exv10w3a



 




Exhibit 10.3

PERFORMANCE SHARE AGREEMENT

UNDER THE

PINNACLE WEST CAPITAL CORPORATION 2002

LONG-TERM INCENTIVE PLAN




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



BACKGROUND





	 	A.	 	The Board of Directors of the Company (the “Board of
Directors”) has adopted, and the Company’s shareholders have
approved, the Pinnacle West Capital Corporation 2002 Long-Term
Incentive Plan (the “Plan”), pursuant to which performance share
incentive 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. The Company grants to Employee
«Shares» performance shares (“Performance Shares”), subject to
the terms, conditions, and adjustments set forth in this Award
Agreement. 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 award is granted under
and is expressly subject to, all the terms and provisions of
the Plan, which terms are incorporated herein by reference, and
this Award Agreement. The Committee referred to in Section 4
of the Plan (“Committee”) has been appointed by the Board of
Directors, and designated by it, as the Committee to make
awards.
	 
	 	3.	 	Performance Period. The performance period for
this award is the three (3) year period beginning          
                  
, and ending             
                   (the “Performance Period”).
	 
	 	4.	 	Payment.






	 	(a)	 	Performance Shares Payable In Common
Stock. Subject to early termination of this Award
Agreement pursuant to Section 7 below, as soon as
practicable following the end of the Performance Period
and the determination of the Company’s Earnings Per Share
Growth Rate as compared to the Earnings Per Share Growth
Rate of the S&P Electric Utilities Index over such
Performance Period, the Company will deliver to Employee
one (1) share of the Company’s Common Stock for each
then-outstanding Performance Share under this Award
Agreement.
	 
	 	(b)	 	Dividend Equivalents. At the time of the
Company’s delivery of Common Stock to Employee pursuant to
Section 4(a) above, the Company will also deliver to
Employee a cash payment equal to the amount of dividends
that Employee would have received if Employee had directly
owned all of such Common Stock during the Performance
Period, plus interest on such amount at the rate of         percent, compounded quarterly.




 









 





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Performance Share Agreement

	 	(c)	 	Maximum Award. Employee may not receive
more than 120,000 shares of Common Stock under this Award
Agreement.









	 	5.	 	Performance Criteria and Adjustments.
	 
	 	 	 	Adjustment of Base Grant. The number of Performance Shares in
the Base Grant will increase or decrease based upon the
Company’s “Earnings Per Share Growth Rate” (as defined in
Section 6 below) as compared to the Earnings Per Share Growth
Rate of the S&P Electric Utilities Index during the Performance
Period, as follows:





	 	 	 
	If the Company’s Earnings Per Share	 	 
	Compound Growth Rate Over The Performance	 	 
	Period As Compared to S&P Electric Utilities	 	The Number of
	Index is:
	 	Performance Shares will be:

	90th Percentile or Greater

	 	2 X Base Grant
	75th
Percentile to 89.9th Percentile

	 	1.5 X Base Grant
	50th
Percentile to 74.9th Percentile

	 	Base Grant
	25th
Percentile to 49.9th Percentile

	 	0.5 X Base Grant
	Less than 25th Percentile

	 	None








     If intermediate percentiles are achieved, the number of
Performance Shares 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
80th percentile, then the number of Performance Shares would be
increased to 1.667 multiplied by the Base Grant. In no event
will Employee be entitled to receive a number of Performance
Shares greater than two 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 90th
percentile. Attachment A provides a generic example of the
operation of a performance share incentive award.




