Exhibit 10.1

 

PERFORMANCE SHARE AWARD AGREEMENT

 

THIS AWARD AGREEMENT is made and entered into as of                      ,
         (the “Date of Grant”), by and between Pinnacle West Capital Corporation
(the “Company”), and                                    (“Employee”).

 

BACKGROUND

 

A.                                    The Board of Directors of the Company (the
“Board of Directors”) has adopted, and the Company’s shareholders have approved,
the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (the “2007
Plan”), pursuant to which Performance Share Awards and Dividend Equivalent
Awards may be granted to employees of the Company and its Subsidiaries.

 

B.                                    The Board of Directors also has adopted
the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the “2012
Plan”), which also permits the award of Performance Shares and Dividend
Equivalents.  The Company intends to submit the 2012 Plan to its shareholders
for their approval at the Company’s 2012 Annual Meeting.

 

C.                                    Subject to the approval of the Company’s
shareholders, the Company hereby grants to Employee Performance Shares and
Dividend Equivalents under the terms of the 2012 Plan.  If, and only if, the
shareholders do not approve the 2012 Plan, the Company hereby grants to Employee
Performance Shares and Dividend Equivalents under the terms of the 2007 Plan. 
The plan pursuant to which this Award is made, as determined in accordance with
the preceding provisions of this paragraph, will be referred to below as the
“Plan.”

 

D.                                    Pursuant to the Plan, the Company and
Employee agree as follows:

 

AGREEMENT

 

1.                                      Grant of Award.  Pursuant to action of
the Committee, which was taken on the Date of Grant, the Company grants to
Employee                         (        ) Performance Shares and Dividend
Equivalents.  The Performance Shares granted under this Section 1 are referred
to in this Award Agreement as the “Base Grant.”

 

2.                                      Award Subject to Plan.  This Performance
Share Award and the related Dividend Equivalent Award are granted under and are
expressly subject to all of the terms and provisions of the Plan, which terms
are incorporated herein by reference, and this Award Agreement.  In the event of
any conflict between the terms and conditions of this Award Agreement and the
Plan, the provisions of the Plan shall control.  If this Award is made pursuant
to the 2007 Plan, as determined in accordance with paragraph C of the Background
Section, above, this Agreement shall be subject to the terms of the Master
Amendment to Performance Share Agreement to be entered into between Employee and
the Company.

 

3.                                      Performance Period.  The Performance
Period for this Award begins January 1,         , and ends December 31,
        .

 

4.                                      Payment.

 

(a)                                 Performance Shares Payable In Stock.  As
soon as practicable in the fiscal year immediately following the end of the
Performance Period, the Company will determine (i) the Company’s Total
Shareholder Return (as defined herein) as compared to the Total Shareholder
Return of the companies in the S&P 1500 Super Composite Electric Utility Index
(the “Growth Index”) over the Performance Period and (ii) the Company’s Average
Performance with respect to the Performance Metrics (as defined herein).  The
Company then will deliver to Employee one (1) share of the Company’s Stock for
each then-outstanding Performance Share under this Award Agreement, subject to
adjustment pursuant to Section 5 below.  The Stock payout, if any, related to
the Company’s Total

 

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Shareholder Return will be made on or before the March 15 immediately following
the end of the Performance Period.  The Company anticipates that the Stock
payout, if any, related to the Performance Metrics will be made on or about
                     ,         , and in no event will such Stock payout be made
later than December 31,         .

 

(b)                                 Retirement.  In the case of Employee’s
Retirement (as defined herein) during the Performance Period, Employee shall be
deemed to have been employed by the Company through the end of the Performance
Period and Employee will receive the Stock and Dividend Equivalents, if any, to
which Employee is entitled at the time specified in this Section; provided,
however, in the event Employee is terminated for Cause regardless of Employee’s
Retirement or eligibility for Retirement, Employee shall not be deemed to have
been employed through the end of the Performance Period and will forfeit the
right to receive any Stock hereunder.  For purposes of this Award Agreement,
(i) “Retirement” means a termination of employment which constitutes an “Early
Retirement” or a “Normal Retirement” under the Pinnacle West Capital Corporation
Retirement Plan, and (ii) “Cause” means (A) embezzlement, theft, fraud, deceit
and/or dishonesty by the Employee involving the property, business or affairs of
the Company or any of its Subsidiaries, or (B) an act of moral turpitude which
in the sole judgment of the Chief Executive Officer of the Company reflects
adversely on the business or reputation of the Company or any of its
Subsidiaries or negatively affects any of the Company’s or any of its
Subsidiaries’ employees or customers.

