requirement in the Company's Bylaws that a nominee's 70th birthday may not
have occurred before the date of election.
VOTING SECURITIES
Each of the 77,973,14676,889,146 shares of the Company's capital stock (71,264,947
shares of common and 6,708,1995,624,199 shares of preferred) outstanding at the close of
business on March 1, 199424, 1995 (the "Record Date") entitles the holder to notice of,
and to vote at, thisthe meeting or any adjournment thereof, but shares can be voted
at the meeting only if the holder is present or represented by proxy. A majority
of the outstanding shares entitled to vote and to be represented in person or by
proxy at the meeting shall constitute a quorum for the conduct of business.
In voting for directors, the votes to which each shareholder is otherwise
entitled will be multiplied 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 distribute them among two or more nominees. There
are no conditions precedent to the exercise of cumulative voting rights, nor is
any discretionary authority to cumulate being solicited hereby. An affirmative
vote of a majority of the shares present and entitled to vote at the meeting is
required for approval ofFor the election
of each director. Votes withhelddirectors, the individuals receiving the highest number of votes will be
elected. Proxies returned indicating the shareholder's wish to abstain from
voting are included in the determination of the number ofconsidered to be shares present and entitled to vote, and havesuch shares
will be used in determining the effectpercentage of a negative vote.shares that voted. 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.
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PRINCIPAL HOLDERS OF VOTING SECURITIES
All of the outstanding shares of the common stock of the Company are owned
by Pinnacle West Capital Corporation ("Pinnacle West").West. Pursuant to a Pledge Agreement, dated as of January 31, 1990
between Pinnacle West and Citibank, N.A., as Collateral Agent (the "Pledge
Agreement"), and as part of a restructuring of substantially all of its
outstanding indebtedness, Pinnacle West granted certain of its lenders a
security interest in all of the Company's outstanding common stock. Until the
Collateral Agent and Pinnacle West receive notice of the occurrence and
continuation of an Event of Default (as defined in the Pledge Agreement),
Pinnacle West is entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the common stock. As to matters
other than the election of directors, Pinnacle West agreed not to exercise or
refrain from exercising any such right if, in the Collateral Agent's judgment,
such action would have a material adverse effect on the value of the common
stock. The pledgees under the Pledge Agreement do not presently beneficially own
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934) the
Company's outstanding common stock.
No director-nominee is the beneficial owner of any of the outstanding
capital stock of the Company except for Mr. Thomas G. Woods, Jr. and, who
beneficially owns, in trust with his wife,
who beneficially own 700 shares of the Company's $2.625
Cumulative Preferred Stock, Series C, which is less than 1% of the class.
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The following table shows each person who at the close of business on
December 31, 19931994 was known by the Company to beneficially own (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) more than 5% of any class
of the capital stock of the Company:
TITLE AMOUNT AND NATURE PERCENT
TITLE
OF NAME AND ADDRESS OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER OWNERSHIP CLASS
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Common Pinnacle West Capital Corporation 71,264,947 100.00%
400 East Van Buren, Suite 800 (Direct)
Phoenix, AZ 85004
Preferred Cargill Incorporated 350,000 5.1%
15407 McGinty Road West Capital Corporation 71,264,947 100.00%
400 East Van Buren, Suite 800 (Direct)
Wayzata, MN 55391Phoenix, AZ 85004
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OWNERSHIP OF PINNACLE WEST SECURITIES BY MANAGEMENT
The following table sets forth as of March 1, 199424, 1995 the number of shares of
common stock of Pinnacle West beneficially owned by each director and nominee,director-nominee, each
executive officer named in the summary compensation tableSummary Compensation Table, and all directors and
executive officers as a group. Shares which may be acquired within 60 days by
the exercise of stock options are shown separately. Unless otherwise indicated,
the owners listed have sole voting and investment power.
SHARES UNDER
SHARES OPTIONS TOTAL SHARES
BENEFICIALLY EXERCISABLE BENEFICIALLY
NAME OR GROUP OWNED(1) WITHIN 60 DAYS OWNED
- ----------------------------------------------------- ------------ -------------- ------------
Kenneth M. Carr...................................... 10 -0- 10
William F. Conway.................................... 27,787 4,329 32,116
O. Mark De Michele................................... 76,020 69,970 145,990
Walter F. Ekstrom.................................... 35,192 7,319 42,711DeMichele.................................... 92,449 96,506 188,955
Martha O. Hesse...................................... 1,2001,700 14,000 15,20015,700
Marianne Moody Jennings.............................. 110 -0- 110
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SHARES UNDER
SHARES OPTIONS TOTAL SHARES
BENEFICIALLY EXERCISABLE BENEFICIALLY
NAME OR GROUP OWNED(1) WITHIN 60 DAYS OWNED
- ----------------------------------------------------- ------------ -------------- ------------
Robert G. Matlock.................................... 500 -0- 500
Jack M. Morgan....................................... 277 -0- 277(3)
Marvin R. Morrison................................... 6,123 -0- 6,123(3)
Jaron B. Norberg..................................... 36,839 29,009 65,84835,673 42,901 78,574
John R. Norton III................................... 10,00016,000 17,500 27,50033,500
William J. Post...................................... 21,469 21,819 43,288
Shirley A. Richard................................... 24,552 32,122 56,67430,609 27,744 58,353
Donald M. Riley...................................... 2,500 -0- 2,500
Henry B. Sargent .................................... 59,027 58,797 117,824Sargent..................................... 52,077 81,793 133,870
Wilma W. Schwada..................................... 1,2001,227 -0- 1,2001,227
Verne D. Seidel...................................... 1,1741,307 -0- 1,1741,307
Richard Snell........................................ 41,248 312,475 353,723
Morrison F. Warren................................... 19844,911 337,499 382,410
William L. Stewart................................... 13,800 16,666 30,466
Dianne C. Walker..................................... 100 -0- 198(3)100
Ben F. Williams, Jr.................................. 2,100 -0- 2,100
Thomas G. Woods, Jr. ................................Jr.................................. 2,400 -0- 2,400
All Directors and Executive Officers as a Group................ 462,569 618,858 1,081,427(2)Group
(28 persons)....................................... 429,560 759,009 1,188,569(2)
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(1) Includes shares subject to restrictions under the Pinnacle West stock option
planincentive
plans and vested shares in the Company's employee savings plan. SharesAlso
includes in the cases of: Mr. DeMichele, 43,005 shares held in a trust in
which investment and voting power is shared; Mr. Norton, 500 shares held by
his wife, 500 shares in a profit-sharing plan, and 2,500 shares held in a
trust for Mr. Norton's late mother, for which he serves as trustee; Mr.
