exv10w3









Exhibit 10.3




Page 1 of 8




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