(c) “Affiliate” shall mean (i) a corporation other than the Company that is a member ofa “controlled group of corporations” (within the meaning of Section 414(b) of the Code asmodified by Section 415(h) of the Code) or (ii) a group of trades or businesses under commoncontrol (within the meaning of Section 414(c) of the Code as modified by Section 415(h) ofthe Code) that also includes the Company as a member. For purposes of determining whether atransaction 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 thetransaction 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-3of the General Rules and Regulations of the Act, provided that any pledgee of the votingsecurities of the Company or APS shall not be deemed to be the Beneficial Owner thereofprior to its disposition of, or acquisition of voting rights with respect to, suchsecurities.(f) “Cause” shall be limited to (i) the engaging by the Executive in conduct which hascaused demonstrable and serious injury to the Employer, monetary or otherwise, as evidencedby a determination in a binding and final judgment, order or decree of a court oradministrative agency of competent jurisdiction, in effect after exhaustion or lapse of allrights of appeal, in an action, suit or proceeding, whether civil, criminal, administrativeor investigative, other than an action, suit or proceeding, brought by the Company or anAffiliate, 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 acourt of competent jurisdiction, in effect after exhaustion or lapse of all rights ofappeal, which the Employer determines has a significant adverse impact on it in the conductof its business; or (iii) unreasonable neglect or refusal by the Executive to perform theExecutive’s duties or responsibilities (unless significantly changed without the Executive’sconsent).(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 oftransactions, is or becomes the Beneficial Owner, directly or indirectly, ofsecurities of the Company or APS representing twenty percent (20%) or more of thecombined voting power of the then outstanding securities of the Company or APS, asthe case may be; *provided*, *however*, that, for purposes of this Section 1(g), anyacquisition 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 corporationwhich would result in the voting securities of the Companyoutstanding immediately prior to such merger or consolidation continuing torepresent (either by remaining outstanding or by being converted into votingsecurities of the surviving entity or any parent thereof), in combination with theownership of any trustee or other fiduciary holding securities under an employeebenefit plan of the Company or an Affiliate, less than sixty percent (60%) of thecombined voting power of the securities of the Company or such surviving entity orany parent thereof outstanding immediately after such merger or consolidation, or(B) APS with any other corporation which would result in the voting securities ofAPS outstanding immediately prior to such merger or consolidation continuing torepresent (either by remaining outstanding or by being converted into votingsecurities of the surviving entity or any parent thereof), in combination with theownership of any trustee or other fiduciary holding securities under an employeebenefit plan of the Company or an Affiliate, less than sixty percent (60%) of thecombined voting power of the securities of APS or such surviving entity or anyparent thereof outstanding immediately after such merger or consolidation; providedthat, for purposes of this subparagraph (ii), a merger or consolidation effected toimplement a recapitalization of the Company or of APS (or similar transaction) inwhich no Person is or becomes the Beneficial Owner, directly or indirectly, ofsecurities of the Company or of APS representing twenty percent (20%) or more ofthe combined voting power of the then outstanding securities of the Company or ofAPS (excluding any securities acquired by that Person directly from the Company oran Affiliate) shall not result in a Change of Control; or(iii) The sale, transfer or other disposition of all or substantially all ofthe assets of either the Company or APS to a Person other than the Company or anAffiliate(iv) Individuals who, as of July 31, 2008, constitute the board of directors ofthe 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 theCompany or APS board of directors, as the case may be; provided, however, that forpurposes of this subparagraph (iv), (A)(1) any person becoming a member of theCompany board of directors after July 31, 2008 whose election, or nomination forelection by the Company’s shareholders, was approved by a vote of at leasttwo-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 initialassumption of office as a director was in connection with an actual or threatenedelection contest relating to the election of directors, and (B)(1) any personbecoming 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 atleast two-thirds (2/3) of the members then comprising the APS Incumbent Board or bythe Company, as a majority shareholder of APS, consideredas though such person were a member of the APS Incumbent Board and (2) the APSIncumbent Board shall not include a director whose initial assumption of office as adirector was in connection with an actual or threatened election contest relating tothe 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 applicablelong-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 anAffiliate, “Employer” shall mean such Affiliate.