Exhibit 10.5.3
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the  _____  day of
                    , 2009 (the “Effective Date”), by and between Pinnacle West
Capital Corporation, an Arizona corporation (hereinafter referred to as the
“Company”) and                      (hereinafter referred to as the
“Executive”):
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company, in an executive capacity,
possesses intimate knowledge of the business and affairs of the Company, and has
acquired certain confidential information and data with respect to the Company;
WHEREAS, the Company desires to insure, insofar as possible, that the Company
will continue to have the benefit of the Executive’s services and to protect the
confidential information and goodwill of the Company; and
WHEREAS, the Company recognizes that circumstances may arise in which a change
in the control of the Company or Arizona Public Service Company, a subsidiary of
the Company, through acquisition or otherwise occurs thereby causing uncertainty
of employment without regard to the Executive’s competence or past contributions
which uncertainty may result in the loss of valuable services of the Executive
to the detriment of the Company and its shareholders, and the Company and the
Executive wish to provide reasonable security to the Executive against changes
in the Executive’s relationship with the Company in the event of any such change
in control; and
WHEREAS, both the Company and the Executive are desirous that a proposal for any
change of control or acquisition will be considered by the Executive objectively
and with reference only to the business interests of the Company and its
shareholders;
WHEREAS, the Executive will be in a better position to consider the best
interests of the Company if the Executive is afforded reasonable security, as
provided in this Agreement, against altered conditions of employment which could
result from any such change in control or acquisition; and
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements hereinafter set forth, the parties hereto mutually covenant and
agree as follows:
1. Definitions.
(a) “Accrued Benefits” shall mean the benefits payable to the Executive as
described in Section 6(a).
(b) “Act” shall mean the Securities Exchange Act of 1934.

 

 

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(c) “Affiliate” shall mean (i) a corporation other than the Company that is a
member of a “controlled group of corporations” (within the meaning of Section
414(b) of the Code as modified by Section 415(h) of the Code) or (ii) a group of
trades or businesses under common control (within the meaning of Section 414(c)
of the Code as modified by Section 415(h) of the Code) that also includes the
Company as a member. For purposes of determining whether a transaction or event
constitutes a Change of Control within the meaning of Section 1(g), “Affiliate”
status shall be determined on the day immediately preceding the date of the
transaction or event.
(d) “APS” shall mean Arizona Public Service Company, a subsidiary of the
Company.
(e) “Beneficial Owner” shall have the same meaning as given to that term in
Rule 13d-3 of the General Rules and Regulations of the Act, provided that any
pledgee of the voting securities of the Company or APS shall not be deemed to be
the Beneficial Owner thereof prior to its disposition of, or acquisition of
voting rights with respect to, such securities.
(f) “Cause” shall be limited to (i) the engaging by the Executive in conduct
which has caused demonstrable and serious injury to the Employer, monetary or
otherwise, as evidenced by a determination in a binding and final judgment,
order or decree of a court or administrative agency of competent jurisdiction,
in effect after exhaustion or lapse of all rights of appeal, in an action, suit
or proceeding, whether civil, criminal, administrative or investigative, other
than an action, suit or proceeding, brought by the Company or an Affiliate, the
purpose of which is to establish “Cause” under this Agreement; (ii) conviction
of a felony, as evidenced by a binding and final judgment, order or decree of a
court of competent jurisdiction, in effect after exhaustion or lapse of all
rights of appeal, which the Employer determines has a significant adverse impact
on it in the conduct of its business; or (iii) unreasonable neglect or refusal
by the Executive to perform the Executive’s duties or responsibilities (unless
significantly changed without the Executive’s consent).
(g) “Change of Control” shall mean one (1) or more of the following events:
(i) Any Person, other than an Affiliate, through a transaction or series of
transactions, is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company or APS representing twenty percent (20%) or more of
the combined voting power of the then outstanding securities of the Company or
APS, as the case may be; provided, however, that, for purposes of this
Section 1(g), any acquisition directly from the Company shall not constitute a
Change of Control;

 