Sargent, 23,681 shares held in a trust in which investment and voting power
is shared; Mr. Woods, 2,400 shares held in a trust in which investment and
voting power is shared; and shares as to which votinginvestment or investmentvoting power is
shared with others arespouses, as follows: Mr. Carr, -- 10; Mr. Conway -- 14,157; Mr. De Michele -- 6,827; Ms. Jennings, -- 110; Mr.
Matlock, -- 500; Mr. Morrison -- 6,123; Mr.
Norberg, -- 1,054; Mr. Norton -- 3,000;22,609; Ms. Richard, -- 10,555; Mr.
Sargent -- 26,560; Mr. Seidel -- 480;15,027; and Mr. Williams,
-- 500 and Mr.
Woods -- 2,400.2,100.
(2) Includes 102,631121,359 shares in which voting or investment power is shared with
others. Such total amount accounted for 1.2%1.4% of the total outstanding shares
of Pinnacle West,West; however, no individual owns as much as 1%.
(3) Messrs. Morgan, Morrison and Warren are retiring as directors and are not
standing for re-election.
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ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed proxy to vote for
the nominees listed below to serve as members of the Board of Directors until
the next annual meeting of shareholders or until their successors are elected
and qualified. If, between the mailing of this Proxy Statement and the meeting
date, any such individual becomes unavailable to serve (which is not
anticipated), the proxies may be voted for a person properly nominated or the
number of directors to be elected will be reduced accordingly. The following
information has been furnished by the respective nominees as of March 1, 1994.
DATE FIRST
NAME, AGE, BUSINESS EXPERIENCE, AND DIRECTORSHIPS(1) BECAME A DIRECTOR
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KENNETH M. CARR, 68, is retired. Between June 1991 and August 1991 December 1991
Mr. Carr acted as Special Assistant to the Nuclear Regulatory
Commission (NRC). From August 1986 to June 1991, he served as a
commissioner of the NRC, holding the position of Chairman during
the last two years of his term. Prior to serving as a commissioner,
Mr. Carr was a career naval officer retiring in 1985 as a Vice
Admiral.
O. MARK DE MICHELE, 59, is President and Chief Executive Officer of September 1982
the Company. Mr. De Michele was elected President and Chief
Operating Officer of the Company in 1982 and became Chief Executive
Officer in January 1988. Mr. De Michele is also a director of
America West Airlines, Inc.
MARTHA O. HESSE, 51, is President of Hesse Gas Company, Dolan December 1991
Energy Corporation and Sierra Blanca Gas Company, Houston, Texas
(marketing of gas and other fuels; energy investment). In 1990 Ms.
Hesse served as Senior Vice President of First Chicago Corporation
(financial services), and from 1986 to 1989, she was Chairman of
the Federal Energy Regulatory Commission. Ms. Hesse is also a
director of Sithe Energies, Inc.
MARIANNE MOODY JENNINGS, 40, is a Professor of Legal and Ethical March 1987
Studies in Business at the College of Business, Arizona State
University where she has worked for more than five years. In
addition, Ms. Jennings is a textbook author, and since 1977 she has
been a consultant for various firms.
ROBERT G. MATLOCK, 60, has, since 1984, been an independent April 1993
management consultant to various governmental agencies involved
in developing nuclear energy resources and to utilities operating
nuclear facilities.
JARON B. NORBERG, 56, has, for over five years, served as Executive July 1986
Vice President and Chief Financial Officer of the Company.
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DATE FIRST
NAME, AGE, BUSINESS EXPERIENCE, AND DIRECTORSHIPS(1) BECAME A DIRECTOR
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JOHN R. NORTON III, 64, has, for over five years, been Chairman and January 1984
Chief Executive Officer of J.R. Norton Company (agricultural
production). Mr. Norton is also a director of Aztar Corporation
(casino hotels), America West Airlines, Inc. and Terra Industries
Inc. (Agricultural Chemicals).
DONALD M. RILEY, 50, is President and General Manager of Gilpin's June 1987
Construction Company, Inc. (general contractor), Yuma, Arizona.
HENRY B. SARGENT, 59, has, for over five years, served as Executive January 1976
Vice President and Chief Financial Officer of Pinnacle West. Mr.
Sargent served as a director of the Company from January 1976 until
he resigned in July 1986. He was reelected as a director in May
1990. Mr. Sargent is also a director of Magma Copper Company.
WILMA W. SCHWADA, 67, is a civic leader and homemaker, Phoenix, September 1977
Arizona.
VERNE D. SEIDEL, 68, is a real estate broker and managing partner June 1987
of HMS Properties (property management), Flagstaff, Arizona.
RICHARD SNELL, 63, was elected, as of February 1990, Chairman of July 1975
the Board of the Company and Chairman of the Board, President,
and Chief Executive Officer of Pinnacle West. Mr. Snell was
Chairman of the Board, President and Chief Executive Officer of
Ramada Inc. from 1981 to 1989, and was the Chief Executive Officer
(from 1989 to February 1990) and Chairman of the Board (from 1989
to February 1992) of Aztar Corporation, successor to Ramada's
casino hotel business. He remains a director of Aztar Corporation.
BEN F. WILLIAMS, JR., 64, has been a partner since 1991 in the law December 1970
firm of Lesher and Williams, Tucson, Arizona. Prior to joining
the Lesher and Williams Law Firm, Mr. Williams practiced law in
Douglas, Arizona.
THOMAS G. WOODS, JR., 67, served as a consultant to the Company November 1977
between 1985 and 1992. He retired in February 1985 as Executive
Vice President of the Company.
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(1) Ms. Hesse and Messrs. De Michele, Norton, Sargent, and Snell are also
currently directors of Pinnacle West.
THE BOARD AND ITS COMMITTEES
The full Board of Directors met twelve times in 1993.1994. Certain required
information is provided below inwith regard to the Human Resources and the Audit
Review Committees of the Board. There are presently two other standing
committees of the Board that are important to its overall operations. Each
director then in office attended 75%88% or more of the meetings of the full Board
and of the committees on which he or she served.
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The Human Resources Committee is composed of Mr. Norton as Chairman, and
Mmes. Hesse, Jennings, and
Schwada, and Walker and Messrs. Morgan, Norton, Riley and Williams.Williams as
members. In addition to the responsibilities mentioned in the Report of the
Human Resources Committee which is contained in this
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Proxy Statement, suchthe Committee also recommends prospective new Board members to
the full Board. The Committee may consider shareholder suggestions with respect
to new nominees for the Board if the suggestion is sent to the Secretary of the
Company at the address on the cover page of this Proxy Statement.
The Company's Audit Review Committee 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,
approves the general nature of the services to be performed by the firm, and
solicits and reviews the firm's recommendations. The Committee also consults
with the Company's internal audit group and periodically reviews the
relationships among that group, management of the Company, and its independent
accountants. The Committee met five times in 1993.1994. Its chairwoman is Ms.