(k) “Employment Period” shall mean the period commencing on the date of a Change ofControl 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, orresponsibilities;(iii) A material diminution in the authority, duties, or responsibilities ofthe supervisor to whom the Executive is required to report, including a requirementthat the Executive report to a corporate officer or employee instead of reportingdirectly to the Board;(iv) A material diminution in the budget over which the Executive retainsauthority;(v) A material change in the geographic location at which the Executive mustperform the service;(vi) Any other action or inaction that constitutes a material breach by theCompany 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 theExecutive, 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) theExecutive’s date of death; (ii) the date of the Executive’s voluntary early retirement asagreed upon in writing by the Employer and the Executive; (iii) sixty (60) days after thedelivery of the Notice of Termination terminating the Executive’s employment on account ofDisability pursuant to Section 9, unless the Executive returns full-time to the performanceof his or her duties prior to the expiration of such period; (iv) the date of the Notice ofTermination if the Executive’s employment is terminated by the Executive voluntarily otherthan for Good Reason; and (v) sixty (60) days after the delivery of the Notice ofTermination if the Executive’s employment is terminated by the Employer (other than byreason 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 toterminate the employment of the Executive at any time and for any reason prior to a Change ofControl. If a Change of Control occurs when the Executive is employed by the Employer, theEmployer will continue thereafter to employ the Executive during the Employment Period.3. Duties. During the Employment Period, the Executive shall, in the same capacitiesand positions held by the Executive at the time of such Change of Control or in such othercapacities and positions as may be agreed to by the Employer and the Executive in writing, devotethe Executive’s reasonable best efforts, attention and skill to the business and affairs of theCompany, as such business and affairs now exist and as they may hereafter be conducted. Theservices which are to be performed by the Executive hereunder are to be rendered at an employmentlocation which is not more than seventy-five (75) miles from the Executive’s employment location onthe date of the Change of Control, or in such other place or places as shall be mutually agreedupon in writing by the Executive and the Employer from time to time. The Executive shall not berequired to be absent from such employment location for more than forty-five (45) consecutive daysin any fiscal year without the Executive’s consent.4. Compensation. During the Employment Period, the Executive shall be compensated asfollows:(a) The Executive shall receive, at such intervals and in accordance with such standardpolicies as may be in effect on the date of the Change of Control, an annual salary not lessthan the Executive’s annual salary as in effect as of the date of the Change of Control,subject to adjustment as provided inSection 5;
 
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(b) The Executive shall be reimbursed, at such intervals and in accordance with suchstandard policies as may be in effect on the date of the Change of Control, for any and allmonies advanced in connection with the Executive’s employment for reasonable and necessaryexpenses 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 allplans providing general benefits for the Employer’s employees, including but not limited to,group life insurance, disability, medical, dental, pension, profit sharing, savings andstock bonus plans and be provided any and all other benefits and perquisites made availableto other employees of comparable status and position, on the same terms and conditions asgenerally provided to employees of comparable status and position;(d) The Executive shall receive annually not less than the amount of paid vacation andnot fewer than the number of paid holidays received annually immediately prior to the Changeof Control or such greater amount of paid vacation and number of paid holidays as may bemade available annually to other employees of comparable status and position with theEmployer; and(e) The Executive shall be included in all plans providing special benefits tocorporate officers, including but not limited to bonus, deferred compensation, incentivecompensation, supplemental pension, stock option, stock appreciation, stock bonus andsimilar or comparable plans extended by the Company or the Employer from time to time tocorporate officers, key employees and other employees of comparable status.5. Annual Compensation Adjustments. During the Employment Period, the Board ofDirectors 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’scompensation. In determining such compensation, the Board, the appropriate committee thereof orthe President, whichever is appropriate, shall consider the commensurate increases given to othercorporate 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 AccruedBenefits shall include the following amounts: (i) all salary earned or accrued through theTermination Date; (ii) reimbursement for any and all monies advanced in connection with theExecutive’s employment for reasonable and necessary expenses incurred by the Executivethrough the Termination Date; (iii) a lump sum payment of the bonus or incentivecompensation otherwise payable to the Executive under the terms of any bonus or incentivecompensation plan orplans for the year in