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(ii) A merger or consolidation of (A) the Company with any other corporation
which would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination with the ownership
of any trustee or other fiduciary holding securities under an employee benefit
plan of the Company or an Affiliate, less than sixty percent (60%) of the
combined voting power of the securities of the Company or such surviving entity
or any parent thereof outstanding immediately after such merger or
consolidation, or (B) APS with any other corporation which would result in the
voting securities of APS outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or an
Affiliate, less than sixty percent (60%) of the combined voting power of the
securities of APS or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation; provided that, for purposes of
this subparagraph (ii), a merger or consolidation effected to implement a
recapitalization of the Company or of APS (or similar transaction) in which no
Person is or becomes the Beneficial Owner, directly or indirectly, of securities
of the Company or of APS representing twenty percent (20%) or more of the
combined voting power of the then outstanding securities of the Company or of
APS (excluding any securities acquired by that Person directly from the Company
or an Affiliate) shall not result in a Change of Control; or
(iii) The sale, transfer or other disposition of all or substantially all of the
assets of either the Company or APS to a Person other than the Company or an
Affiliate
(iv) Individuals who, as of July 31, 2008, constitute the board of directors of
the Company (the “Company Incumbent Board”) or of APS (the “APS Incumbent
Board”) cease for any reason to constitute at least two-thirds (2/3) of the
members of the Company or APS board of directors, as the case may be; provided,
however, that for purposes of this subparagraph (iv), (A)(1) any person becoming
a member of the Company board of directors after July 31, 2008 whose election,
or nomination for election by the Company’s shareholders, was approved by a vote
of at least two-thirds (2/3) of the members then comprising the Company
Incumbent Board will be, considered as though such person were a member of the
Company Incumbent Board and (2) the Company Incumbent Board shall not include a
director whose initial assumption of office as a director was in connection with
an actual or threatened election contest relating to the election of directors,
and (B)(1) any person becoming a member of the APS board of directors after
July 31, 2008 whose election, or nomination for election by APS’ shareholder(s),
was approved by a vote of at least two-thirds (2/3) of the members then
comprising the APS Incumbent Board or by the Company, as a majority shareholder
of APS, considered as though such person were a member of the APS Incumbent
Board and (2) the APS Incumbent Board shall not include a director whose initial
assumption of office as a director was in connection with an actual or
threatened election contest relating to the election of directors.

 

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(h) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.
(i) “Disability” shall have the same meaning as given to that term in the
applicable long-term disability plan maintained by the company or the Employer
for employees.
(j) “Employer” shall mean the Company, and upon the transfer of the Executive to
an Affiliate, “Employer” shall mean such Affiliate.
(k) “Employment Period” shall mean the period commencing on the date of a Change
of Control and ending on the second anniversary of such date.
(l) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code,
together with any interest or penalties imposed with respect to such excise tax.
(m) “Good Reason” shall mean:
(i) A material diminution in the Executive’s compensation;
(ii) A material diminution in the Executive’s authority, duties, or
responsibilities;
(iii) A material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report, including a requirement
that the Executive report to a corporate officer or employee instead of
reporting directly to the Board;
(iv) A material diminution in the budget over which the Executive retains
authority;
(v) A material change in the geographic location at which the Executive must
perform the service;
(vi) Any other action or inaction that constitutes a material breach by the
Company of the Agreement.
(n) A “Payment” shall mean any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of the Executive, whether paid or payable pursuant to this Agreement
or otherwise.

 

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(o) “Person” shall mean any individual, partnership, joint venture, association,
trust, corporation or other entity (including a “group” as defined in
Section 13(d)(3) of the Act), other than an employee benefit plan of the Company
or an Affiliate or an entity organized, appointed or established pursuant to the
terms of any such benefit plan.
(p) “Termination Date” shall mean, except as otherwise provided in Section 12,
(i) the Executive’s date of death; (ii) the date of the Executive’s voluntary
early retirement as agreed upon in writing by the Employer and the Executive;
(iii) sixty (60) days after the delivery of the Notice of Termination
terminating the Executive’s employment on account of Disability pursuant to
Section 9, unless the Executive returns full-time to the performance of his or
her duties prior to the expiration of such period; (iv) the date of the Notice
of Termination if the Executive’s employment is terminated by the Executive
voluntarily other than for Good Reason; and (v) sixty (60) days after the
delivery of the Notice of Termination if the Executive’s employment is
terminated by the Employer (other than by reason of Disability) or by the
Executive for Good Reason.
(q) “Termination Payment” shall mean the amount described in Section 6(b).
2. Impact on Employment. The Employer and the Executive shall retain the right
to terminate the employment of the Executive at any time and for any reason
prior to a Change of Control. If a Change of Control occurs when the Executive
is employed by the Employer, the Employer will continue thereafter to employ the
Executive during the Employment Period.
3. Duties. During the Employment Period, the Executive shall, in the same
capacities and positions held by the Executive at the time of such Change of
Control or in such other capacities and positions as may be agreed to by the
Employer and the Executive in writing, devote the Executive’s reasonable best
efforts, attention and skill to the business and affairs of the Company, as such
business and affairs now exist and as they may hereafter be conducted. The
services which are to be performed by the Executive hereunder are to be rendered
at an employment location which is not more than seventy-five (75) miles from
the Executive’s employment location on the date of the Change of Control, or in
such other place or places as shall be mutually agreed upon in writing by the
Executive and the Employer from time to time. The Executive shall not be
required to be absent from such employment location for more than forty-five
(45) consecutive days in any fiscal year without the Executive’s consent.
4. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at such intervals and in accordance with such
standard policies as may be in effect on the date of the Change of Control, an
annual salary not less than the Executive’s annual salary as in effect as of the
date of the Change of Control, subject to adjustment as provided in Section 5;

