Exhibit 10.3
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2009 Performance Share Award
PERFORMANCE SHARE AGREEMENT
UNDER THE
PINNACLE WEST CAPITAL CORPORATION
2007 LONG-TERM INCENTIVE PLAN
     THIS AWARD AGREEMENT is made and entered into as of
                                        2009 (the “Date of Grant”), by and
between Pinnacle West Capital Corporation (the “Company”), and
                                        (“Employee”).
BACKGROUND

A.   The Board of Directors of the Company has adopted, and the Company’s
shareholders have approved, the Pinnacle West Capital Corporation 2007 Long-Term
Incentive Plan (the “Plan”), pursuant to which Performance Share Awards may be
granted to employees of the Company and its Subsidiaries and certain other
individuals.   B.   The Company desires to grant to Employee a Performance Share
Award under the terms of the Plan.    C.   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 is granted under and is expressly subject to all of
the terms and provisions of the Plan, which terms are incorporated herein by
reference, and this Award Agreement.     3.   Performance Period. The
Performance Period for this Award begins January 1, 2009 and ends December 31,
2011.     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 Earnings Per Share Growth Rate (as defined
herein) as compared to the Earnings Per Share Growth Rates 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 will then 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 Company anticipates that the Stock payout, if any, related
to the Company’s Earnings Per Share Growth Rate will be made on or about
April 1, 2012. The Company anticipates that the Stock payout, if any,

 

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      related to the Performance Metrics will be made on or about November 30,
2012. In no event will the Stock payouts described in this Subsection 5(a) be
made later than December 31, 2012.     (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. For purposes of this Award Agreement, “Retirement” means a termination
of employment which constitutes an “Early Retirement” or a “Normal Retirement”
under the Pinnacle West Capital Corporation Retirement Plan.     (c)   Dividend
Equivalents. In satisfaction of the Dividend Equivalent 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 a cash
payment equal to the amount of dividends, if any, declared on the number of
shares of Stock equal to the number of shares of Stock delivered to Employee
from the Date of Grant to the date of the payment, plus interest on such amount
at the rate of 5% percent, compounded quarterly, as determined pursuant to the
Plan.

  5.   Performance Criteria and Adjustments.

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

      If the Company’s Earnings Per Share     Compound Growth Rate Over The    
Performance Period As Compared to the   The Number of Earnings Per Share Growth
Rates of the   Performance Shares Companies in the Growth Index is:   will be:
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 Earnings Per Share
Growth Rate 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 .75 times the Base Grant, even if the Company’s Earnings Per
Share Growth Rate during the Performance Period places the Company’s performance
higher than the 75th percentile.

 

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  (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:

          The Number of     Performance Shares will If the Company’s Average
Performance is:   be:  
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 .75 times the Base Grant, even if the Company’s
Average Performance during the Performance Period places the Company’s
performance higher than the 75th percentile.

  6.   Definitions.

  (a)   Earnings Per Share Growth Rate. “Earnings Per Share Growth Rate” for the
Performance Period is the compounded annual-growth rate (“CAGR”) of a company’s
earnings per share from continuing operations, on a fully diluted basis, during
the Performance Period; provided, however, that for purposes of calculating the
Company’s Earnings Per Share Growth Rate, SunCor Development Company’s earnings
or losses will be disregarded for each fiscal year 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. The Earnings Per Share
Growth Rates of the companies in the Growth Index will be determined using an
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 CAGR of the Company and
all relevant companies in the Growth Index have been determined, the member
companies will be ranked from greatest to least CAGR. Percentiles will be
calculated based on a company’s relative ranking. For example, company 1 out of
26 companies is given a percentile of 96.2% (1.0 — 1/26). 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.

  (b)   Performance Metrics. The “Performance Metrics” for the Performance
Period are (i) the JD Power Residential Survey for investor-owned utilities in
the Western Region; (ii) the System Average Interruption Frequency Index (Major

 

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      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(b), the JD Power Residential 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(b), the Edison Electric Institute
(“EEI”) will provide on an annual basis the quartile rankings (or percentile
rankings, if available) associated with the SAIFI result of the participating
companies; the Company will determine its SAIFI result for the year in question
and determine its quartile ranking (or percentile ranking, if percentile
rankings are available) based on the information provided by EEI.     (3)   With
respect to the Performance Metric described in clause (iii) of this Subsection
6(b), 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(b), 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(b), 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(b), 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

 

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      Performance Period (each, an “Average Performance Metric”); provided,
however, that if a Performance Metric for 2011 is not calculable by December 15,
2012, 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(b)(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 Survey for investor-owned utilities in the Western Region (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(b)(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).