which termination occurs; and (iv) all other payments andbenefits to which the Executive may be entitled under the terms of any benefit plan of theCompany or the Employer. Payment of Accrued Benefits shall be made promptly in accordancewith 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’sTermination 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 ofthe Change of Control and as increased thereafter from time to time pursuant toSection 5;(ii) Equals the amount of the average annual dollar award paid (or payable butdeferred by the Executive) to the Executive pursuant to the Employer’s regularannual bonus plan or arrangement with respect to the four (4) years (or for suchlesser number of years prior for which the Executive was eligible to earn such abonus, and annualized in the case of any bonus earned and payable for a partialfiscal year) preceding the Termination Date which shall be determined by dividingthe total dollar amount paid (or payable but deferred by the Executive) to theExecutive under such plan or arrangement with respect to such number of years byfour (4) (or for such lesser number of years prior to which the Executive waseligible to earn such a bonus, and annualized in the case of any bonus earned andpayable for a partial fiscal year); and(iii) Equals 2.99.The Termination Payment shall be payable in a lump sum on the Executive’s TerminationDate. 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 otheremployment or otherwise and such payment shall not be reduced by reason of the Executivesecuring 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 deliveryof a Notice of Termination by the Company for reasons other than Cause or Disability or by theExecutive for Good Reason, the Executive’s employment shall terminate on his or her date of deathand the Executive’s estate shall be entitled to receive the Executive’s Accrued Benefits as of theTermination Date and, subject to the provisions of this Agreement, to such Termination Payment asthe Executive would have been entitled to had the Executive survived. All benefits payable onaccount of the Executive’s employment or death under the Company’s or Employer’s employee benefitsplans, programs or arrangements shall be paid or distributed in accordance with the terms of suchplans, programs or arrangements. The Executive’s death following delivery of the Notice ofTermination shall not affect his or her Termination Date which shallbe determined without regard to the Executive’s death, subject to the provisions of Section12.
 
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If the Executive shall die during the Employment Period, but prior to the delivery of a Noticeof Termination, the Executive’s employment shall terminate and the Executive’s estate, heirs andbeneficiaries shall receive all the Executive’s Accrued Benefits through the Termination Date andall benefits available to them under the Company’s benefit plans as in effect on the TerminationDate on account of the Executive’s death.8. Retirement. If, during the Employment Period, the Executive and the Employer shallexecute an agreement providing for the voluntary retirement of the Executive from the Employer, theExecutive shall receive only his or her Accrued Benefits through the Termination Date. Withoutlimiting the generality of the foregoing, the Executive’s resignation under this Agreement with orwithout Good Reason, shall in no way affect the Executive’s ability to terminate employment byreason of the Executive’s “retirement” under any of the Company’s retirement or pension plans or tobe eligible to receive benefits under any retirement or pension plan of the Company and itsaffiliates or substitute plans adopted by the Company or its successors, and any termination whichotherwise qualifies as Good Reason shall be treated as such even if it is also a “retirement” forpurposes of any such plan.9. Termination for Disability. If the Executive has been absent from his or herduties hereunder on a full-time basis for five (5) consecutive months during the Employment Periodon account of a Disability, the Employer may provide a Notice of Termination, which satisfies therequirements 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 orher duties on a full-time basis prior to the end of the sixty (60) day period. During the term ofthe Executive’s Disability prior to his or her Termination Date, the Executive shall continue toparticipate in all compensation and benefit plans, programs and arrangements in which the Executivewas entitled to participate immediately prior to his or her Disability in accordance with the termsand provisions of such plans, programs and arrangements. If the Executive’s employment isterminated on account of the Executive’s Disability, the Executive shall receive his or her AccruedBenefits in accordance with Section 6(a) hereof, provided that the Executive’s termination forpurposes of this Agreement under this Section 9 shall not affect his or her entitlement to benefitson account of his or her Disability under any long-term disability programs of the Company or theEmployer in effect at the time of such termination and in which the Executive participatedimmediately prior to his or her Disability.10. Termination Not Giving Rise to a Termination Payment. If, during the EmploymentPeriod, the Executive’s employment is terminated for Cause, or if the Executive voluntarilyterminates his or her employment other than for Good Reason, subject to the procedures set forth inSection 12, the Executive shall be entitled to receive only his or her Accrued Benefits inaccordance with Section 6(a).