 

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(b) The Executive shall be reimbursed, at such intervals and in accordance with
such standard policies as may be in effect on the date of the Change of Control,
for any and all monies advanced in connection with the Executive’s employment
for reasonable and necessary expenses incurred by the Executive on behalf of the
Employer, including travel expenses;
(c) The Executive shall be included to the extent eligible thereunder in any and
all plans providing general benefits for the Employer’s employees, including but
not limited to, group life insurance, disability, medical, dental, pension,
profit sharing, savings and stock bonus plans and be provided any and all other
benefits and perquisites made available to other employees of comparable status
and position, on the same terms and conditions as generally provided to
employees of comparable status and position;
(d) The Executive shall receive annually not less than the amount of paid
vacation and not fewer than the number of paid holidays received annually
immediately prior to the Change of Control or such greater amount of paid
vacation and number of paid holidays as may be made available annually to other
employees of comparable status and position with the Employer; and
(e) The Executive shall be included in all plans providing special benefits to
corporate officers, including but not limited to bonus, deferred compensation,
incentive compensation, supplemental pension, stock option, stock appreciation,
stock bonus and similar or comparable plans extended by the Company or the
Employer from time to time to corporate officers, key employees and other
employees of comparable status.
5. Annual Compensation Adjustments. During the Employment Period, the Board of
Directors of the Employer, an appropriate committee of the Board or the
President of the Employer, whichever is appropriate, shall consider and
appraise, at least annually, the Executive’s compensation. In determining such
compensation, the Board, the appropriate committee thereof or the President,
whichever is appropriate, shall consider the commensurate increases given to
other corporate officers and key employees generally, the scope and success of
the Employer’s operations, the expansion of the Executive’s duties and the
Executive’s performance of his duties.
6. Payments Upon Termination.
(a) Accrued Benefits. For purposes of this Agreement, the Executive’s Accrued
Benefits shall include the following amounts: (i) all salary earned or accrued
through the Termination Date; (ii) reimbursement for any and all monies advanced
in connection with the Executive’s employment for reasonable and necessary
expenses incurred by the Executive through the Termination Date; (iii) a lump
sum payment of the bonus or incentive compensation otherwise payable to the
Executive under the terms of any bonus or incentive compensation plan or plans
for the year in which termination occurs; and (iv) all other payments and
benefits to which the Executive may be entitled under the terms of any benefit
plan of the Company or the Employer. Payment of Accrued Benefits shall be made
promptly in accordance with the Employer’s prevailing practice and the terms of
any applicable benefit plans, contracts or arrangements.

 

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(b) Termination Payment. For purposes of this Agreement, the Executive’s
Termination Payment shall be an amount equal to (i) plus (ii), multiplied by
(iii), where
(i) Equals the Executive’s rate of annual salary, as in effect on the date of
the Change of Control and as increased thereafter from time to time pursuant to
Section 5;
(ii) Equals the amount of the average annual dollar award paid (or payable but
deferred by the Executive) to the Executive pursuant to the Employer’s regular
annual bonus plan or arrangement with respect to the four (4) years (or for such
lesser number of years prior for which the Executive was eligible to earn such a
bonus, and annualized in the case of any bonus earned and payable for a partial
fiscal year) preceding the Termination Date which shall be determined by
dividing the total dollar amount paid (or payable but deferred by the Executive)
to the Executive under such plan or arrangement with respect to such number of
years by four (4) (or for such lesser number of years prior to which the
Executive was eligible to earn such a bonus, and annualized in the case of any
bonus earned and payable for a partial fiscal year); and
(iii) Equals 2.99.
The Termination Payment shall be payable in a lump sum on the Executive’s
Termination Date. Such lump sum payment shall not be reduced by any present
value or similar factor. The Executive shall not be required to mitigate the
amount of such payment by securing other employment or otherwise and such
payment shall not be reduced by reason of the Executive securing other
employment or for any other reason, except as provided in Section 16.
7. Death. If the Executive shall die during the Employment Period, but after
delivery of a Notice of Termination by the Company for reasons other than Cause
or Disability or by the Executive for Good Reason, the Executive’s employment
shall terminate on his or her date of death and the Executive’s estate shall be
entitled to receive the Executive’s Accrued Benefits as of the Termination Date
and, subject to the provisions of this Agreement, to such Termination Payment as
the Executive would have been entitled to had the Executive survived. All
benefits payable on account of the Executive’s employment or death under the
Company’s or Employer’s employee benefits plans, programs or arrangements shall
be paid or distributed in accordance with the terms of such plans, programs or
arrangements. The Executive’s death following delivery of the Notice of
Termination shall not affect his or her Termination Date which shall be
determined without regard to the Executive’s death, subject to the provisions of
Section 12.