Jennings and its members are Mmes.Ms. Hesse and Jennings and Messrs. Morgan, Morrison, Riley, Seidel, Warren and Woods.
In 1993 each director, except1994, non-employee directors who arereceived an annual retainer of $15,000.
With certain exceptions, non-employee directors also salaried officers of
the Company, received $15,000 plus $750 for each
Boardboard meeting attended and $500 for each committee meeting attended. DirectorsEffective
January 1, 1995, the fees were increased as follows: annual retainer, $18,000;
board meeting attendance, $900; and committee meeting attendance, $700.
Effective January 1, 1995 the Company began providing retirement benefits
to certain directors under a retirement plan adopted jointly with Pinnacle West
(the "Directors' Retirement Plan"). Under the Directors' Retirement Plan,
directors who are also salaried officersnot employees of the Company received no directors fees.or an affiliate and who are
credited with one year of service as a non-employee director of the Company or
an affiliate before attaining age 65 will receive a retirement benefit equal to
$12,000 per year commencing at age 65 or upon retirement, if later. The
retirement benefit will be paid annually for a period equal to the years of
service completed by the director prior to attaining age 65 or until the
director dies, whichever occurs first.
During 19931994 the Company paid R. G. Matlock & Associates, Inc. $32,599the following amounts in fees and expenses for
consulting services relating to the Company's nuclear operations. Mr.operations: Kenneth M.
Carr -- $17,809; and R. G. Matlock & Associates, Inc. -- $21,816 (Mr. Robert G.
Matlock is President and Chief Executive Officer of R. G. Matlock & Associates,
Inc.).
REPORT OF THE HUMAN RESOURCES COMMITTEE
The Company's Human Resources Committee (the "Committee") is composed of
seven directors none of whom currently is, or has ever been, an officer or
employee of the Company or any of its subsidiaries. The responsibilities of the
Committee include reviewing annually and recommending to the full Board of
Directors the cash compensation paid to the Company's officers, establishing
annual goals for such officers, and approving the payment of variable pay
incentives when such goals are met. Pursuant to these duties, the Committee
obtains information regarding stock incentive plans authorized by Pinnacle West
shareholders under which stock options and other stock-based incentives may be
awarded to the Company's officers and key employees by the Human Resources
Committee of the board of Pinnacle West. Information in this Report regarding
the compensation objectives and philosophy of the Pinnacle West Human Resources
Committee was taken from that committee's report contained in the proxy
statement relating to Pinnacle West's 1995 Annual Meeting of Shareholders.
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The executive compensation policy, as developed and adopted by the
Committee, is designed to reward individual performance in critical areas of the
Company's operations, including cost management, earnings performance, customer
service, safety and environmental concerns. Incentive goals are developed
annually to focus on the Company's profitability and its operational results in
the short and long-term. The Committee sets the compensation of Company officers
in accordance with comparable median industry levels and the achievement of
incentive goals.
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." Based
upon an analysis done for it, the Committee believes that none of the Company's
future deductions for currently awarded compensation to its executive officers
should be disallowed under this law. However, because the Internal Revenue
Service has not yet promulgated final interpretive regulations, the Committee
cannot determine its impact with complete certainty. The Committee intends to
review this issue periodically.
Starting in 1992, the Committee retained Hewitt Associates LLC, an
international benefits and compensation consulting firm, to report annually on
how its officers' compensation compared to the compensation paid to officers
performing similar functions at comparable utility companies. The comparable
companies consist of 23 electric and gas and electric utilities, all of whom are
included in the companies comprising the Edison Electric Institute Index used in
the performance graph on page 11. The 1994 report of Hewitt Associates indicated
that the base salaries paid to the Company's executive officers averaged 3%
below the median compensation paid to their counterparts at comparable
companies. The report also indicated that the cash incentive awards at target
levels are at the market. Although the report disclosed that Mr. Stewart's
compensation is significantly above the median, the Committee feels that his
compensation is reasonable given his responsibility for operating the largest
nuclear power plant in the United States, a position unique within the nuclear
power industry.
COMPONENTS OF COMPENSATION
BASE SALARY
The Committee reviews each executive officer's base salary annually. To
determine an appropriate salary level, consideration is given to individual
performance, level of responsibility, prior experience and expertise, and base
pay of officers performing similar functions at comparable utility companies.
The 1994 report from Hewitt Associates indicates that the base salary for Mr.
DeMichele was 14% below the median base salary of chief executive officers of
comparable utility companies. Except for two officers whose salaries were in the
lower range of their respective pay grades, and Mr. Post's salary which was
increased at the time of his promotion to Chief Operating Officer, salary
increases in 1994 for the Company's officers were not more than 2% of their 1993
salaries. The small percentage increase is in keeping with the Company's policy
of having a significant portion of compensation achieved through incentives,
such as bonuses, tied to Company performance and the attainment of goals
established by the Committee.
8
10
CASH INCENTIVES
Under the Company's variable pay plan for officers, the total compensation
of the Chief Executive Officer as well as the other executive officers is
significantly impacted by their degree of accomplishment in meeting certain
critical success indicators established by the Committee at the beginning of
each year. The amount of incentive compensation paid, if any, depends on the
degree of success in meeting these goals. However, the plan does not allow any
cash incentive payments to be paid unless the Company experiences lower than
budgeted capital and operations and maintenance expenditures, and threshold
earnings and efficiency ratios are met. The other indicators established by the
Committee related to customer satisfaction. Under the plan, the incentive
payment for 1994 could reach 60% of Mr. DeMichele's year end base salary and 52%
(54% in the case of Mr. Post as a result of his promotion to Chief Operating
Officer) of the year end base salary for the other officers named in the Summary
Compensation Table. 100% of Mr. DeMichele's cash incentive payment and 40% of
the other officers' cash incentive payments are based on overall corporate
performance. The remaining 60% of the cash incentive payments for the officers
(other than Mr. DeMichele) is based on the achievement of key result area
targets on each officer's Performance Enhancement Plan. These incentive award
opportunities at target performance levels are at the median of comparable
utility companies, both for the Chief Executive Officer and the other Company
officers as a group.
The 1994 cash incentive payments resulted from Company performance
exceeding all of the overall corporate goals and a majority of the department
key result area targets.
LONG-TERM INCENTIVES
The Human Resources Committee of the board of Pinnacle West, the Company's
parent, 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 Pinnacle West
Committee began in the Fall of 1990 to make systematic grants of restricted
stock and stock options to officers and key management employees of Pinnacle
West and its subsidiaries, including the Company, in order that key management
employees could participate in those rewards (if earned) through stock
ownership.