 

(c)                                  Dividend Equivalents.  In satisfaction of
the Dividend Equivalents Award made pursuant to Section 1, at the time of the
Company’s delivery of Stock to Employee pursuant to Subsection 4(a) above, the
Company also will deliver to Employee fully transferrable shares of stock equal
in value to the amount of dividends, if any, that Employee would have received
if Employee had directly owned the Stock to which the Performance Shares relate
from the Date of Grant to the date of the Stock payout, plus interest on such
amount at the rate of      percent compounded quarterly, as determined pursuant
to the Plan.  The number of shares of Stock distributed to Employee will be
determined by dividing the amount due by the Fair Market Value of one share of
Stock as of the date of the Stock payout.  No fractional Stock shall be issued. 
If the Stock payout results in a fractional share of one-half or greater, such
fraction will be increased to provide for the issuance of a full share of Stock.

 

(d)                                 Impact on Pension.  The value of the shares
of Stock distributed upon payment for the Performance Shares and Dividend
Equivalents will be disregarded for purposes of calculating the amount of
Employee’s benefit under any Company retirement plans.

 

5.                                      Performance Criteria and Adjustments. 
Fifty percent (50%) of the Performance Shares awarded under this Award Agreement
will be determined pursuant to Section 5(a) and fifty percent (50%) of the
Performance Shares awarded under this Award Agreement will be determined
pursuant to Section 5(b).  In no event will Employee be entitled to receive a
number of Performance Shares pursuant to this Award Agreement greater than 2.0
times the Base Grant.

 

(a)                                 Adjustment of Base Grant for Total
Shareholder Return.  Fifty percent (50%) of the Base Grant will increase or
decrease based upon the Company’s “Total Shareholder Return” as compared to the
Total Shareholder Return of the companies in the Growth Index during the
Performance Period, as follows:

 

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If the Company’s Total Shareholder Return Over The
Performance Period As Compared to the Total
Shareholder Return of the Companies in the Growth
Index is:

 

The Number of
Performance Shares will
be:

 

90th Percentile or greater

 

1.0 X Base Grant

 

75th Percentile

 

.75 X Base Grant

 

50th Percentile

 

0.5 X Base Grant

 

25th Percentile

 

0.25 X Base Grant

 

Less than 25th Percentile

 

None

 

 

If intermediate percentiles are achieved, the number of Performance Shares
awarded will be prorated (partial shares will be rounded down to the nearest
whole share when applicable).  For example, if the Company’s Total Shareholder
Return during the Performance Period places the Company’s performance in the
60th percentile, then the number of Performance Shares would be increased to
0.60 (0.5 X 60/50) multiplied by the Base Grant.  In no event will Employee be
entitled to receive a number of Performance Shares pursuant to this Subsection
5(a) greater than 1.0 times the Base Grant.

 

(b)                                 Adjustment of Base Grant for Performance
Metrics.  Fifty percent (50%) of the Base Grant will increase or decrease based
upon the Company’s “Average Performance” with respect to the “Performance
Metrics,” as follows:

 

If the Company’s Average Performance is:

 

The Number of
Performance Shares will
be:

 

90th Percentile or greater

 

1.0 X Base Grant

 

75th Percentile

 

.75 X Base Grant

 

50th Percentile

 

0.5 X Base Grant

 

25th Percentile

 

0.25 X Base Grant

 

Less than 25th Percentile

 

None

 

 

If intermediate percentiles are achieved, the number of Performance Shares
awarded pursuant to this Subsection 5(b) will be prorated (partial shares will
be rounded down to the nearest whole share when applicable).  For example, if
the Company’s Average Performance during the Performance Period places the
Company’s performance in the 60th percentile, then the number of Performance
Shares would be increased to .60 (0.5 X 60/50) multiplied by the Base Grant.  In
no event will Employee be entitled to receive a number of Performance Shares
pursuant to this Subsection (b) greater than 1.0 times the Base Grant.

 

6.                                      Definitions.

 

(a)                                 Performance Metrics.  The “Performance
Metrics” for the Performance Period are: (i) the JD Power Residential National
Large Segment Survey for investor-owned utilities; (ii) the System Average
Interruption Frequency Index (Major Events Excluded) (“SAIFI”); (iii) Arizona
Public Service Company’s customer to employee improvement ratio; (iv) the OSHA
rate (All Incident Injury Rate); (v) nuclear capacity factor; and (vi) coal
capacity factor.