 

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If the Executive shall die during the Employment Period, but prior to the
delivery of a Notice of Termination, the Executive’s employment shall terminate
and the Executive’s estate, heirs and beneficiaries shall receive all the
Executive’s Accrued Benefits through the Termination Date and all benefits
available to them under the Company’s benefit plans as in effect on the
Termination Date on account of the Executive’s death.
8. Retirement. If, during the Employment Period, the Executive and the Employer
shall execute an agreement providing for the voluntary retirement of the
Executive from the Employer, the Executive shall receive only his or her Accrued
Benefits through the Termination Date. Without limiting the generality of the
foregoing, the Executive’s resignation under this Agreement with or without Good
Reason, shall in no way affect the Executive’s ability to terminate employment
by reason of the Executive’s “retirement” under any of the Company’s retirement
or pension plans or to be eligible to receive benefits under any retirement or
pension plan of the Company and its affiliates or substitute plans adopted by
the Company or its successors, and any termination which otherwise qualifies as
Good Reason shall be treated as such even if it is also a “retirement” for
purposes of any such plan.
9. Termination for Disability. If the Executive has been absent from his or her
duties hereunder on a full-time basis for five (5) consecutive months during the
Employment Period on account of a Disability, the Employer may provide a Notice
of Termination, which satisfies the requirements of Section 12, and the
Executive’s employment shall, for purposes of this Agreement, terminate sixty
(60) days thereafter, unless the Executive returns to the performance of his or
her duties on a full-time basis prior to the end of the sixty (60) day period.
During the term of the Executive’s Disability prior to his or her Termination
Date, the Executive shall continue to participate in all compensation and
benefit plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to his or her Disability in accordance with the
terms and provisions of such plans, programs and arrangements. If the
Executive’s employment is terminated on account of the Executive’s Disability,
the Executive shall receive his or her Accrued Benefits in accordance with
Section 6(a) hereof, provided that the Executive’s termination for purposes of
this Agreement under this Section 9 shall not affect his or her entitlement to
benefits on account of his or her Disability under any long-term disability
programs of the Company or the Employer in effect at the time of such
termination and in which the Executive participated immediately prior to his or
her Disability.
10. Termination Not Giving Rise to a Termination Payment. If, during the
Employment Period, the Executive’s employment is terminated for Cause, or if the
Executive voluntarily terminates his or her employment other than for Good
Reason, subject to the procedures set forth in Section 12, the Executive shall
be entitled to receive only his or her Accrued Benefits in accordance with
Section 6(a).

 

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11. Termination Giving Rise to a Termination Payment. If, during the Employment
Period, the Executive’s employment is terminated by the Executive for Good
Reason within two years following the event giving rise to Good Reason or by the
Employer other than by reason of death, Disability pursuant to Section 9 or
Cause, subject to the procedures set forth in Section 12,
(a) the Executive shall be entitled to receive and the Company or the Employer,
as applicable, shall pay the Executive’s Accrued Benefits in accordance with
Section 6(a) and, in lieu of further salary payments for periods following the
Termination Date, as severance pay, a Termination Payment;
(b) the Executive and his eligible dependents shall continue to be covered until
the end of the second calendar year following the year in which the Termination
Date occurs, under the same terms and conditions, by the medical plan, dental
plan and/or group life insurance plan maintained by the Company or the Employer
which covered that Executive and his eligible dependents prior to the
Executive’s Termination Date. Notwithstanding the foregoing, if the Company’s or
Employer’s medical plan, dental plan and/or group life insurance plan covering
the Executive on his or her Termination Date was amended, replaced or terminated
on or after the Change of Control and such action would constitute Good Reason
within the meaning of Section 1(l), the Executive and his or her eligible
dependents shall be entitled to continued coverage for purposes of this Section
11(b) under the terms of the medical plan, dental plan and/or group life
insurance plan which they participated in immediately prior to the Change of
Control. If the affected plan is no longer available, the Company shall make
arrangements to provide equivalent coverage to the Executive and his or her
eligible dependents. For this purpose, “equivalent coverage” shall mean medical,
dental and/or life insurance coverage, which, when added to the coverage
provided to the Executive and his or her eligible dependents under the Company’s
or Employer’s medical plan, dental plan and/or group life insurance plan in
effect on the Executive’s Termination Date, equals or exceeds the level of
benefits provided under the medical plan, dental plan and/or group life
insurance plan to the Executive and his or her eligible dependents on the day
immediately preceding the Change of Control. The Executive and the Employer
shall share the cost of the continued coverage under this Section 11(b) in the
same proportions as the Employer and similarly situated active employees shared
the cost of such coverage on the day preceding the Executive’s Termination Date.
For purposes of satisfying the Company’s or Employer’s obligation under the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”) to continue group
health care coverage to the Executive and his eligible dependents as a result of
the Executive’s termination of employment, the period during which the Executive
is permitted to continue to participate in the Company’s or Employer’s medical
plans and/or dental plans under this Section 11(b) shall not be taken into
account and treated as part of the period during which the Executive and his
eligible dependents are entitled to continued coverage under the Company’s or
Employer’s group health plans under COBRA. Following the end of the continuation
period specified in this Section 11(b), the Executive and his eligible
dependents shall be covered under such plans and arrangements only as required
under the provisions of COBRA;