The primary objective of Pinnacle West's stock incentive program is to
encourage stock ownership on a continuing basis. Restricted stock awards do not
vest unless participants meet predetermined share ownership guidelines,
determined at the time of grant, that expose them to financial risks similar to
other shareholders.
The size of awards made by the Human Resources Committee of the board of
Pinnacle West to the Company's participants in the program is determined by
making assumptions as to how, generally, the stock should perform if Pinnacle
West and its subsidiaries achieve their longer term goals. The Pinnacle West
Committee then determines the size of each grant with the goal of bringing the
recipient's total compensation to a level approximately equal to or slightly
ahead of the competitive level, provided the stock performs as assumed. In the
case of Mr. DeMichele, the 1994 restricted stock award was larger in partial
recognition of the reduction of his personal earnings capacity that will result
from his announced
9
11
retirement, which will occur some two years before his normal retirement date.
See the Summary Compensation Table (page 12) and Pinnacle West Stock Option
Grants in 1994 chart (page 13) for information regarding stock-based incentive
awards granted to the Company's executive officers during 1994.
This Committee concurs with the position taken by the board of Pinnacle
West, and its program regarding grants of restricted stock and stock options to
officers and key employees of the Company.
HUMAN RESOURCES COMMITTEE:
John R. Norton III, Chairman
Martha O. Hesse
Marianne Moody Jennings
Donald M. Riley
Wilma W. Schwada
Dianne C. Walker
Ben F. Williams, Jr.
10
12
PERFORMANCE GRAPH
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
1989 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. The
common stock of Pinnacle West is used to measure the performance of the Company
because the Company is the principal subsidiary of Pinnacle West and its
operations account for substantially all of Pinnacle West's operating revenues.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDISON-
DOW JONES ELECTRIC
MEASUREMENT PERIOD EQUITY INSTITUTE
(CALENDAR YEAR COVERED) PINNACLE WEST MARKET INDEX INDEX
1989 100.00 100.00 100.00
1990 89.89 96.07 101.37
1991 156.18 127.24 130.64
1992 183.15 138.19 140.59
1993 202.92 151.93 156.22
1994 185.62 153.10 138.14
EXECUTIVE COMPENSATION
The following table shows the annualtables on compensation and long-term compensation paid or
accrued during the three years ending December 31, 1993 for each ofstock options relate to the five
most highly compensated executive officers of the Company, for services rendered
in all capacitiesincluding the chief
executive officer. Information given with respect to stock options and
restricted stock relate to shares of the Company and its subsidiaries.common stock of Pinnacle West.
11
13
SUMMARY COMPENSATION TABLE
LONG TERMLONG-TERM
COMPENSATION
-------------------------
SECURITIES ALL
ANNUAL COMPENSATION (F) (G)
---------------------- (E) SECURITIES ALL RESTRICTED UNDERLYING OTHER
(A) (B) (C) (D)--------------------- STOCK OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUSSALARY BONUS(1) AWARDS(2) GRANTED SATION(3)
- ---------------------------- ----- ----------------- -------- ---------- ---------- ---------
William F. Conway 1993 $ 326,282 $130,543 $ -0- -0- $ 9,447
Executive Vice President, 1992 343,978 88,729 50,863 13,000 5,110
Nuclear 1991 299,738 116,500 40,950 13,000 2,543
O. Mark De MicheleDeMichele 1994 $402,008 $242,690 $ 380,000 25,000 $ 6,493
President, Chief Executive 1993 394,642 136,994 110,625 25,000 7,737
President, Chief ExecutiveOfficer & Director 1992 384,816 86,678 97,813 25,000 28,224
Officer and Director 1991 373,608 80,000 78,750 25,000 25,358
6
9
LONG TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION (F) (G)
---------------------- (E) SECURITIES ALL
RESTRICTED UNDERLYING OTHER
(A) (B) (C) (D) STOCK OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARDS(2) GRANTED SATION(3)
- ---------------------------- ----- --------- -------- ---------- ---------- ---------
Walter F. Ekstrom 1993 $ 228,122 $ 46,814 $ -0- -0- $11,074Jaron B. Norberg 1994 254,400 129,717 60,800 16,000 5,421
Executive Vice President, 1992 188,269 44,121 39,125 10,000 3,746
Engineering, Operations and 1991 182,783 43,000 31,500 10,000 1,527
Construction
Jaron B. Norberg 1993 248,614 70,014 57,525 13,000 6,486
Executive Vice President,6,086
Chief Financial Officer & 1992 227,556 51,377 50,863 13,000 28,457
Director
William J. Post 1994 195,522 145,672 64,600 17,000 5,407
Senior Vice President, Chief Financial1993 160,142 44,831 33,188 7,500 6,869
Operating Officer and 1991 225,344 50,000 40,950 13,000 26,293& Director 1992 155,792 45,362 29,344 7,500 2,685
Shirley A. Richard 1994 192,144 92,526 45,600 12,000 4,121
Executive Vice President, 1993 188,508 51,805 54,844 12,500 4,952
Executive Vice President,Customer Service, Marketing 1992 184,243 41,423 29,344 7,500 2,693
Customer Service, 1991 177,967 40,000 23,625 7,500 1,694
Marketing & Corporate Relations
William L. Stewart 1994 307,869 152,400 237,200 69,000 66
Executive Vice President, 1993 -0- -0- -0- -0- -0-
Nuclear 1992 -0- -0- -0- -0- -0-
- ----------
(1) Includes salaries, deferred cash compensation, and amounts paid to Mr.
Conway underBonuses are based on a deferred compensation arrangement.percentage of the recipient's base salary at year
end. See Report of the Human Resources Committee above.
(2) The value of the restricted stock is based on the closing market price of
Pinnacle West common stock on the date the restricted shares were granted.
RestrictedThe restrictions lapse on most restricted stock will not be distributed prior toawards made in 1994 upon (i)
the passage of three years from the date of grant. Thereafter one sharegrant or upon retirement after the
age of such stock will be distributed to a
participant, from time to time for every five shares60, and (ii) the holding of certain numbers of unrestricted stock
that such participant holdsshares
for 24 consecutive months.certain periods of time, as determined by the Pinnacle West Human
Resources Committee at the time of grant. Dividends that are payable in cash
or stock maywill be withheld until the restrictions lapse. Mr. DeMichele, who
is 61 years old, has announced his intention to retire from the Company in
February, 1997. Upon Mr. DeMichele's retirement, the time restrictions on
his 1994 restricted stock award (20,000 shares) will lapse. Additionally,
Mr. DeMichele's 1994 grant does not contain an unrestricted stock matching
requirement.
The aggregate number of restricted shares held and their value (in brackets)
as of December 31, 19931994 are as follows: Mr. ConwayDeMichele -- 12,97630,000 [$291,960]; Mr.