	 	6.	 	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 calculating the
Company’s Earnings Per Share Growth Rate, SunCor Development
Company’s earnings from discontinued operations will be
considered earnings from continuing operations for each fiscal year
during the performance period. Only those companies which were in the
S&P Electric Utility Index at both the beginning and the ending
of the Performance Period will be considered. The Earnings Per
Share Growth Rate of the companies in the S&P Electric
Utilities Index will be determined using the S&P Compustat
system. If the S&P Compustat system is no longer in use, the
Committee shall replace it with the most comparable third party
data system then in use. If the S&P Electric Utilities Index is
discontinued, the S&P comparable replacement index for the
sector will be used for computing Earnings Per Share Growth
Rate. If S&P no longer computes an index for the electric
utility sector, 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
index with the most representative index then in use. Once the
CAGR of the Company and all relevant companies in the S&P
Electric Utility 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 S&P
Electric Utility Index, then its percentile will be
interpolated between the companies listed in the relative
ranking. These calculations will be verified by the Company’s
independent auditors.
	 
	 	7.	 	Termination of Award. This Award Agreement will
terminate and be of no further force or effect on the date that
Employee is no longer actively employed by the Company or any
of




 









 











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Performance Share Agreement




	 	 	 	its subsidiaries, whether due to voluntary or involuntary
termination, death, retirement, disability, or otherwise.
Employee will, however, be entitled to receive any Common Stock
and dividend equivalents payable under Section 4 of this Award
Agreement if Employee’s employment terminates after the
Performance Period but before Employee’s receipt of such Common
Stock and dividend equivalents.
	 
	 	8.	 	Tax Withholding. Employee must pay, or make
arrangements acceptable to the Company for the payment of any
and all federal, state, and local tax withholding that in the
opinion of the Company is required by law. Unless Employee
satisfies any such tax withholding obligation by paying the
amount in cash or by check, the Company will withhold shares of
Common Stock having a Fair Market Value on the date of
withholding equal to the tax withholding obligation.
	 
	 	9.	 	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
descent and distribution, and any attempted assignment,
transfer, mortgage, pledge or encumbrance except as herein
authorized, will be void and of no effect.
	 
	 	10.	 	Definitions: Copy of Plan and Plan Prospectus. To
the extent not specifically defined in this Award Agreement,
all capitalized terms used in this Award Agreement will have
the same meanings ascribed to them in the Plan. By signing
this Award Agreement, Employee acknowledges receipt of a copy
of the Plan and the related Plan Prospectus.
	 
	 	11.	 	Choice of Law. This 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 Agreement to another
jurisdiction.





     An authorized representative of the Company has signed this Award
Agreement, and Employee has signed this Award Agreement to evidence Employee’s
acceptance of the award on the terms specified in this Award Agreement, all as
of the Date of Grant.


	 	 	 	 	 
	 	PINNACLE WEST CAPITAL CORPORATION

 	 
	 	By:  	 	 
	 	
Its: Treasurer 	 
	 	 	 
	 	
Employee 	 
	 




 









 








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Performance Share Agreement



Attachment A

Generic Example




Assumptions:





	 	•	 	Employee is granted 500 Performance Shares, which constitutes Employee’s “Base Grant”.
	 
	 	•	 	During the Performance Period, the Company’s Earnings Per Share
Growth Rate is in the 88.3 percentile compared to the S&P Electric
Utilities Index.





Calculation of Employee’s Common Stock Payment:





	 	•	 	Based on the Company’s achievement of the 88.3 Percentile during the
Performance Period, in April of the fiscal year immediately following the
end of the Performance Period, Employee will receive 971 shares of Common
Stock, calculated as follows:






	 	•	 	750 shares of Common Stock as a result of the Company’s Earnings Per
Share Growth Rate meeting at least the 75th Percentile ( 1.5 X Base
Grant) plus
	 
	 	•	 	221 shares of Common Stock as a result of the Company’s Earnings Per
Share Growth Rate achieving 13.3/15 of the Percentile increase between
the 75th and 90th Percentiles (13.3/15 X 250 shares, with the 250 shares
representing the Common Stock opportunity between the 75th
and 90th
Percentiles). (Note: 13.3/15 x 250 shares = 221.67 shares and must be
rounded down to 221 shares.)