 

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(c) the Executive’s termination shall be treated as a “Normal Termination” as
defined in the Pinnacle West Capital Corporation Stock Option and Incentive
Plan, as amended from time to time, the Pinnacle West Capital Corporation 2002
Long-Term Incentive Plan, the Pinnacle West Capital Corporation 2007 Long-Term
Incentive Plan, or any successor plan thereto, which shall entitle the Executive
to exercise any outstanding stock options during the three (3) month period
beginning on the Executive’s Termination Date, and any restrictions remaining on
any “Restricted Stock” (as defined in such plan) awarded to the Executive shall
lapse on his or her Termination Date; and
(d) “out-placement” services will be provided by the Company to the Executive
for a period beginning on the Executive’s Termination Date. Such services shall
be provided for a period beginning on the Executive’s Termination Date and
ending on the earlier of the date on which the Executive becomes employed in a
position commensurate with his or her current salary and responsibilities or the
last day of the twelve (12) month period which began on the Executive’s
Termination Date. The “out-placement” services shall be provided by an
out-placement company selected by the Company.
12. Termination Notice and Procedure. Any termination by the Employer or the
Executive of the Executive’s employment during the Employment Period shall be
communicated by written Notice of Termination to the Executive if such Notice is
delivered by the Company and to the Company if such Notice is delivered by the
Executive, all in accordance with the following procedures:
(a) The Notice of Termination shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be approved by a resolution
duly adopted by a majority of the members of the Company’s board of directors
then in office.
(c) If the Company shall give a Notice of Termination for Cause or by reason of
Disability and the Executive in good faith notifies the Company that a dispute
exists concerning such termination within the fifteen (15) day period following
the Executive’s receipt of such notice, the Executive may elect to continue his
or her employment during such dispute. If it is thereafter determined that
(i) the reason given by the Company for termination did exist, the Executive’s
Termination Date shall be the earlier of (A) the date on which the dispute is
finally determined, either by mutual written agreement of the parties or
pursuant to Section 14, (B) the date of the Company’s Notice of Termination for
Cause, (C) the date of the Executive’s death, or (D) one day prior to the end of
the Employment Period, and the Executive shall not be entitled to a Termination
Payment based on events occurring after the Company delivered its Notice of
Termination; or (ii) the reason given by the Company for termination did not
exist, the employment of the Executive shall continue as if the Company had not
delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.

 

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(d) The Executive must provide the Company with written notice of Good Reason
within a period not to exceed 90 days of the initial existence of the condition
alleged to give rise to Good Reason, upon the notice of which the Company shall
have a period of 30 days during which it may remedy the condition. If the
Executive shall in good faith give a Notice of Termination for Good Reason and
the Company notifies the Executive that a dispute exists concerning the
termination within the fifteen (15) day period following the Company’s receipt
of such notice, the Executive may elect to continue his or her employment during
such dispute. If it is thereafter determined that (i) Good Reason did exist, the
Executive’s Termination Date shall be the earlier of (A) the date on which the
dispute is finally determined, either by mutual written agreement of the parties
or pursuant to Section 14, (B) the date of the Executive’s death, or (C) one day
prior to the end of the Employment Period, and the Executive’s Termination
Payment shall reflect events occurring after the Executive delivered his or her
Notice of Termination; or (ii) Good Reason did not exist, the employment of the
Executive shall continue after such determination as if the Executive had not
delivered the Notice of Termination asserting Good Reason.
(e) If the Executive does not elect to continue employment pending resolution of
a dispute regarding a Notice of Termination under Sections 12(c) and (d), and it
is finally determined that the reason for termination set forth in such Notice
of Termination did not exist, if such notice was delivered by the Executive, the
Executive will be deemed to have voluntarily terminated his or her employment
and if delivered by the Company, the Company will be deemed to have terminated
the Executive other than by reason of death, Disability or Cause.
13. Obligations of the Executive. The Executive covenants and agrees, during the
Executive’s employment with the Employer and following his or her Termination
Date, to hold in strict confidence any and all information in the Executive’s
possession as a result of the Executive’s employment with the Employer; provided
that nothing in this Agreement shall be construed as prohibiting the Executive
from reporting any suspected instance of illegal activity of any nature, any
nuclear safety concern, any workplace safety concern or any public safety
concern to the United States Nuclear Regulatory Commission, United States
Department of Labor or any federal or state governmental agency or prohibiting
the Executive from participating in any way in any state or federal
administrative, judicial or legislative proceeding or investigation with respect
to any such claims and matters.