 

(1)                       With respect to the Performance Metric described in
clause (i) of this Subsection 6(a), the JD Power Residential National Large
Segment Survey will provide data on an annual basis reflecting the Company’s
percentile ranking, relative to other participating companies.

 

(2)                       With respect to the Performance Metric described in
clause (ii) of this Subsection 6(a), the Edison Electric Institute (“EEI”) will
provide data on an annual basis regarding the SAIFI result of the participating
companies; the Company will

 

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calculate its SAIFI result for the year in question and determine its percentile
ranking based on the information provided by EEI.

 

(3)                       With respect to the Performance Metric described in
clause (iii) of this Subsection 6(a), SNL, an independent third party data
system, will provide data on an annual basis regarding the customer and employee
counts; the Company will use its customer and employee counts for the year in
question and determine its percentile ranking based on the information provided
by SNL.  Only those companies whose customers and employees were included in the
data provided by SNL in each of the years of the Performance Period will be
considered.

 

(4)                       With respect to the Performance Metric described in
clause (iv) of this Subsection 6(a), EEI will provide data on an annual basis
regarding the OSHA rate of the participating companies; the Company will
calculate its OSHA rate for the year in question and determine its percentile
ranking based on the information provided by EEI.

 

(5)                       With respect to the Performance Metric described in
clause (v) of this Subsection 6(a), SNL will provide data on an annual basis
regarding the nuclear capacity factors of the participating nuclear plants; the
Company will calculate its nuclear capacity factor for the year in question and
determine its percentile ranking based on the information provided by SNL.  Only
those plants that were included in the data provided by SNL in each of the years
of the Performance Period will be considered.

 

(6)                       With respect to the Performance Metric described in
clause (vi) of this Subsection 6(a), SNL will provide data on an annual basis
regarding the coal capacity factors of the participating coal plants; the
Company will calculate its coal capacity factor for the year in question and
determine its percentile ranking based on the information provided by SNL.  Only
those plants that were included in the data provided by SNL in each of the years
of the Performance Period will be considered.

 

(7)        The Company’s percentile ranking during the Performance Period for
each Performance Metric will be the average of the Company’s percentile ranking
for each Performance Metric during each of the three years of the Performance
Period (each, an “Average Performance Metric”); provided, however, that if the
third year of a Performance Metric is not calculable by December 15 of the
following year, the Performance Metric shall consist of the three most recent
years for which such Performance Metric is calculable.  The Company’s “Average
Performance,” for purposes of determining any Base Grant adjustments pursuant to
Subsection 5(b) above will be the average of the Average Performance Metrics. 
If only quartile, rather than percentile, rankings are available for a
particular Performance Metric, the Average Performance Metric for any such
Performance Metric shall be expressed as a percentile.  For example, if the
Performance Metric was in the top quartile for two Performance Periods and in
the lowest quartile in the other Performance Period, the average of these
quartiles would be 3 (the average of 4, 4, and 1)  and the Average Performance
Metric would be the 75th percentile (3 /4). The calculations in this Subsection
6(a)(7) will be verified by the Company’s internal auditors.

 

(8)                       If either EEI or SNL discontinues providing the data
specified above, the Committee shall select a data source that, in the
Committee’s judgment, will provide data most comparable to the data provided by
EEI or SNL, as the case may be.  If the JD Power Residential National Large
Segment Survey for investor-owned utilities (or a successor JD Power survey) is
not available during each of the years of the Performance Period, the
Performance Metric associated with the JD Power Residential Survey (Subsection
6(a)(1)) will be disregarded and not included in the Company’s Average
Performance for purposes of determining any Base Grant adjustments pursuant to
Subsection 5(b).

 

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(b)                                 Total Shareholder Return.  “Total
Shareholder Return” for the Performance Period is the measure of a company’s
stock price appreciation plus any dividends paid during the Performance Period. 
Only those companies that were included in the Growth Index in each of the years
of the Performance Period will be considered.  Total Shareholder Return for the
Company and the companies in the Growth Index will be determined using the Daily
Comparative Return as calculated by Bloomberg (or other independent third party
data system).  If the Growth Index is discontinued, the Committee shall select
the most comparable index then in use for the sector comparison.  In addition,
if the sector comparison is no longer representative of the Company’s industry
or business, the Committee shall replace the Growth Index with the most
representative index then in use.  Once the Total Shareholder Returns of the
Company and all relevant companies in the Growth Index have been determined, the
member companies will be ranked from greatest to least.  Percentiles will be
calculated (interpolated from 0% to 100%) based on a company’s relative
ranking.  Percentiles will be carried out to one (1) decimal place.  If the
Company is not in the Growth Index, then its percentile will be interpolated
between the companies listed in the relative ranking.  These calculations will
be verified by the Company’s internal auditors.