 
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11. Termination Giving Rise to a Termination Payment. If, during the EmploymentPeriod, the Executive’s employment is terminated by the Executive for Good Reason within two yearsfollowing 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, asapplicable, 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 severancepay, a Termination Payment;(b) the Executive and his eligible dependents shall continue to be covered until theend 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 lifeinsurance plan maintained by the Company or the Employer which covered that Executive andhis eligible dependents prior to the Executive’s Termination Date. Notwithstanding theforegoing, if the Company’s or Employer’s medical plan, dental plan and/or group lifeinsurance plan covering the Executive on his or her Termination Date was amended, replacedor terminated on or after the Change of Control and such action would constitute Good Reasonwithin the meaning of Section 1(l), the Executive and his or her eligible dependents shallbe entitled to continued coverage for purposes of this Section 11(b) under the terms of themedical plan, dental plan and/or group life insurance plan which they participated inimmediately 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 hisor 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 theExecutive 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/orgroup life insurance plan to the Executive and his or her eligible dependents on the dayimmediately preceding the Change of Control. The Executive and the Employer shall share thecost of the continued coverage under this Section 11(b) in the same proportions as theEmployer and similarly situated active employees shared the cost of such coverage on the daypreceding the Executive’s Termination Date. For purposes of satisfying the Company’s orEmployer’s obligation under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) tocontinue group health care coverage to the Executive and his eligible dependents as a resultof the Executive’s termination of employment, the period during which the Executive ispermitted to continue to participate in the Company’s or Employer’s medical plans and/ordental plans under this Section 11(b) shall not be taken into account and treated as part ofthe period during which the Executive and his eligible dependents are entitled to continuedcoverage under the Company’s or Employer’s group health plans under COBRA. Following theend of the continuation period specified in this Section 11(b), the Executive and hiseligible dependents shall be coveredunder 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 definedin the Pinnacle West Capital Corporation Stock Option and Incentive Plan, as amended fromtime to time, the Pinnacle West Capital Corporation 2002 Long-Term Incentive Plan, thePinnacle West Capital Corporation 2007 Long-Term Incentive Plan, or any successor planthereto, which shall entitle the Executive to exercise any outstanding stock options duringthe three (3) month period beginning on the Executive’s Termination Date, and anyrestrictions remaining on any “Restricted Stock” (as defined in such plan) awarded to theExecutive shall lapse on his or her Termination Date; and(d) “out-placement” services will be provided by the Company to the Executive for aperiod beginning on the Executive’s Termination Date. Such services shall be provided for aperiod beginning on the Executive’s Termination Date and ending on the earlier of the dateon which the Executive becomes employed in a position commensurate with his or her currentsalary and responsibilities or the last day of the twelve (12) month period which began onthe Executive’s Termination Date. The “out-placement” services shall be provided by anout-placement company selected by the Company.12. Termination Notice and Procedure. Any termination by the Employer or theExecutive of the Executive’s employment during the Employment Period shall be communicated bywritten Notice of Termination to the Executive if such Notice is delivered by the Company and tothe Company if such Notice is delivered by the Executive, all in accordance with the followingprocedures:(a) The Notice of Termination shall indicate the specific termination provision in thisAgreement relied upon and shall set forth in reasonable detail the facts and circumstancesalleged to provide a basis for termination.(b) Any Notice of Termination by the Company shall be approved by a resolution dulyadopted 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 ofDisability and the Executive in good faith notifies the Company that a dispute existsconcerning such termination within the fifteen (15) day period following the Executive’sreceipt of such notice, the Executive may elect to continue his or her employment duringsuch dispute. If it is thereafter determined that (i) the reason given by the Company fortermination did exist, the Executive’s Termination Date shall be the earlier of (A) the dateon which the dispute is finally determined, either by mutual written agreement of theparties or pursuant to Section 14, (B) the date of the Company’s Notice of Termination forCause, (C) the date of the Executive’s death, or (D) one day prior to the end of theEmployment Period, and the Executive shall not be entitled to a Termination Payment basedon events occurring after the Company delivered its Notice of Termination; or (ii) thereason given by the Company for termination did not exist, the employment of the Executiveshall continue as if the Company had not delivered its Notice of Termination and there shallbe 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 aperiod not to