 

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14. Arbitration. All claims, disputes and other matters in question between the
parties arising under this Agreement, other than Section 13, shall be decided by
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association, unless the parties mutually agree otherwise. Any
arbitration required under this Agreement shall be held in Phoenix, Arizona,
unless the parties mutually agree otherwise. The Company shall pay the costs of
any such arbitration. The award by the arbitrator shall be final, and judgment
may be entered upon it in accordance with applicable law in any state or Federal
court having jurisdiction thereof.
The Company shall not be required to arbitrate claims arising under Section 13.
The Company shall have the right to judicial enforcement of its rights under
Section 13, including, but not limited to, injunctive relief.
15. Expenses and Interest. If, after a Change of Control a good faith dispute
arises with respect to the enforcement of the Executive’s rights under this
Agreement or if any arbitration or legal proceeding shall be brought in good
faith to enforce or interpret any provision contained herein, or to recover
damages for breach hereof and the Executive is the prevailing party, the
Executive shall recover from the Company any reasonable attorney’s fees and
necessary costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by the
Executive calculated at the rate of interest announced by JP Morgan Chase Bank
N.A. (or any successor thereto) from time to time as its prime rate from the
date that payments to the Executive should have been made under this Agreement.
Any payment due under this section will be made on the fifth business day
following the date the dispute is final.
16. Payment Obligations Absolute. The Company’s obligation during and after the
Employment Period to insure that the compensation and arrangements provided
herein are provided to the Executive shall be absolute and unconditional and
shall not be affected by any circumstances, provided that the Company may apply
amounts payable under this Agreement to any loan or other debts then owed to the
Company or an Affiliate by the Executive, the terms of which are reflected in a
written document signed by the Executive. Nothing in this Agreement shall
prevent or limit the Executive’s continuing or future participation in any plan,
program, policy or practice provided by the Company or its Affiliates and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other contract or
agreement with the Company or its Affiliates. Amounts that are vested benefits
or that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any other contract or agreement with the Company or
its Affiliates at or subsequent to the Termination Date shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement. Notwithstanding the foregoing,
the amounts payable under this Agreement shall be in lieu of any amounts payable
to the Executive under a separate severance plan, agreement or arrangement
established by the Company. All amounts payable by the Company under this
Agreement shall be paid without notice or demand. Each and every payment made
under this Agreement by the Company shall be final. Notwithstanding the
foregoing, in the event that the Company has paid the Executive more than the
amount to which the Executive is entitled under this Agreement, the Company
shall have the right to recover all or any part of such overpayment from the
Executive or from whomsoever has received such amount.

 

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17. Successors.
(a) If all or substantially all of the Company’s business and assets are sold,
assigned or transferred to any Person, or if the Company merges into or
consolidates or otherwise combines with any Person which is a continuing or
successor entity, then the Company shall assign all of its right, title and
interest in this Agreement as of the date of such event to the Person which is
either the acquiring or successor corporation, and such Person shall assume and
perform from and after the date of such assignment the terms, conditions and,
provisions imposed by this Agreement upon the Company. Failure of the Company to
obtain such assignment shall be a breach of this Agreement. In case of such
assignment by the Company and of assumption and agreement by such Person, all
further rights as well as all other obligations of the Company under this
Agreement thenceforth shall cease and terminate and thereafter the expression
“the Company” wherever used herein shall be deemed to mean such Person(s).
(b) This Agreement and all rights of the Executive shall inure to the benefit of
and be enforceable by the Executive’s personal or legal representatives,
estates, executors, administrators, heirs and beneficiaries. In the event of the
Executive’s death, all amounts payable to the Executive under this Agreement
shall be paid to the Executive’s estate. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by, any successor, surviving or
resulting corporation or other entity to which all or substantially all of the
Company’s business and assets shall be transferred whether by merger,
consolidation, transfer or sale. This Agreement shall not be terminated by the
voluntary or involuntary dissolution of the Company.
18. Enforcement. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part hereof are declared invalid
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Amendment or Termination. The term of this Agreement shall run until
December 31, 2009, and shall continue for additional one (1) year periods
thereafter, unless the Company notifies the Executive in writing six (6) months
prior to December 31, 2009 (or the anniversary of that date in the event the
Agreement continues beyond that date pursuant to the provisions of this
Section 19) that it does not intend to continue the Agreement. Notwithstanding
the foregoing, (i) if a Change of Control has occurred on or before the date on
which the Agreement would be terminated by the Company in accordance with this
Section 19, the Agreement shall not terminate with respect to that Change of
Control until the end of the Employment Period, and (ii) this Agreement shall
terminate if, prior to a Change in Control, the Executive ceases to be employed
by the Employer as a corporate officer.
This Agreement sets forth the entire agreement between the Executive and the
Company with respect to the subject matter hereof, and supersedes all prior oral
or written negotiations, commitments, understandings and writings with respect
thereto.

