DISCRETIONARY CREDIT AWARD AGREEMENT
This Discretionary Credit Award Agreement (the “Agreement”) is entered into by
and between Arizona Public Service Company (“APS”) and Robert Bement
(“Employee”).
1.Background. The Company and Employee previously entered into a Retention
Agreement dated December 19, 2008 (the “2008 Agreement”), which continues to
remain in effect.
2.    Purpose. Section 3.9 of the Deferred Compensation Plan of 2005 for
Employees of Pinnacle West Capital Corporation and Affiliates (the “Deferred
Compensation Plan”) allows APS to award Discretionary Credits in such amounts
and subject to such terms and conditions as APS deems appropriate. The purpose
of this Agreement is to award Discretionary Credits to Employee subject to the
terms and conditions set forth below.
3.    Definitions. A number of key terms, with specialized meanings, are used
throughout this Agreement. These key terms are identified by the capitalization
of the initial letter of each word or phrase even when the word or phrase does
not begin a sentence. Each of these key terms will be given the meaning ascribed
to it in the Deferred Compensation Plan unless the term is defined in this
Agreement. Whenever these key terms are used, they will be given the defined
meaning unless a clearly different meaning is required by the context.
4.    Discretionary Credits. Four Discretionary Credits in the aggregate amount
of $300,000 will be allocated to a Discretionary Credit Account established for
the benefit of Employee pursuant to Section 3.9 of the Deferred Compensation
Plan. The Discretionary Credit Account shall be credited with: (i) $75,000 on
January 1, 2015; (ii) $75,000 on January 1, 2016; (iii) $75,000 on January 1,
2017; and (iv) $75,000 on January 1, 2018 provided that the Employee remains
employed with APS on each such crediting date and demonstrates sustained
competent performance of his assigned job responsibilities.
5.    Interest. The Discretionary Credit Account shall be credited with interest
in accordance with Section 3.5 of the Deferred Compensation Plan.
6.    Modification of 2008 Agreement. Effective retroactive to January 1, 2014,
the “Company Credits” credited to Employee pursuant to the 2008 Agreement shall
be credited with interest calculated in accordance with Section 3.5 of the
Deferred Compensation Plan. All other terms and conditions of the 2008 Agreement
shall continue in full force and effect.
7.    Vesting. The Discretionary Credit Account vests on December 31, 2018. If
Employee Separates from Service prior to December 31, 2018, the amounts
allocated to the Discretionary Credit Account will be forfeited; provided,
however, that if Employee’s employment with APS is involuntarily terminated by
APS without Cause, Employee dies or Employee becomes Disabled prior to December
31, 2018, all amounts previously credited to the Discretionary Credit Account
will be fully vested as of the date of the termination by APS without Cause,
death or Disability as applicable. For purposes of this document, “Disability”
shall have the meaning ascribed to it in the Pinnacle West Capital Corporation
Long-Term Disability Plan. For purposes of this document, “Cause” means any act
or omission that could result in disciplinary action pursuant to

1    

--------------------------------------------------------------------------------

applicable laws or APS policies and procedures, as determined in the sole
discretion of APS. The determination of whether “Cause” exists shall be made by
APS, in its sole and absolute discretion, in accordance with its personnel
policies and procedures.
8.    Payment of Discretionary Credits.
(a)    General Rule. Except as otherwise provided below in this Section 8,
Employee’s vested interest in his Discretionary Credit Account will be paid to
Employee in substantially equal installments over a period of approximately five
years following Employee’s Separation from Service with the first installment
payment to made within 30 days following Employee’s Separation from Service and
each subsequent installment payment shall be made on the next four anniversaries
of the first payment date, unless Employee is a Specified Employee on the date
of his Separation from Service. If Employee is a Specified Employee on the date
of his Separation from Service, the first installment payment shall be paid
within 30 days following the first day of the seventh month following Employee’s
Separation from Service and each subsequent installment payment shall be made on
the next four anniversaries of the first payment date. The Discretionary Credit
Account may not be distributed as a Short‑Term Payout or due to an Unforeseeable
Financial Emergency.
(b)    Disability. If Employee becomes Disabled prior to his Separation from
Service and if such Disability occurs prior to December 31, 2018, Employee shall
receive a single lump sum payment of Employee’s vested interest in his
Discretionary Credit Account on the first business day following December 31,
2018 as long as the Disability constitutes a “disability” as defined in Section
409A of the Code. If the Disability does not constitute a “disability” as
defined in Section 409A of the Code, the general rule set forth in Section 8(a)
will apply, unless Employee incurs a Separation from Service before December 31,
2018, in which case Employee shall receive a single lump sum payment of
Employee’s vested interest in his Discretionary Credit Account within 30 days
following Employee’s Separation from Service, unless Employee is a Specified
Employee on the date of his Separation from Service. If Employee is a Specified
Employee on the date of his Separation from Service, Employee’s vested interest
in his Discretionary Credit Account shall be paid within 30 days following the
first day of the seventh month following Employee’s Separation from Service.
(c)    Death. If Employee dies while employed by the Company, or after the
commencement of installment payments as described in Section 8(a) but before all
such payments have been made in full, the Beneficiary designated by Employee
pursuant to the Deferred Compensation Plan shall receive a single lump sum
payment of Employee’s vested interest in his Discretionary Credit Account within
sixty days of Employee’s death.
(d)    Termination without Cause. If Employee’s employment is terminated by the
Company without cause and if, as a result of such termination, Employee incurs a
Separation from Service before December 31, 2018, Employee shall receive a
single lump sum payment of Employee’s vested interest in his Discretionary
Credit Account within 30 days following Employee’s Separation from Service,
unless Employee is a Specified Employee on the date of his Separation from
Service. If Employee is a Specified Employee on the date of his Separation from
Service,