 

7.                                      Termination of Award.  This Award
Agreement will terminate and be of no further force or effect on the date that
Employee is no longer employed by the Company or any of its Subsidiaries,
whether due to voluntary or involuntary termination, death, retirement,
disability, or otherwise, except as specifically set forth in Section 4. 
Employee will, however, be entitled to receive any Stock and Dividend
Equivalents payable under Section 4 of this Award Agreement if Employee’s
employment terminates after the end of the Performance Period but before
Employee’s receipt of such Stock and Dividend Equivalents.

 

8.                                      Section 409A Compliance.  If the Company
concludes, in the exercise of its discretion, that this Award is subject to
Section 409A of the Code, the Plan and this Award Agreement shall be
administered in compliance with Section 409A and each provision of this Award
Agreement and the Plan shall be interpreted to comply with Section 409A.  If the
Company concludes, in the exercise of its discretion, that this Award is not
subject to Section 409A, but, instead, is eligible for the short-term deferral
exception to the requirements of Section 409A, the Plan and this Award Agreement
shall be administered to comply with the requirements of the short-term deferral
exception to the requirements of Section 409A and each provision of this Award
Agreement and the Plan shall be interpreted to comply with the requirements of
such exception.  In either event, Employee does not have any right to make any
election regarding the time or form of any payment due under this Award
Agreement other than the tax withholding election described in Section 9.

 

9.                                      Tax Withholding.  Employee is
responsible for any and all federal, state, and local income, payroll or other
tax obligations or withholdings (collectively, the “Taxes”) arising out of this
Award.  Employee shall pay any and all Taxes due in connection with a payout of
Stock hereunder by check or by having the Company withhold shares of Stock from
such payout.  Within 75 days after the Date of Grant, Employee must elect, on
the election form attached hereto, how Employee will satisfy the tax obligations
upon a payout.  In the absence of a timely election by Employee, Employee’s tax
withholding obligation will be satisfied through the Company’s withholding of
shares of Stock as set forth above.

 

10.                               Continued Employment.  Nothing in the Plan or
this Award Agreement shall be interpreted to interfere with or limit in any way
the right of the Company or its Subsidiaries to terminate Employee’s employment
or services at any time.  In addition, nothing in the Plan or this Award
Agreement shall be interpreted to confer upon Employee the right to continue in
the employ or service of the Company or its Subsidiaries.

 

11.                              Confidentiality.  During and after Employee’s
Termination of employment, for any reason, Employee agrees that Employee will
not, directly or indirectly, in one or a series of transactions, disclose to any
person, or use or otherwise exploit for Employee’s own benefit or for the
benefit of anyone other than the Company or any of its Affiliates any
Confidential Information (as hereinafter defined), whether prepared by Employee
or not; provided, however, that during the term of

 

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Employee’s employment, any Confidential Information may be disclosed (i) to
officers, representatives, employees and agents of the Company and its
Affiliates who need to know such Confidential Information in order to perform
the services or conduct the operations required or expected of them in the
business, and (ii) in good faith by Employee in connection with the performance
of Employee’s job duties to persons who are authorized to receive such
information by the Company or its Affiliates.  Employee shall have no obligation
to keep confidential any Confidential Information, if and to the extent
disclosure of any such information is specifically required by law; provided,
however, that in the event disclosure is required by applicable law, Employee
shall provide the Company with prompt notice of such requirement, prior to
making any disclosure, so that it may seek an appropriate protective order.

 

Employee agrees that all Confidential Information of the Company and its
Affiliates (whether now or hereafter existing) conceived, discovered or made by
him during employment exclusively belongs to the Company or its Affiliates (and
not to Employee). Employee will promptly disclose such Confidential Information
to the Company and perform all actions reasonably requested by the Company to
establish and confirm such exclusive ownership.  For purposes of this
Section 11, the term “Confidential Information” shall mean and include any
information disclosed to Employee any time during Employee’s employment with the
Company or its Affiliates or thereafter which is not generally known to the
public, including, but not limited to, information concerning the Company’s or
its Affiliates’ assets and valuations, business plans, methods of operation,
management, information systems, procedures, processes, practices, policies,
plans, programs, personnel and/or reports or other information prepared by
appraisers, consultants, advisors, bankers or attorneys.