 

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This Agreement may not be terminated, amended or modified during its term as
specified above except by written instrument executed by the Company and the
Executive.
20. Withholding. The Company and the Employer shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes or charges which it is from time to time
required to withhold. The Company and the Employer shall be entitled to rely on
an opinion of counsel if any question as to the amount or requirement of any
such withholding shall arise.
21. Venue; Governing Law. This Agreement and the Executive’s and Company’s
respective rights and obligations hereunder shall be governed by and construed
in accordance with the laws of the State of Arizona. Any action concerning this
Agreement shall be brought in the Federal or state courts located in the County
of Maricopa, Arizona, and each party consents to the venue and jurisdiction of
such courts.
22. Notice. Notices given pursuant to this Agreement shall be in writing and
(a) if hand delivered, shall be deemed given when delivered, and (b) if mailed,
shall be deemed delivered when placed in the United States mail, postage
prepaid, addressed,
if to the Company, to
Board of Directors
Pinnacle West Capital Corporation
400 North Fifth Street
Phoenix, Arizona 85004
Attention: Law Department
or if to the Executive, to
                                  
                                  
                                  
or to such other addresses as the parties may provide written notice of to each
other, from time to time, in accordance with this Section 22.
23. Funding. Benefits payable under this Agreement shall constitute an unfunded
general obligation of the Company payable from its general assets, and the
Company shall not be required to establish any special fund or trust for
purposes of paying benefits under this Agreement. The Executive shall not have
any vested right to any particular assets of the Company as a result of
execution of this Agreement and shall be a general creditor of the Company.

 

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24. No Waiver. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
25. Headings. The headings contained are for reference only and shall not affect
the meaning or interpretation of any provision of this Agreement.
26. Additional Payment. If a Change of Control occurs within three (3) years of
the Effective Date (the “Sunset Period”) and the Executive’s employment is
terminated during the Employment Period that commences on the occurrence of that
Change of Control under circumstances that entitle the Executive to receive a
Termination Payment pursuant to Section 11, the Executive shall be entitled to
receive the “Gross-Up Payment” provided by this Section 26 if it is determined
that any Payment would be subject to the Excise Tax.
(a) The Gross-Up Payment shall equal the amount necessary to assure that, after
payment by the Executive of all taxes (and any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The
Company’s obligation to make Gross-Up Payments under this Section 26 shall not
be conditioned upon the Executive’s termination of employment.
(b) Subject to the remaining provisions of this Section 26, all determinations
required to be made under this Section 26, including whether and when a Gross-Up
Payment is required, the amount of the Gross-Up Payment, and the assumptions to
be utilized in arriving at such determinations, shall be made by a
nationally-recognized accounting firm appointed by the Company prior to a Change
of Control (the “Accounting Firm”). The Accounting Firm shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive may appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 26, shall be paid by the Company to the Executive within 5 days of the
receipt of the Accounting Firm’s determination, but in all events by the last
day of the calendar year following the calendar year in which the Executive
remits the related taxes. Any determination by the Accounting Firm relating to
the Gross-Up Payment shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made (the “Underpayment”), consistent with the calculations
required to be made hereunder. In the event the Company exhausts its remedies
pursuant to Section 26(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive; but in no event later
than the last day of the calendar year following the calendar year in which the
Executive remits the related taxes.