De Michele -- 21,016 [$472,860]; Mr. Ekstrom -- 0 [-0-]588,750];
Mr. Norberg -- 11,6868,400 [$262,935]164,850]; andMr. Post -- 6,400 [$125,600]; Ms.
Richard -- 5,5006,400 [$123,750]125,600]; and Mr. Stewart -- 13,800 [$270,825].
(3) This column includes (i) the above market portion of interest accrued in
19931994 on funds deferred under a deferred compensation plan described on page
11 in the following
amounts: Mr. ConwayDeMichele -- $4,871; Mr. De Michele -- $3,170;
Mr. Ekstrom -- $6,680;$1,676; Mr. Norberg --
$1,372; and12
14
$732; Mr. Post -- $1,101; Ms. Richard -- $2,236;$1,270; and Mr. Stewart -- $66;
(ii) Company contributions made during 19931994 under the Company's Employee
Savings Plan in the following amounts: Mr. ConwayDeMichele -- $4,486; Mr. De
Michele -- $4,493; Mr. Ekstrom -- $4,373;$4,620; Mr.
Norberg -- $4,486; and$4,500; Mr. Post -- $4,253; Ms. Richard -- $2,716;$2,821; and Mr.
Stewart -- $0; and (iii) premiums paid by the Company for group term life
insurance in the following amounts: Mr. ConwayDeMichele -- $90; Mr. De
Michele -- $74; Mr. Ekstrom -- $21;$197; Mr.
Norberg -- $228; and$189; Mr. Post -- $53; Ms. Richard -- $30; and Mr. Stewart -- $0.
7
10PINNACLE WEST STOCK OPTION GRANTS IN 1993 AND PRESENT VALUE. The following table sets
forth, for each of the individuals named in the summary compensation table, the
number of shares of Pinnacle West common stock covered by options granted during
1993, the percentage of options received of the total options granted, the
exercise price, the date the option expires and the present value of the options
as of the date of grant.1994
PERCENTAGE
RECEIVED
NUMBER OF PERCENT
SECURITIES OF TOTAL
SECURITIESUNDERLYING OPTIONS UNDERLYINGGRANT DATE
OPTIONS GRANTED PRESENT VALUE
OPTIONS TO ALL EXERCISE EXPIRATION ON DATE OFPRESENT
NAME GRANTED EMPLOYEES PRICE(1) DATE GRANT(2)
- ------------------------ -----------VALUE(2)
------------------ ---------- ---------- -------- ---------- -----------------------
Mr. Conway -0- -0- -0- -0-
Mr. De MicheleDeMichele 25,000 6.2% $22.13 Dec. 2003 $85,000
Mr. Ekstrom -0- -0- -0- -0-5.40% $19.00 Nov. 2004 $ 95,000
Mr. Norberg 13,000 3.2% 22.13 Dec. 2003 44,20016,000 3.45% 19.00 Nov. 2004 60,800
Mr. Post 17,000 3.67% 19.00 Nov. 2004 64,600
Ms. Richard 2,500 .6% 21.19 Mar. 2003 8,400
Ms. Richard 10,000 2.5% 22.13 Dec. 2003 34,00012,000 2.59% 19.00 Nov. 2004 45,600
Mr. Stewart 50,000 10.81% 16.50 May 2004 164,000
Mr. Stewart 19,000 4.10% 19.00 Nov. 2004 72,200
- ----------
(1) Options may be exercised by the payment of cash and/or shares of Pinnacle
West common stock. The plan permits "cashless" exercises of options under
which the exercise price may be paid by directing the Company to withhold
from the shares of stock that would otherwise be issued upon exercise of the
option, that number of shares having a fair market value on the exercise
date equal to the option price. Options vest annually in installments of 33 1/3%33% per year beginning on the first
anniversary of the date of grant. 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 used in determining the present
value of the options granted. The assumptions utilized in the Black-Scholes
equation model to determine the present value are as follows: 17.3%21.5% for
expected volatility; 5.23%7.74% (7.68% for risk freeMr. DeMichele) for risk-free rate of
return; 3.62%4.5% for dividend yield and 5 years for the time of exercise.exercise (3
years for Mr. DeMichele).
STOCK OPTIONS EXERCISEDOPTION EXERCISES IN 19931994 AND YEAR-END VALUE. The following table
sets forth as to the individuals named in the summary compensation table
information with respect to the exercise of options to purchase Pinnacle West
common stock during 1993, the value realized upon exercise of options, the
aggregate number of securities underlying unexercised options held at December
31, 1993 and their value on that date.
8
11OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
SECURITIESUNDERLYING UNEXERCISED
UNDERLYINGUNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED 12/31/9394 12/31/9394
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME OF OPTION REALIZED(1) UNEXERCISABLE UNEXERCISABLE(2)
- ------------------------------------------ ----------- ----------- -------------- -----------------
Mr. Conway 40,000DeMichele -0- $ 513,600 12,987/13,013 -0- 89,722/50,001 $120,229/$ 71,157/$ 54,77916,145
Mr. De Michele 75,000 890,625 47,198/50,025 136,841/ 114,719Norberg -0- -0- 38,874/29,001 50,916/ 10,270
Mr. Ekstrom 29,990 281,783 6,073/Post -0- -0- 20,387/24,500 29,375/ 10,781
Ms. Richard 9,391 80,997 29,979/22,834 97,287/ 7,656
Mr. Stewart -0- -0- -0-/69,000 -0-
Mr. Norberg 40,000 500,400 25,862/26,013 71,157/ 59,654
Ms. Richard -0- -0- 30,204/20,000 237,968/ 38,593/ 168,125
- ----------
(1) Value of options exercised is the market value of the shares on the exercise
date minus the exercise price.
13
15
(2) Only includes options whose per-shareper share exercise price is less than the market
value of a share of Pinnacle West common stock on December 31, 1993
("in-the-money options")1994 ($19.625
per share). Value of the outstanding options is the value of Pinnacle West
common stock at year end minus the exercise price.
EXECUTIVE BENEFIT PLANS AND AGREEMENTS
EMPLOYEES' RETIREMENT PLAN AND SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN.
The following table illustrates the annual benefits that would be provided under
the Company Employees' Retirement Plan and the Supplemental Excess Benefit
Retirement Plan to employeesofficers of the Company including officers, who retire at the indicated
compensation and longevity levels and who elect to receive such benefits (which
are calculated on a straight-life annuity basis) over their remaining lives.