exceed 90 days of the initial existence of the condition alleged to give riseto Good Reason, upon the notice of which the Company shall have a period of 30 days duringwhich it may remedy the condition. If the Executive shall in good faith give a Notice ofTermination for Good Reason and the Company notifies the Executive that a dispute existsconcerning the termination within the fifteen (15) day period following the Company’sreceipt of such notice, the Executive may elect to continue his or her employment duringsuch dispute. If it is thereafter determined that (i) Good Reason did exist, theExecutive’s Termination Date shall be the earlier of (A) the date on which the dispute isfinally determined, either by mutual written agreement of the parties or pursuant to Section14, (B) the date of the Executive’s death, or (C) one day prior to the end of the EmploymentPeriod, and the Executive’s Termination Payment shall reflect events occurring after theExecutive delivered his or her Notice of Termination; or (ii) Good Reason did not exist, theemployment of the Executive shall continue after such determination as if the Executive hadnot delivered the Notice of Termination asserting Good Reason.(e) If the Executive does not elect to continue employment pending resolution of adispute regarding a Notice of Termination under Sections 12(c) and (d), and it is finallydetermined that the reason for termination set forth in such Notice of Termination did notexist, if such notice was delivered by the Executive, the Executive will be deemed to havevoluntarily terminated his or her employment and if delivered by the Company, the Companywill be deemed to have terminated the Executive other than by reason of death, Disability orCause.13. Obligations of the Executive. The Executive covenants and agrees, during theExecutive’s employment with the Employer and following his or her Termination Date, to hold instrict confidence any and all information in the Executive’s possession as a result of theExecutive’s employment with the Employer; provided that nothing in this Agreement shall beconstrued as prohibiting the Executive from reporting any suspected instance of illegal activity ofany nature, any nuclear safety concern, any workplace safety concern or any public safety concernto the United States Nuclear Regulatory Commission, United States Department of Labor or anyfederal or state governmental agency or prohibiting the Executive from participating in any way inany state or federal administrative, judicial or legislative proceeding or investigation withrespect to any such claims and matters.
 
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14. Arbitration. All claims, disputes and other matters in question between theparties arising under this Agreement, other than Section 13, shall be decided by arbitration inaccordance with the commercial arbitration rules of the American Arbitration Association, unlessthe parties mutually agree otherwise. Any arbitration required under this Agreement shall be held in Phoenix, Arizona, unless the parties mutuallyagree otherwise. The Company shall pay the costs of any such arbitration. The award by thearbitrator shall be final, and judgment may be entered upon it in accordance with applicable law inany state or Federal court having jurisdiction thereof.The Company shall not be required to arbitrate claims arising under Section 13. The Companyshall have the right to judicial enforcement of its rights under Section 13, including, but notlimited to, injunctive relief.15. Expenses and Interest. If, after a Change of Control a good faith dispute ariseswith respect to the enforcement of the Executive’s rights under this Agreement or if anyarbitration or legal proceeding shall be brought in good faith to enforce or interpret anyprovision contained herein, or to recover damages for breach hereof and the Executive is theprevailing party, the Executive shall recover from the Company any reasonable attorney’s fees andnecessary costs and disbursements incurred as a result of such dispute or legal proceeding, andprejudgment interest on any money judgment obtained by the Executive calculated at the rate ofinterest announced by JP Morgan Chase Bank N.A. (or any successor thereto) from time to time as itsprime 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 thedispute is final.16. Payment Obligations Absolute. The Company’s obligation during and after theEmployment Period to insure that the compensation and arrangements provided herein are provided tothe 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 debtsthen owed to the Company or an Affiliate by the Executive, the terms of which are reflected in awritten document signed by the Executive. Nothing in this Agreement shall prevent or limit theExecutive’s continuing or future participation in any plan, program, policy or practice provided bythe Company or its Affiliates and for which the Executive may qualify, nor shall anything hereinlimit or otherwise affect such rights as the Executive may have under any other contract oragreement with the Company or its Affiliates. Amounts that are vested benefits or that theExecutive is otherwise entitled to receive under any plan, policy, practice or program of or anyother contract or agreement with the Company or its Affiliates at or subsequent to the TerminationDate shall be payable in accordance with such plan, policy, practice or program or contract oragreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, theamounts payable under this Agreement shall be in lieu of any amounts payable to the Executive undera separate severance plan, agreement or arrangement established by the Company. All amountspayable by the Company