Document:

exv10w02w06

Exhibit 10.2.6

DEFERRED COMPENSATION PLAN OF 2005

FOR EMPLOYEES OF PINNACLE WEST CAPITAL CORPORATION AND AFFILIATES

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	ARTICLE 1 Definitions	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 2 Selection, Enrollment, Eligibility	 	 	4	 
	 
	 	2.1	 	Eligibility	 	 	4	 
	 
	 	2.2	 	Enrollment Requirements	 	 	4	 
	 
	 	2.3	 	Eligibility; Commencement of Participation	 	 	4	 
	 
	 	2.4	 	Loss of Eligibility to Participate	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 3 Deferral Commitments/Interest Crediting	 	 	5	 
	 
	 	3.1	 	Deferral	 	 	5	 
	 
	 	3.2	 	Maximum Deferral	 	 	5	 
	 
	 	3.3	 	Election to Defer; Effect of Election Form	 	 	5	 
	 
	 	3.4	 	Withholding of Deferral Amounts	 	 	6	 
	 
	 	3.5	 	Interest Crediting Prior to Distribution	 	 	6	 
	 
	 	3.6	 	Change in Time and Form of Payment	 	 	6	 
	 
	 	3.7	 	Installment Distribution	 	 	6	 
	 
	 	3.8	 	FICA Taxes	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 4 Short-Term Payout and Unforeseeable Financial Emergencies	 	 	8	 
	 
	 	4.1	 	Short-Term Payout	 	 	8	 
	 
	 	4.2	 	Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 5 Payment of Benefits	 	 	8	 
	 
	 	5.1	 	Payment of Termination Benefit	 	 	8	 
	 
	 	5.2	 	Death Prior to Pay Out	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 6 Disability Credit	 	 	9	 
	 
	 	6.1	 	Disability Credit	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 7 Beneficiary Designation	 	 	9	 
	 
	 	7.1	 	Beneficiary	 	 	10	 
	 
	 	7.2	 	Beneficiary Designation and Change; Spousal Consent	 	 	10	 
	 
	 	7.3	 	Acknowledgment	 	 	10	 
	 
	 	7.4	 	No Beneficiary Designation	 	 	10	 
	 
	 	7.5	 	Doubt as to Beneficiary	 	 	10	 
	 
	 	7.6	 	Discharge of Obligations	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 8 Leave of Absence	 	 	10	 
	 
	 	8.1	 	Paid Leave of Absence	 	 	10	 
	 
	 	8.2	 	Unpaid Leave of Absence	 	 	10	 
	 
	 	8.3	 	Definition of Leave of Absence	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 9 Termination, Amendment or Modification	 	 	11	 
	 
	 	9.1	 	Termination	 	 	11	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	9.2	 	Amendment	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 10 Administration	 	 	11	 
	 
	 	10.1	 	Committee Duties	 	 	11	 
	 
	 	10.2	 	Agents	 	 	11	 
	 
	 	10.3	 	Binding Effect of Decisions	 	 	11	 
	 
	 	10.4	 	Indemnity of Committee	 	 	11	 
	 
	 	10.5	 	Employer Information	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 11 Other Benefits and Agreements	 	 	12	 
	 
	 	11.1	 	Coordination with Other Benefits	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 12 Claims Procedures	 	 	12	 
	 