YEARS OF SERVICE WITH APS
AVERAGE ANNUAL ------------------------------------------------------------------
COMPENSATION(A) 5(B)----------------------------------------------------
COMPENSATION(1) 5(2) 10 20 30 33 1/3(C)25(3)
- --------------- ----------------------------------------------------------------------------------------------------------------------
$ 150,000 $22,500 $ 45,000 $ 75,000 $ 90,000
200,000 30,000 60,000 $ 4,875 $ 9,750 $ 19,500 $ 29,250 $ 32,400
100,000 8,125 16,250 32,500 48,750 54,000120,000
250,000 37,500 75,000 125,000 150,000
12,188 24,375 48,750 73,125 81,000300,000 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 16,250 32,500 65,000240,000
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 97,500 108,000
250,000 20,313 40,625 81,250 121,875 135,000
300,000 24,375 48,750 97,500 146,250 162,000
350,000 28,438 56,875 113,750 170,625 189,000
400,000 32,500 65,000 130,000 195,000 216,000
450,000 36,563 73,125 146,250 219,375 243,000
500,000 40,625 81,250 162,500 243,750 270,000
550,000 44,688 89,375 178,750 268,125 297,000325,000 390,000
- ----------
(a)(1) Compensation consists of base salaries, and wages including any amounts voluntarily
deferred under The Savings Plan for Employees of Arizona Public Service
Company and The Savings Plan for Union Employees of Arizona Public
Service Company, and amounts which would have constituted base salaries or
wages but for the application of a salary reduction agreement under the
Flexible Benefits Plan for Employees of Arizona Public Service Company. The EmployeesEmployees' Retirement Plan does not
9
12 include amounts voluntarily
deferred under deferred compensation plans,
overtime pay, directors' fees, bonuses or
incentive pay. The Supplemental Excess Benefit Retirement Plan does include
amounts deferred under deferred compensation plans, bonuses and incentive
pay, subject to certain exceptions. For purposes of the Employees'
Retirement Plan, compensation in excess of $235,840$150,000 (as adjusted annually)
is disregarded.
(b)(2) Although years of service begin accumulating on the date of employment,
there is no vesting of interests under the plan until completion of five
years of service.
(c)(3) The maximum number of years taken into account for purposes of calculating
benefits under the plan.
For employees whose annualSupplemental Excess Benefit Retirement Plan. The maximum
number of years taken into account for purposes of calculating benefits
would exceed the maximum benefits
allowable under the basic Employees' Retirement Plan (which is a qualified
defined33 1/3; however, the benefit pension plan),under
the Supplemental Excess Benefit Retirement Plan is higher than the maximum
benefit under the Employees' Retirement Plan.
For officers, a Supplemental Excess Benefit Retirement Plan, as amended
effective January 1, 1994, provides for enhanced benefit calculations and for
the payment, to those eligible, of such annual benefits in
14
16
excess of the maximum allowable under the basic plan, as well as pension benefits based
on certain types of deferred compensation, bonuses and incentive pay, from the general assets of
the Company. The number of credited years of service for each of the individuals
named in the summary compensation tableSummary Compensation Table and their 19931994 remuneration covered by
the Company's plans are as follows: Mr. ConwayDeMichele -- 517 years $404,974;(see description
of Mr. De Michele -- 16 years, $480,461; Mr. Ekstrom -- 33 years,
$316,772;DeMichele's employment agreement below), $538,859; Mr. Norberg -- 1213
years, $299,557; and$324,271; Mr. Post -- 22 years, $240,353; Ms. Richard -- 911 years,
$229,755.$243,950; and Mr. Stewart -- 1 year (see description of Mr. Stewart's employment
agreement below), $300,000. The amounts shown in the table are not expected to
be subject to any reduction or offset for social security benefits or other
significant amounts.
Assuming retirementIn April 1978, Mr. DeMichele and the Company entered into an agreement
under which the Company, in calculating Mr. DeMichele's pension benefits, agreed
to allow Mr. DeMichele credit for 17 years of prior employment with another
Company.
In January 1994, the Company entered into an agreement with Mr. Stewart
under which he would receive at age 6560 a pension benefit based on an age 60
pension benefit from his previous employer. The benefits to be received under
this agreement will be based on age and other factors existing at the estimated annual benefit payable to those
individuals named in the summary compensation table under the Employees
Retirement Plantime of
retirement and the Supplemental Excess Benefit Retirement Plan are $59,227
for Mr. Conway; $250,325 for Mr. De Michele; $171,057 for Mr. Ekstrom; $97,356
for Mr. Norberg; and $104,539 for Ms. Richard.therefore cannot be presently determined.
EXECUTIVE SEVERANCE AND OTHER CONTRACTUAL ARRANGEMENTS. The Company has entered into severance
agreements with Ms. Richard and Messrs. Conway, De
Michele, EkstromDeMichele, Norberg, Post, and Norberg and with eight other executive officers.Stewart.
The agreements are intended to provide stability of key management for 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 the "change in control") if, during the
two-year period following a "change in 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 in control" includes any
change in 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 unless the Company's shareholders have the same proportionate
interest in the surviving corporation, or 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. 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, 10
13
or "for cause," as
defined in the agreements. An officer will not be deemed to have voluntarily
terminated his or her employment if the officer's termination is due to a
material adverse change in his or her duties, status, or perquisites, failure to
re-elect or redesignate the officer to a position held prior to the "change in
control," a significant relocation of the officer's job without his or her
consent, or a material breach by the Company of the officer's severance
agreement. Each of the executive severance agreements terminates on December 31
of each year, upon six months' advance notice by the Company to the officer; if
such notice is not given, the agreement will continue for successive one-year
periods until the notice is given.
In April 1978, Mr. De Michele and the Company entered into an agreement
under which the Company in calculating Mr. De Michele's retirement benefits
agreed to allow Mr. De Michele credit for years of prior employment with another
Company. In May 1989 the Company entered into an agreement with Mr. Conway under
which he would receive credit for additional years of service upon completion of
five years of employment. The amount of the benefits to be received under the
two arrangements will be based on age and other factors existing at the time of
retirement and therefore cannot be presently determined. The agreement with Mr.
Conway also provided for the payment of deferred compensation of which the
following remains to be paid: $25,000 per year for three years and $13,340 to be
paid in 1996. Pursuant to a separate letter agreement entered into in April
1989, the Company agreed to compensate Mr. Conway in an amount up to $50,000 per
year based on the ratings of the Palo Verde Nuclear Generating Station by
certain regulatory agencies.
DEFERRED COMPENSATION PLAN. A deferred compensation plan (the "DCP") was
established in 1992 by the Company and Pinnacle West for certain directors and
key employees. The administration of the DCP including the selection of
participants is performed by a committee appointed by the Board of Directors of
Pinnacle West. The DCP allows participants to elect annually to defer any amount
of their director's fees, annual bonus and up to 50% of their base salary.