under this Agreement shall be paid without notice or demand. Each and everypayment made under this Agreement by the Company shall be final. Notwithstanding the foregoing, inthe event that the Company has paid the Executive more than the amount to which the Executive isentitled under this Agreement, the Company shall have the right to recover all or any part of suchoverpayment 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, assignedor transferred to any Person, or if the Company merges into or consolidates or otherwisecombines with any Person which is a continuing or successor entity, then the Company shallassign all of its right, title and interest in this Agreement as of the date of such eventto the Person which is either the acquiring or successor corporation, and such Person shallassume 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 obtainsuch assignment shall be a breach of this Agreement. In case of such assignment by theCompany and of assumption and agreement by such Person, all further rights as well as allother obligations of the Company under this Agreement thenceforth shall cease and terminateand thereafter the expression “the Company” wherever used herein shall be deemed to meansuch Person(s).(b) This Agreement and all rights of the Executive shall inure to the benefit of and beenforceable by the Executive’s personal or legal representatives, estates, executors,administrators, heirs and beneficiaries. In the event of the Executive’s death, all amountspayable to the Executive under this Agreement shall be paid to the Executive’s estate. ThisAgreement shall inure to the benefit of, be binding upon and be enforceable by, anysuccessor, surviving or resulting corporation or other entity to which all or substantiallyall 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 orinvoluntary dissolution of the Company.18. Enforcement. The provisions of this Agreement shall be regarded as divisible, andif any of said provisions or any part hereof are declared invalid or unenforceable by a court ofcompetent jurisdiction, the validity and enforceability of the remainder of such provisions orparts 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 Companynotifies the Executive in writing six (6) months prior to December 31, 2009 (or the anniversary ofthat date in the event the Agreement continues beyond that date pursuant to the provisions of thisSection 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 beterminated by the Company in accordance with this Section 19, the Agreement shall not terminatewith respect to that Change of Control until the end of the Employment Period, and (ii) thisAgreement shall terminate if, prior to a Change in Control, the Executive ceases to be employed bythe Employer as a corporate officer.This Agreement sets forth the entire agreement between the Executive and the Company withrespect to the subject matter hereof, and supersedes all priororal 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 aboveexcept by written instrument executed by the Company and the Executive.20. Withholding. The Company and the Employer shall be entitled to withhold fromamounts to be paid to the Executive under this Agreement any federal, state or local withholding orother taxes or charges which it is from time to time required to withhold. The Company and theEmployer shall be entitled to rely on an opinion of counsel if any question as to the amount orrequirement of any such withholding shall arise.21. Venue; Governing Law. This Agreement and the Executive’s and Company’s respectiverights and obligations hereunder shall be governed by and construed in accordance with the laws ofthe State of Arizona. Any action concerning this Agreement shall be brought in the Federal orstate courts located in the County of Maricopa, Arizona, and each party consents to the venue andjurisdiction of such courts.22. Notice. Notices given pursuant to this Agreement shall be in writing and (a) ifhand delivered, shall be deemed given when delivered, and (b) if mailed, shall be deemed deliveredwhen placed in the United States mail, postage prepaid, addressed,if to the Company, toBoard of DirectorsPinnacle West Capital Corporation400 North Fifth StreetPhoenix, Arizona 85004Attention: Law Departmentor if to the Executive, to                                                                                                      or to such other addresses as the parties may provide written notice of to each other, from time totime, in accordance with this Section 22.23. Funding. Benefits payable under this Agreement shall constitute an unfundedgeneral obligation of the Company payable from its general assets, and the Company shall not berequired to establish any special fund or trust for purposes of paying benefits under thisAgreement. The Executive shall not have any vested right to any particular assets of the Companyas a result of execution of this Agreement andshall 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 partyof, or compliance with, any condition or provision of this Agreement to be performed by the otherparty shall be deemed a waiver of similar or dissimilar provisions or conditions at the same timeor any prior or subsequent time.25. Headings. The headings contained are for reference only and shall not affect themeaning or interpretation of any provision of this Agreement.26. Additional Payment. If a Change of Control occurs within three (3) years of theEffective Date (the “Sunset Period”) and the Executive’s employment is terminated during theEmployment Period that commences on the occurrence of that Change of Control under circumstancesthat entitle the Executive to receive a Termination Payment pursuant to Section 11, the Executiveshall be entitled to receive the “Gross-Up Payment” provided by this Section 26 if it is determinedthat any Payment would be subject to the Excise Tax.