2    

--------------------------------------------------------------------------------

Employee’s vested interest in his Discretionary Credit Account shall be paid
within 30 days following the first day of the seventh month following Employee’s
Separation from Service.
9.    Employee’s Plan Status. Regardless of whether Employee makes an Annual
Deferral pursuant to the terms of the Deferred Compensation Plan for the
relevant Plan Year, Employee shall be deemed to be a Participant in the Deferred
Compensation Plan and to have elected to participate in the Deferred
Compensation Plan for the limited purpose of receiving the Discretionary Credits
described in this Agreement. This Agreement shall be deemed to be Employee’s
Election Form for purposes of Section 2.2 and Section 3.3 of the Deferred
Compensation Plan.
10.    Relationship to Other Benefits. The Discretionary Credits allocated to
Employee pursuant to this Agreement shall not be taken into account as
compensation or for purposes of determining any benefits due to Employee
pursuant to the terms of any pension, retirement, savings, profit sharing,
incentive, group insurance or other tax qualified or nonqualified benefit plan
sponsored by APS, Pinnacle West Capital Corporation or any affiliate of either.
In addition, the amounts payable to Employee attributable to the Discretionary
Credit Account established for Employee pursuant to the Deferred Compensation
Plan shall be disregarded for purposes of the benefit plans referred to in the
preceding sentence.
11.    Plan Document. As provided above, this Agreement is entered into pursuant
to the provisions of Section 3.9 of the Deferred Compensation Plan. Accordingly,
except as otherwise set forth in this Agreement, the provisions of the Deferred
Compensation Plan shall apply in determining the rights of Employee as well as
the administration of Employee’s Discretionary Credit Account. In cases of
conflict, this Agreement controls over any conflicting provisions of the
Deferred Compensation Plan, except as may be required by Section 409A of the
Internal Revenue Code or the provisions of any other applicable law or
regulation.
12.    Amendments. This Agreement may not be modified, altered or changed except
by a written agreement signed by APS and Employee.
13.    Confidentiality. Employee shall hold the existence and terms of this
Agreement in confidence. Employee shall not publicly or privately discuss or
disclose the nature or content of this Agreement. However, Employee may disclose
the terms of this Agreement if required by federal or state law, and Employee
may disclose the terms of this Agreement to Employee’s accountant, attorney,
consultant and spouse. In addition, APS and Employee may disclose this Agreement
as necessary to enforce its provisions.
14.    Reporting to Federal and State Agencies. Nothing in this Agreement shall
be construed to prohibit Employee from reporting or disclosing any suspected
instance of illegal activity of any nature, any nuclear safety concerns, any
workplace safety concerns, or any public safety concerns to the Nuclear
Regulatory Commission (“NRC”), the United States Department of Labor (“DOL”), or
any other federal, state, or local government agency or court. This Agreement
shall not be construed to prohibit Employee from providing information to the
NRC, DOL, Equal Employment Opportunity Commission, United States Securities and
Exchange Commission, Occupational Safety and Health Administration, or Arizona
Division of Occupational Safety and

3    

--------------------------------------------------------------------------------

Health, or testifying in any civil or criminal proceedings, even if such
information or testimony being provided relates to the claims or matters covered
by this Agreement. This Agreement shall not be construed as a waiver or
withdrawal of any safety concerns which Employee has or may have reported to the
NRC or DOL, or withdrawal of any participation by Employee in any NRC
proceedings. In this regard, the parties to this Agreement understand that this
Agreement shall be interpreted in a manner consistent with 10 CFR § 50.7(f).
Notwithstanding anything to the contrary in this paragraph, Employee hereby
waives and releases any right to receive any relief as a result of the
Employee's participation in any investigation or proceeding of the NRC, DOL, or
any federal, state, or local government agency or court.
15.    Entire Agreement. APS and Employee acknowledge and agree that this
Agreement and the Deferred Compensation Plan constitute the entire agreement
between APS and Employee with respect to the subject matter hereof.
16.    Severability. If any provision of this Agreement is held to be invalid,
the remaining provisions shall remain in full force and effect.
IN WITNESS WHEREOF, APS and Employee have executed this Agreement on the dates
set forth below.
ARIZONA PUBLIC SERVICE COMPANY
EMPLOYEE
 
 
By:  /s/ Donald E. Brandt
By: /s/ Robert Bement
       Donald E. Brandt
        Robert Bement
       Chairman and Chief Executive Officer
   
 
 
Date:  9/15/2014
Date: 10/20/2014

4