Amounts deferred are credited each year with interest at a rate based on a
factor of the rolling average of 10-year U.S. Treasury Notes. If a participant
terminates employment under conditions not involving a "change in control"
before having participated in the DCP for five years, the interest is
automatically adjusted to a rate equal to the rolling average of the 10-year
U.S. Treasury Note rate. A "change in control" as defined in the DCP is
substantially the same as the executive severance arrangements described above,
except that the DCP refers to Pinnacle West and not to the Company. In addition,
a sale of more than 80% of the Company's stock or a sale of substantially all of
its assets to an unaffiliated party also constitutes a change in control.
Amounts deferred under the DCP and earnings on such amounts cannot be
distributed to a participant until he or she terminates employment, except in
cases of financial hardship or after amounts have been deferred for five years
provided that the participant has elected to take such early distribution at the
time of the initial deferment. Distributions on account of retirement as defined
in the DCP are available in a lump sum or in equal monthly installments over a
period of up to 15
years. A participant's benefits under the DCP will be offset
and reduced by any amounts payable to that participant under the Supplemental
Executive Benefit Plan described below.
11
1417
SUPPLEMENTAL EXECUTIVE BENEFIT PLAN. Also inIn 1992, the Company, together with
Pinnacle West, established the Supplemental Executive Benefit Plan ("SEBP") to
provide benefits to certain directors and key employees in the event of a
"change in control." The administration of the SEBP, including the selection of
participants, is performed by a committee appointed by the Board of Directors of
Pinnacle West (the "Committee""SEBP Committee"). The Company and Pinnacle West have
established an irrevocable trust (the "SEBP Trust") to hold assets for purposes of funding the plan.plan
(the "SEBP Trust"). The SEBP provides two benefits -- a change in control
benefit for participants and an employer's benefit. The change in control
benefit to be determined by the SEBP Committee annually will be paid in a lump
sum to a participant in January of the year following the date of a change in
control, provided that the participant meets certain conditions of employment.
No change in control benefit will be payable to a participant who voluntarily
terminated employment prior to the January distribution date. Under certain
conditions, a distribution will be made to a participant prior to the scheduled
distribution date.
The employer benefit is the amount in the SEBP Trust that is not needed to
pay a participant's SEBP benefit. It will be paid in a lump sum to the Company
when one of the participants terminates employment for whatever reason under
circumstances which prevent him or her from qualifying for a change in control
benefit or when there is an asset balance remaining in the SEBP Trust after
payment of the benefit and such assets are not necessary to fund any other
participant's SEBP benefits. The SEBP generally defines "change"Change in control" as defined in the SEBP is
substantially the same manner as the executive severance arrangements described above,
in connection withexcept that the DCP, however, it also
includesSEBP refers to Pinnacle West and not to the Company. In
addition, a sale of more than 80% of the Company's stock, a sale of
substantially all of its assets to an unaffiliated party, and situations
involving bankruptcy, the appointment of a trustee, receiver or liquidator, or
an assignment for the benefit of creditors by Pinnacle West.
12
15
REPORT OF THE HUMAN RESOURCES COMMITTEE
To Our Shareholders:
The Company's Human Resources Committee (the "Committee") is composed of
seven directors none of whom currently is, or has ever been, an officer or
employee of the Company or any of its subsidiaries. The responsibilities of the
Committee include reviewing annually and recommending to the full Board of
Directors the cash compensation paid to the Company's officers, establishing
annual goals for such officers and approving the payment of variable pay
incentives when such goals are met. In addition, the Committee reviews stock
option plans authorized by Pinnacle West, shareholders under which stock options
may be awarded to the Company's officers and key employees by the Human
Resources Committee of Pinnacle West.
The Company's executive compensation policy, as developed and adopted by
the Committee, is designed to reward individual performance in critical areas of
the Company's operations including cost management, earnings performance,
customer service, safety and environmental concerns. Incentive goals are
developed annually to focus on the Company's profitability and its operational
results in the short and long term. The Committee sets compensation of Company
officers in accordance with comparable median industry levels and the
achievement of incentive goals. The Committee is presently reviewing the impact,
if any, of Section 162(m) of the Internal Revenue Code to ensure that the
Company's executive compensation will continue to be tax deductible. Section
162(m) of the Code limits the deductibility of compensation paid to certain
executive officers which is in excess of $1,000,000 unless such compensation is
based on preestablished criteria.
In 1992, the Committee retained Hewitt Associates, an international
benefits and compensation consulting firm, to report annually on how its
officers' compensation compared to the compensation paid to officers performing
similar functions at comparable utility companies. The comparable companies
consist of 24 electric, and gas and electric utilities all of whom are included
in the companies comprising the Edison Electric Institute Index used in the
performance graph on page 16. The 1993 reports of Hewitt indicated that the base
salaries paid to the Company's executive officers averaged generally 4% below
the median compensation paid to their counterparts at comparable companies.
Although the reports disclosed that Mr. Conway's compensation is significantly
above the median, the Committee feels that his compensation is reasonable given
his responsibility for operating the largest nuclear power plant in the United
States,also constitutes a position unique within the nuclear energy industry. The report also
indicated that the cash incentive awards at target levels are below the market.
13
16
COMPONENTS OF COMPENSATION
BASE SALARY
The Committee reviews each executive officer's base salary annually. To
determine an appropriate salary level, consideration is given to individual
performance, level of responsibility, prior experience and expertise, and base
pay of officers performing similar functions at comparable utility companies.
The 1993 reports from Hewitt Associates indicate that the base salary for Mr. De
Michele was 12% below the median base salary of Chief Executive Officers of
comparable utility companies. Except for two officers whose salary was in the
lower range of their respective pay grades, salary increases in 1993 for the
Company's officers, including its Chief Executive Officer, were not more than 2%
of their 1992 salary. The small percentage increase is in keeping with the
Company's policy to have a significant portion of compensation achieved through
incentives such as bonuses tied to Company performance and the attainment of
goals established by the Committee.
CASH INCENTIVES
Under the Company's variable pay plan for officers, the total compensation
of the CEO as well as the other executive officers is significantly impacted by
their degree of accomplishment in meeting certain critical success indicators
established by the Committee at the beginning of each year. The amount of
incentive compensation paid, if any, depends on the degree of success in meeting
these goals. However, the plan does not allow any cash incentive payments to be
made unless the Company experiences lower than budgeted capital and operations
and maintenance expenditures. The other indicators established by the Committee
related to earnings, the operating efficiency of the Company's coal and nuclear
facilities, customer satisfaction, safety and savings associated with fuel and
purchased power costs. Under the plan the incentive payment for 1993 could range
from 0% to 40% of Mr. De Michele's base salary and from 0% to 32% of the base
salary for the other officers named in the summary compensation table. These
incentive award opportunities at target performance levels are below the median
of comparable utility companies, both for the Chief Executive Officer and the
other Company officers as a group.
As a result of achieving a substantial portion of the indicators, Mr. De
Michele was granted a cash incentive payment equal to 33.75% of his base salary,
with the other officers named in the summary compensation table receiving a cash
incentive payment equal to 27% of their respective base salaries.