(a) The Gross-Up Payment shall equal the amount necessary to assure that, after paymentby the Executive of all taxes (and any interest or penalties imposed with respect to suchtaxes), including, without limitation, any income taxes (and any interest and penaltiesimposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, theExecutive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon thePayments. The Company’s obligation to make Gross-Up Payments under this Section 26 shallnot be conditioned upon the Executive’s termination of employment.(b) Subject to the remaining provisions of this Section 26, all determinations requiredto 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 suchdeterminations, shall be made by a nationally-recognized accounting firm appointed by theCompany prior to a Change of Control (the “Accounting Firm”). The Accounting Firm shallprovide detailed supporting calculations both to the Company and the Executive within 15business days of the receipt of notice from the Executive that there has been a Payment orsuch earlier time as is requested by the Company. In the event that the Accounting Firm isserving as accountant or auditor for the individual, entity or group effecting the Change ofControl, the Executive may appoint another nationally recognized accounting firm to make thedeterminations required hereunder (which accounting firm shall then be referred to as theAccounting Firm hereunder). All fees and expenses of the Accounting Firm shall be bornesolely 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 AccountingFirm’s determination, but in all events by the last day of the calendar year following thecalendar year in which the Executive remits the related taxes. Any determination by theAccounting Firm relating to the Gross-Up Payment shall be binding upon the Company and theExecutive. As a resultof the uncertainty in the application of Section 4999 of the Code, it is possible thatGross-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 theevent the Company exhausts its remedies pursuant to Section 26(c) and the Executivethereafter is required to make a payment of any Excise Tax, the Accounting Firm shalldetermine the amount of the Underpayment that has occurred and any such Underpayment shallbe promptly paid by the Company to or for the benefit of the Executive; but in no eventlater than the last day of the calendar year following the calendar year in which theExecutive remits the related taxes.
 
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(c) The Executive shall notify the Company in writing of any claim by the InternalRevenue Service that, if successful, would require the payment by the Company of theGross-Up Payment. Such notification shall be given as soon as practicable, but no laterthan 10 business days after the Executive is informed in writing of such claim. TheExecutive shall apprise the Company of the nature of such claim and the date on which suchclaim is requested to be paid. The Executive shall not pay such claim prior to theexpiration of the 30-day period following the date on which the Executive gives such noticeto the Company (or such shorter period ending on the date that any payment of taxes withrespect to such claim is due). If the Company notifies the Executive in writing prior tothe expiration of such period that the Company desires to contest such claim, the Executiveshall:(i) give the Company any information reasonably requested by the Companyrelating to such claim,(ii) take such action in connection with contesting such claim as the Companyshall reasonably request in writing from time to time, including, withoutlimitation, accepting legal representation with respect to such claim by an attorneyreasonably selected by the Company,(iii) cooperate with the Company in good faith in order effectively to contestsuch claim, and(iv) permit the Company to participate in any proceedings relating to suchclaim;*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, andshall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Taxor income tax (including interest and penalties) imposed as a result of such representationand payment of costs and expenses. Without limitation on the foregoing provisions of thisSection 26(c), the Company shall control all proceedings taken in connection with
 
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suchcontest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority inrespect of such claim and may, at its sole discretion, either pay the tax claimed to theappropriate taxing authority on behalf of the Executive and direct the Executive to sue fora refund or contest the claim in any permissible manner, and the Executive agrees toprosecute such contest to a determination before any administrative tribunal, in a court ofinitial 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 fora refund, the Company shall indemnify and hold the Executive harmless, on an after-taxbasis, from any Excise Tax or income tax (including interest or penalties) imposed withrespect to such payment or with respect to any imputed income in connection with suchpayment; and *provided*, *further*, that any extension of the statute of limitations relating topayment of taxes for the taxable year of the Executive with respect to which such contestedamount is claimed to be due is limited solely to such contested amount. Furthermore, theCompany’s control of the contest shall be limited to issues with respect to which theGross-Up Payment would be payable hereunder, and the Executive shall be entitled to settleor contest, as the case may be, any other issue raised by the Internal Revenue Service orany other taxing authority. In all events, any reimbursement of the Executive shall be madeno later than the last day of the calendar year following the calendar year in which thetaxes that are subject to audit or litigation are remitted to the taxing authority or, whereas a result of such audit or litigation no taxes are remitted, the last day of the calendaryear following the calendar year in which the audit is completed or there is a final andnonappealable settlement or other resolution of the litigation.