  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 actively 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.

  (a)   Purpose of this Provision. Section 409A of the Code imposes a number of
requirements on “non-qualified deferred compensation” plans and arrangements.
Based on regulations issued by the Internal Revenue Service, the Company has
concluded that this Performance Share Award is subject to Section 409A. As a
result, unless the Plan and this Award Agreement are administered to comply with
the new rules, Employee will be required to pay an additional 20% tax (in
addition to regular income taxes) on the compensation provided by this Award
Agreement. In addition, under Section 409A additional interest will be payable.
    (b)   Compliance with Section 409A. The Company intends to comply with
Section 409A by assuring that all amounts to which Employee becomes entitled
hereunder are payable at a specified time or pursuant to a fixed schedule within
the meaning of Treas. Reg. § 1.409A-3(a)(4). As a result, any payment or

 

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      transfer to Employee shall be made at the time specified in Section 4. The
provisions of this Subsection 8(b) apply to all amounts due pursuant to this
Award Agreement.     (c)   Miscellaneous Payment Provisions. If a payment is not
made due to a dispute in payments, payments can be delayed in accordance with
Treas. Reg. § 1.409A-3(g).     (d)   Ban on Acceleration or Deferral. Under no
circumstances may the time or schedule of any payment made or benefit provided
pursuant to this Award Agreement be accelerated or subject to a further deferral
except as otherwise permitted or required pursuant to regulations and other
guidance issued pursuant to Section 409A of the Code.     (e)   No Elections.
Employee does not have any right to make any election regarding the time or form
of any payment due under this Award Agreement.     (f)   Compliant Operation and
Interpretation. The Plan and this Award Agreement shall be administered in
compliance with Section 409A and each provision of the Award Agreement and the
Plan shall be interpreted, to the extent possible, to comply with Section 409A.

  9.   Tax Withholding. Any and all payments made pursuant to this Award
Agreement shall be subject to applicable tax withholding requirements and
employment taxes. Employee must pay, or make arrangements acceptable to the
Company for the payment of any and all required federal, state, and local income
and payroll tax withholding. Employee may satisfy any such tax withholding
obligation by paying the amount in cash or by check. In the alternative,
Employee may elect to have the Company withhold shares of Stock having a Fair
Market Value on the date of withholding sufficient to cover the minimum
statutory withholding obligation. Within 45 days after the Date of Grant,
Employee must elect, by providing written notice to the Company, to satisfy any
tax withholding obligation by paying the amount in cash or by check or by having
the Company withhold shares of Stock having a Fair Market Value on the date of
withholding sufficient to cover the minimum statutory withholding obligation. In
the absence of a timely election by Employee, Employee’s minimum statutory
withholding obligation will be satisfied through the Company’s withholding
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 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.     11.   Voting Rights. Employee is not entitled to
voting rights with respect to shares of Stock by virtue of this Award. Upon
issuance of Stock in settlement of Employee’s Performance Share Awards, Employee
will have voting rights with respect to such shares of Stock.     12.  
Non-Transferability. Neither this Award nor any rights under this Award
Agreement may be assigned, transferred, or in any manner encumbered except by
will or the laws of

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      descent and distribution, and any attempted assignment, transfer,
mortgage, pledge or encumbrance except as herein authorized, will be void and of
no effect.     13.   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. Employee will receive a copy of the Plan and the related Plan Prospectus.
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.     14.  
Amendment. Except as otherwise provided in the Plan, this Award Agreement may be
amended only by a written agreement executed by the Company and Employee.    
15.   Choice of Law. This Award Agreement will be governed by the laws of the
State of Arizona, excluding any conflicts or choice of law rule or principle
that might otherwise refer construction or interpretation of this Award
Agreement to another jurisdiction.

       An authorized representative of the Company has signed this Award
Agreement as of the Date of Grant.

             
 
  PINNACLE   WEST CAPITAL CORPORATION    
 
           
 
  By:        
 
  Its:  
 
   
 
     
 
   

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Pinnacle West Capital Corporation
PERFORMANCE SHARE AWARD
ELECTION FORM

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 Agreement in the following
form (place an “X” in the “Cash” column or in the “Stock” column):
 

      Cash   Stock       (I will write a check
for my taxes that are due)   (The Company should withhold shares of my
stock to cover my taxes) o   o

 

             
 
PARTICIPANT NAME (PLEASE PRINT)
           
 
           
 
PARTICIPANT SIGNATURE
     
 
DATE    

IMPORTANT NOTE: Please complete and return this Election Form
to                    at Mail Station