14
17
LONG-TERM INCENTIVES
The Human Resources Committee of Pinnacle West, the Company's parent,
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, it began in the Fall of 1990 to make
systematic grants of restricted stock and stock options to officers and key
management employees of Pinnacle West and its subsidiaries, including the
Company, in order that key management employees could participate in those
rewards (or lack thereof) through stock ownership.
The primary objective of Pinnacle West's stock option program is to
encourage stock ownership on a continuing basis. To receive awards of restricted
stock, participants must meet predetermined share ownership guidelines that
expose them to similar financial risks as other shareholders.
The size of awards made by The Human Resources Committee of Pinnacle West
to the Company's participants in the program is determined by making assumptions
as to how, generally, the stock should perform if Pinnacle West and its
subsidiaries achieve their longer term goals. The Pinnacle West Committee then
determines the size of each grant with the goal of bringing the recipient's
total compensation to a level approximately equal to or slightly ahead of the
competitive level provided the stock performs as assumed.
HUMAN RESOURCES COMMITTEE:
Martha O. Hesse
Marianne Moody Jennings
Wilma W. Schwada
Jack M. Morgan
John R. Norton, III
Donald M. Riley
Ben F. Williams
The Report of the Human Resources Committee shall not be deemed to be
incorporated by reference in any filing made by the Company with the United
States Securities and Exchange Commission under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
15
18
PERFORMANCE GRAPHS
The following two graphs show the yearly
change in the cumulative total
shareholder return on an investment of $100 in the common stock of Pinnacle West
as compared to a similar investment in the Dow Jones Equity Market Index and the
Edison Electric Institute Index of 100 Investor Owned Electric Utilities. The
first graph covers a five-year period beginning on the last trading day of 1988.
The second graph covers a four-year period beginning on the last trading day of
1989. The four-year graph is included to show the shareholder return subsequent
to the restructuring of senior management at Pinnacle West which occurred in the
spring of 1990. The common stock of Pinnacle West is used to measure the
performance of the Company inasmuch as the Company is the principal subsidiary
of Pinnacle West and its operations account for the preponderance of Pinnacle
West's operating revenues.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDISON ELEC-
TRIC
MEASUREMENT PERIOD DOW JONES INSTITUTE
(FISCAL YEAR COVERED) PINNACLE WEST EQUITY INDEX INDEX
1988 100.00 100.00 100.00
1989 75.71 130.94 129.92
1990 68.57 125.80 131.52
1991 115.40 166.61 169.39
1992 134.44 180.95 182.09
1993 148.41 198.94 202.82
16
19
COMPARISON OF FOUR-YEAR CUMULATIVE TOTAL RETURN
EDISON ELEC-
TRIC
MEASUREMENT PERIOD DOW JONES INSTITUTE
(FISCAL YEAR COVERED) PINNACLE WEST EQUITY INDEX INDEX
1989 100.00 100.00 100.00
1990 97.08 96.07 101.23
1991 163.37 127.24 130.38
1992 190.34 138.19 140.15
1993 210.11 151.93 156.11
control.
INDEPENDENT ACCOUNTANTS
It is contemplated that the Company's financial statements as of December
31, 1994,1995, and for the year then ending, will be examined by Deloitte & Touche
LLP, independent certified public accountants. Representatives of that firm are
expected to be present at the Annual Meeting and will be afforded the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR NEXT MEETING
A shareholder who intends to submit a proposal for inclusion in the proxy
statement relating to next year's Annual Meetingannual meeting of shareholders must submit
such proposal so that it is received by the Company at its principal executive
offices on or before NovemberDecember 18, 1994.1995. The Company recommends that proponents
submit their proposals by certified mail -- return receipt requested.
1716
2018
ARIZONA PUBLIC SERVICE COMPANY
P.O. Box 53999 Phoenix, Arizona 85072-3999
ANNUAL MEETING DATE, APRIL 19, 1994DATE: MAY 16, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
P
O. MARK DE MICHELEDEMICHELE and NANCY C. LOFTIN, and each of them, are hereby
appointed proxies, with full power of substitution, to vote all shares of
stock which I am (we are) entitled to vote at the 19941995 annual meeting of
stockholders,shareholders, and at any adjournment thereof:
R
1. ELECTION OF DIRECTORS / / FOR ALL NOMINEES LISTED BELOW / / WITHHOLD AUTHORITY / /
(except as marked to the contrary below) to vote for all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any individual nominee strike a
line through the nominee's name belowTO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME BELOW.
O
Mr. or Ms.: Carr, De Michele,DeMichele, Hesse, Jennings, Matlock, Norberg, Norton, Post,
Riley, Sargent, Schwada, Seidel, Snell, Walker, Williams, Woods
2. In their discretion, upon such other business as may properly come
before the meeting or any adjournment thereof.
X
Any proxy heretoforepreviously given is hereby revoked.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IN THE ABSENCE OF
SPECIFICATION, IT WILL BE VOTED FOR THE
Y
THE ELECTION OF ALL NAMED DIRECTORS.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
141-00VZ Rev. 2/943/95 PLEASE DATE, SIGN AND RETURN THIS PROXY
PROMPTLY
DATED 1994
DATED ______________ 1995 SIGNATURE
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Please sign as name(s) appear below. Joint ----------------------------------------------------
owners should both sign. Fiduciaries,
attorneys, corporate officers, etc., should
state their capacities.
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Sta. 9820
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BUSINESS REPLY MAIL
FIRST CLASS PERMIT NO.
881 PHOENIX, ARIZONA
-----------------------------19
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BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 881 PHOENIX, ARIZONA
----------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
ARIZONA PUBLIC SERVICE COMPANY
PO BOX 53999
PHOENIX, AZ 85072-9540
Dear Shareholder:
The 19941995 Arizona Public Service Company Annual Meeting of Shareholders
which will be held April 19, 1994,May 16, 1995, will be held separately from the Annual Meeting
of Shareholders of the holding company.
So that we can make the appropriate accommodations for you at the APS
Annual Meeting, we would appreciate it if you would complete and return this
card no later than AprilMay 2, 1994,1995, if you plan to attend. Return postage will be
paid for your convenience.
Thank you for your assistance.
Nancy C. Loftin, Secretary
Arizona Public Service Company
/ / I PLAN TO ATTEND THE APS ANNUAL MEETING. A TOTAL OF ___________ WILL ATTEND.
- -------------------------------------------
Shareholder Name (Please Print)
The Annual Meeting of Pinnacle West Capital Corporation will be held May 19,
1994.17,
1995. Shareholders of Pinnacle West will receive appropriate notice of this
meeting separately.
X141-60BR Rev. 2-943-95