	 	12.1	 	Claims	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 13 Miscellaneous	 	 	12	 
	 
	 	13.1	 	Unsecured General Creditor	 	 	12	 
	 
	 	13.2	 	Employer’s Liability	 	 	12	 
	 
	 	13.3	 	Nonassignability	 	 	12	 
	 
	 	13.4	 	Not a Contract of Employment	 	 	12	 
	 
	 	13.5	 	Furnishing Information	 	 	13	 
	 
	 	13.6	 	Terms	 	 	13	 
	 
	 	13.7	 	Captions	 	 	13	 
	 
	 	13.8	 	Governing Law	 	 	13	 
	 
	 	13.9	 	Validity	 	 	13	 
	 
	 	13.10	 	Notice	 	 	13	 
	 
	 	13.11	 	Successors	 	 	13	 
	 
	 	13.12	 	Spouse’s Interest	 	 	13	 
	 
	 	13.13	 	Incompetent	 	 	13	 
	 
	 	13.14	 	Commencement of Payments	 	 	14	 
	 
	 	13.15	 	Interpretation of Plan Provisions	 	 	14	 

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DEFERRED COMPENSATION PLAN OF 2005 FOR EMPLOYEES OF

PINNACLE WEST CAPITAL CORPORATION AND AFFILIATES

          Effective January 1, 1992, Pinnacle West Capital Corporation, an Arizona corporation (the
“Company”), established the Pinnacle West Capital Corporation, Arizona Public Service Company,
SunCor Development Company and El Dorado Investment Company Deferred Compensation Plan (the “Prior
Plan”). Effective December 31, 2004, the Company restated the Prior Plan in its entirety to
incorporate all prior amendments to the Prior Plan as in effect on October 3, 2004, and to cease
future deferrals thereunder after December 31, 2004. By this instrument, effective January 1,
2005, the Company intends to establish a new deferred compensation plan that is substantially
similar to the Prior Plan, except to the extent required by Section 409A of the Internal Revenue
Code of 1986, as amended, and is known as the Deferred Compensation Plan of 2005 for Employees of
Pinnacle West Capital Corporation and Affiliates (“Plan”) for the purpose of providing specified
benefits to a select group of management, highly compensated employees and Directors who contribute
materially to the continued growth, development and future business success of the Company, Arizona
Public Service Company, SunCor Development Company, El Dorado Investment Company, and their
subsidiaries. The Plan applies to deferred compensation which was either earned or first became
vested after December 31, 2004, applying the rules set forth in Treasury Regulation Section
1.409A-6. As a result, this Plan applies to any interest credits above the Crediting Rate with
respect to the December 31, 2004 Account Balance of any Participant who had less than five years of
Plan Participation as of December 31, 2004. Otherwise, this Plan shall not apply to an
individual’s December 31, 2004 Account Balance and any interest credited to such Account Balance.

ARTICLE 1

Definitions

          For purposes hereof, unless otherwise clearly apparent from the context, the following phrases
or terms shall have the following indicated meanings:

	1.1	 	“Account Balance” shall mean the sum of (i) the Deferral Amount, plus (ii) interest credited
in accordance with all the applicable interest crediting provisions of the Plan, reduced by
all Short-Term Payouts, if made. This account shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of the amounts to be paid to
the Participant pursuant to this Plan.
	 
	1.2	 	“Annual Deferral” shall mean that portion of a Participant’s Base Annual Salary, Restricted
Stock Units (but only if deferral of Restricted Stock Units is permitted by the Company),
Year-End Bonus and/or Directors Fees that a Participant elects to have and is deferred, in
accordance with Article 3, for any one Plan Year. In the event of Disability, death or a
Separation from Service prior to the end of a Plan Year and prior to 2008, such year’s Annual
Deferral shall be the actual amount withheld prior to such event.
	 
	1.3	 	“Base Annual Salary” shall mean the annual compensation, excluding bonuses, commissions,
overtime, incentive payments, non-monetary awards, Directors Fees and other fees paid to a
Participant for employment services rendered to any Employer, before reduction for
compensation deferred pursuant to all qualified, non-qualified and Code Section 125
compensation plans of any Employer.

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	1.4	 	“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated
in accordance with Article 7, that are entitled to receive benefits under this Plan upon the
death of a Participant.
	 
	1.5	 	“Beneficiary Designation Form’’ shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Company to designate one or
more Beneficiaries.
	 
	1.6	 	“Board” shall mean the Board of Directors of the Company.
	 
	1.7	 	“Bonus Rate” for a Plan Year shall mean an interest rate determined for each Plan Year by the
Committee, in its sole discretion, which rate shall be determined on or before the first
business day of the month that precedes the beginning of the Plan Year for which the rate
applies.
	 