 

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(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable, but no later than 10 business days after the Executive is informed
in writing of such claim. The Executive shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 26(c),
the Company shall control all proceedings taken in connection with

 

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such contest, and, at its sole discretion, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
discretion, either pay the tax claimed to the appropriate taxing authority on
behalf of the Executive and direct the Executive to sue for a refund or contest
the claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company pays such claim and directs
the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties) imposed with respect to such payment or with
respect to any imputed income in connection with such payment; and provided,
further, that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company’s control of the contest shall be limited to issues
with respect to which the Gross-Up Payment would be payable hereunder, and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority. In
all events, any reimbursement of the Executive shall be made no later than the
last day of the calendar year following the calendar year in which the taxes
that are subject to audit or litigation are remitted to the taxing authority or,
where as a result of such audit or litigation no taxes are remitted, the last
day of the calendar year following the calendar year in which the audit is
completed or there is a final and nonappealable settlement or other resolution
of the litigation.
(d) If, after the receipt by the Executive of a Gross-Up Payment or payment by
the Company of an amount on the Executive’s behalf pursuant to Section 26(c),
the Executive becomes entitled to receive any refund with respect to the Excise
Tax to which such Gross-Up Payment relates or with respect to such claim, the
Executive shall (subject to the Company’s complying with the requirements of
this Section 26) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after payment by the Company of an amount on the Executive’s behalf pursuant to
this Section 26, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then the amount of
such payment shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) Notwithstanding any other provision of this Section 26, the Company may, in
its sole discretion, withhold and pay over to the Internal Revenue Service or
any other applicable taxing authority, for the benefit of the Executive, all or
any portion of any Gross-Up Payment, and the Executive hereby consents to such
withholding.

 

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27. Excise Taxes. If the Executive is not entitled to receive the Gross-Up
Payment provided by Section 26 because the Change of Control did not occur
during the Sunset Period or the Executive’s termination of employment did not
occur within the Employment Period, the Executive agrees that any Payments to
which he is entitled will be reduced to equal the maximum amount that may be
paid to the Executive without triggering the application of the Excise Tax. This
amount is referred to below as the “Capped Benefit.” The limitations imposed on
the Executive’s Payments by this Section 27 will not apply if the total Payments
the Executive is entitled to receive minus the Excise Taxes that will be due on
the Executive’s total Payments exceeds the Capped Benefit. In such case, the
Executive shall be solely responsible to pay any Excise Taxes (and income or
other taxes) that may be imposed on the Executive with respect to the Payments.
(a) If the Executive is not entitled to receive a Gross-Up Payment pursuant to
Section 26 and the Company believes that the Executive will be subject to the
limitations imposed on the Executive’s Payments by this Section 27, it will
notify the Executive as soon as possible. The Company then will follow the
procedures described in Section 26(b) to engage an Accounting Firm to perform
the necessary calculations.
(b) Until the Accounting Firm has completed its work, the Company will make
Payments to the Executive, at the times when such Payments become due, in the
maximum amount that it believes may be paid without exceeding such limitations.
The balance, if any, then will be paid, if due, after the Accounting Firm
completes the necessary calculations.
(c) If the Accounting Firm concludes that the Executive’s Payments are subject
to the limitations imposed by this Section 27, the Executive’s Payments will be
reduced to equal the Capped Benefit. In making such reduction, the Company first
will reduce the amount of the Executive’s Payments under this Agreement and, if
necessary, any other Payments to which the Executive is entitled under any other
arrangement that does not constitute “non-qualified deferred compensation” that
is subject to Section 409A of the Code. The Company will reduce the amount of
any Payments payable to the Executive that are subject to Section 409A of the
Code only to the extent reductions in addition to those described in the
preceding sentence are necessary to reduce the total Payments to equal the
Capped Benefit. If reduction of any Payments which are subject to Section 409A
of the Code becomes necessary to limit the total Payments to the Capped Benefit,
the Company first will reduce the non-equity based Payments proportionally in
the ratio in which each such non-equity based Payment bears to all of the
non-equity based Payments. To the extent additional reductions are necessary,
the Company will reduce the equity based Payments proportionally in the ratio in
which each such equity based Payment bears to all of such equity based Payments.

 

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(d) The Accounting Firm’s determinations shall be set forth in writing and shall
include detailed supporting calculations. The Accounting Firm’s determinations
shall be binding on the Executive and the Company. If the Internal Revenue
Service finally and conclusively determines that the Capped Benefit is less than
the amount calculated by the Accounting Firm, the Capped Benefit will be
recalculated by the Accounting Firm in a manner consistent with the
determination of the Internal Revenue Service. Any payment made to the Executive
in excess of the amount actually due then will be repaid by the Executive to the
Company. If the Internal Revenue Service finally and conclusively determines
that the actual Capped Benefit exceeds the amount calculated by the Accounting
Firm, the Company shall pay the Executive any shortage (including any taxes,
interest and penalties) so that the Executive will have received or be entitled
to receive the maximum amount to which the Executive is entitled under this
Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Executive has executed this Agreement, on the
date and year first above written.

            PINNACLE WEST CAPITAL CORPORATION
      By:           Its     

                  ATTEST:            
 
               
By: 
                           
 
Its            
 
           
 
               
 
               
 
               
 
              Executive

 

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