 

12.                               Restrictive Covenants.

 

(a)                                 Non-Competition.  Employee agrees that for a
period of 12 months following any Termination of Employment voluntarily by
Employee (other than due to Disability), Employee shall not, without the prior
written consent of the Company’s General Counsel, participate, whether as a
consultant, employee, contractor, partner, owner (ownership of less than 5% of
the outstanding stock of a publicly traded company will not be considered
ownership under this provision), co-owner, or otherwise, with any business,
corporation, group, entity or individual that is engaged in the business
activity of supplying electric service in any area of Arizona for which the
Company or its Affiliates is authorized to supply the same or similar service.

 

(b)                                 Employee Non-Solicitation.  Employee agrees
that for a period of 12 months following Employee’s termination of employment
for any reason, Employee will not encourage, induce, or otherwise solicit, or
actively assist any other person or organization to encourage, induce or
otherwise solicit, directly or indirectly, any employee of the Company or any of
its Affiliates to terminate his or her employment with the Company or its
Affiliates, or otherwise interfere with the advantageous business relationship
of Pinnacle West and its Affiliates with their employees.

 

(c)                                  Remedies.  If Employee fails to comply with
Sections 11, 12(a) or 12(b) in a material respect, the Company may (i) cause any
of Employee’s unvested Performance Shares and related Dividend Equivalents to be
cancelled and forfeited, (ii) refuse to deliver shares of Stock or cash in
exchange for vested Performance Shares or Dividend Equivalents, and/or
(iii) pursue any other rights and remedies the Company may have pursuant to this
Award Agreement or the Plan at law or in equity including, specifically,
injunctive relief.

 

13.                               Non-Transferability.  Neither this Award nor
any rights under this Award Agreement may be assigned, transferred, or in any
manner encumbered except as provided in the Plan.

 

14.                               Definitions:  Copy of Plan and Plan
Prospectus.  To the extent not specifically defined in this Award Agreement, all
capitalized terms used in this Award Agreement will have the same meanings
ascribed to them in the Plan.  By signing this Award Agreement, Employee
acknowledges receipt of a copy of the Plan and the related Plan Prospectus.

 

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15.                               Amendment.  Except as provided below, any
amendments to this Award Agreement must be made by a written agreement executed
by the Company and Employee.  The Company may amend this Award Agreement
unilaterally, without the consent of Employee, if the change (i) is required by
law or regulation, (ii) does not adversely affect in any material way the rights
of Employee, or (iii) is required to cause the benefits under the Plan to
qualify as performance-based compensation within the meaning of
Section 162(m) of the Code or to comply with the provisions of Section 409A of
the Code and applicable regulations or other interpretive authority.  Additional
rules relating to amendments to the Plan or any Award Agreement to assure
compliance with Section 409A of the Code are set forth in Section 17.15 of the
Plan.

 

16.                               [Performance-Based Award.  This Award is
intended to be a Performance-Based Award, if Employee is considered to be a
Covered Employee for the tax year of the Company for which the Company claims a
related tax deduction.]

 

IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed,
as of the Date of Grant, by an authorized representative of the Company and this
Award Agreement has been executed by Employee.

 

 

PINNACLE WEST CAPITAL CORPORATION

 

 

 

 

 

By:

 

 

Its:

 

 

Date:

 

 

 

 

EMPLOYEE

 

 

 

 

 

By:

 

 

Date:

 

 

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Pinnacle West Capital Corporation

 

PERFORMANCE SHARE AWARD
ELECTION FORM

(applies to Award Agreement dated     /    /    )

 

INFORMATION ABOUT YOU

 

 

 

 

Last

First

Middle Initial

Employee ID#

 

 

TAX WITHHOLDING ELECTION

 

I hereby elect to satisfy any tax withholding obligation associated with my
receipt of Stock pursuant to my Performance Share Award in the following form
(place an “X” in the “Check” column or in the “Stock” column):

 

Check
(I will write a check for my taxes that are due and deliver it to the Company
within one (1) day of the release of the Stock)

o

 

Stock
(The Company should withhold shares
of my Stock to cover my taxes)

o

To the extent permitted by law, I hereby elect Federal tax withholding of
           percent (minimum may not be less than 25% and maximum may not exceed
35%)

 

 

 

PARTICIPANT NAME (PLEASE PRINT)

 

 

 

 

 

PARTICIPANT SIGNATURE

 

DATE

 

IMPORTANT NOTE:

Please complete and return this Election Form to Jennifer Mellegers at Mail
Station 9996 by

                      ,           .

 

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