(d) If, after the receipt by the Executive of a Gross-Up Payment or payment by theCompany of an amount on the Executive’s behalf pursuant to Section 26(c), the Executivebecomes entitled to receive any refund with respect to the Excise Tax to which such Gross-UpPayment relates or with respect to such claim, the Executive shall (subject to the Company’scomplying with the requirements of this Section 26) promptly pay to the Company the amountof such refund (together with any interest paid or credited thereon after taxes applicablethereto). If, after payment by the Company of an amount on the Executive’s behalf pursuantto this Section 26, a determination is made that the Executive shall not be entitled to anyrefund with respect to such claim and the Company does not notify the Executive in writingof its intent to contest such denial of refund prior to the expiration of 30 days after suchdetermination, then the amount of such payment shall offset, to the extent thereof, theamount of Gross-Up Payment required to be paid.(e) Notwithstanding any other provision of this Section 26, the Company may, in itssole discretion, withhold and pay over to the Internal Revenue Service or any otherapplicable taxing authority, for the benefit of the Executive, all or any portion of anyGross-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 Paymentprovided by Section 26 because the Change of Control did not occur during the Sunset Period or theExecutive’s termination of employment did not occur within the Employment Period, the Executiveagrees that any Payments to which he is entitled will be reduced to equal the maximum amount thatmay be paid to the Executive without triggering the application of the Excise Tax. This amount isreferred to below as the “Capped Benefit.” The limitations imposed on the Executive’s Payments bythis Section 27 will not apply if the total Payments the Executive is entitled to receive minus theExcise Taxes that will be due on the Executive’s total Payments exceeds the Capped Benefit. In suchcase, 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 Section26 and the Company believes that the Executive will be subject to the limitations imposed onthe Executive’s Payments by this Section 27, it will notify the Executive as soon aspossible. The Company then will follow the procedures described in Section 26(b) to engagean Accounting Firm to perform the necessary calculations.(b) Until the Accounting Firm has completed its work, the Company will make Payments tothe Executive, at the times when such Payments become due, in the maximum amount that itbelieves may be paid without exceeding such limitations. The balance, if any, then will bepaid, if due, after the Accounting Firm completes the necessary calculations.(c) If the Accounting Firm concludes that the Executive’s Payments are subject to thelimitations imposed by this Section 27, the Executive’s Payments will be reduced to equalthe Capped Benefit. In making such reduction, the Company first will reduce the amount ofthe Executive’s Payments under this Agreement and, if necessary, any other Payments to whichthe Executive is entitled under any other arrangement that does not constitute“non-qualified deferred compensation” that is subject to Section 409A of the Code. TheCompany will reduce the amount of any Payments payable to the Executive that are subject toSection 409A of the Code only to the extent reductions in addition to those described in thepreceding 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 necessaryto limit the total Payments to the Capped Benefit, the Company first will reduce thenon-equity based Payments proportionally in the ratio in which each such non-equity basedPayment bears to all of the non-equity based Payments. To the extent additional reductionsare necessary, the Company will reduce the equity based Payments proportionally in the ratioin 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 shallinclude detailed supporting calculations. The Accounting Firm’s determinations shall be binding on the Executive and the Company. If the Internal RevenueService finally and conclusively determines that the Capped Benefit is less than the amountcalculated by the Accounting Firm, the Capped Benefit will be recalculated by the AccountingFirm in a manner consistent with the determination of the Internal Revenue Service. Anypayment made to the Executive in excess of the amount actually due then will be repaid bythe Executive to the Company. If the Internal Revenue Service finally and conclusivelydetermines that the actual Capped Benefit exceeds the amount calculated by the AccountingFirm, the Company shall pay the Executive any shortage (including any taxes, interest andpenalties) so that the Executive will have received or be entitled to receive the maximumamount to which the Executive is entitled under this Agreement.IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its dulyauthorized officer, and the Executive has executed this Agreement, on the date and year first abovewritten.      PINNACLE WEST CAPITAL CORPORATION