	1.8	 	“Change of Control” shall have the meaning set forth in the Key Executive Employment and
Severance Agreement issued to certain employees of the Company.
	 
	1.9	 	“Claimant” shall have the meaning set forth in Section 12.1.
	 
	1.10	 	“Code” shall mean the Internal Revenue Code of 1986, as amended.
	 
	1.11	 	“Committee” shall mean the administrative committee appointed to manage and administer the
Plan in accordance with its provisions pursuant to Article 10.
	 
	1.12	 	“Company” shall mean Pinnacle West Capital Corporation, an Arizona corporation.
	 
	1.13	 	“Crediting Rate” for a Plan Year shall mean a rate of interest equal to the ten-year U.S.
Treasury Note rate as published on the last business day of the first week of October
preceding a Plan Year.
	 
	1.14	 	“Deferral” shall mean the sum of all of a Participant’s Annual Deferrals.
	 
	1.15	 	“Director” shall mean any member of the board of directors of an Employer.
	 
	1.16	 	“Directors Fees” shall mean the annual fees paid by an Employer, including retainer fees and
meetings fees, as compensation for serving on a board of directors of an Employer.
	 
	1.17	 	“Disability” shall mean (i) in the case of a Participant who is an employee of an Employer, a
period of disability during which a Participant qualifies for benefits under the Participant’s
Employer’s long-term disability plan, or (ii) in the case of a Participant who is a Director,
a period of disability during which the Participant would have qualified for benefits under
such a plan, as determined in the sole discretion of the Committee, had the Participant been
an employee of an Employer.
	 
	1.18	 	“Disability Benefit” shall mean the benefit set forth in Article 6.
	 
	1.19	 	“Effective Date” shall mean January 1, 2005.
	 
	1.20	 	“Election Form” shall mean the form established from time to time by the Committee that a
Participant completes, signs and returns to the Company to make an election under the Plan.

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	1.21	 	“Employer” shall mean the Company, Arizona Public Service Company, an Arizona corporation,
SunCor Development Company, an Arizona corporation, El Dorado Investment Company, an Arizona
corporation, and/or any subsidiaries of such corporations that have been selected by the Board
to participate in the Plan.
	 
	1.22	 	“Participant” shall mean any employee or Director of an Employer (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan, and (iii) who signs an
Election Form and a Beneficiary Designation Form.
	 
	1.23	 	“Plan” shall mean the Deferred Compensation Plan of 2005 for Employees of Pinnacle West
Capital Corporation and Affiliates, which shall be evidenced by this instrument, as amended
from time to time.
	 
	1.24	 	“Plan Year” shall begin on January 1 of each year and continue through December 31.
	 
	1.25	 	“Preferred Rate” for a Plan Year shall mean the Crediting Rate plus the Bonus Rate for such
Plan Year.
	 
	1.26	 	“Restricted Stock Units” shall have the meaning assigned to that term under the Pinnacle West
Capital Corporation 2007 Long-Term Incentive Plan.
	 
	1.27	 	“Retirement” and “Retires” shall mean, with respect to an employee, Separation from Service
for any reason other than a leave of absence, death or Disability on or after the earlier of
the attainment of (a) age sixty-five (65) with five (5) Years of Service or (b) age fifty-five
(55) with ten (10) Years of Service; and shall mean, with respect to a Director who is not an
employee, Separation from Service with all Employers on or after the earlier of the attainment
of (x) age sixty-five (65) with five (5) Years of Service as a Director or (y) age fifty-five
(55) with ten (10) Years of Service as a Director. If a Participant is both an employee and a
Director, Retirement shall occur when he or she Retires as an employee.
	 
	1.28	 	“Separation from Service” or “Separates from Service” shall mean the ceasing of employment by
an employee with all Employers or ceasing service as a Director of all Employers, voluntarily
or involuntarily for any reason other than death. If a Participant is both an employee and a
Director, a Separation from Service shall occur when he or she terminates employment as an
employee, and the Participant shall become an inactive Participant (as defined in the last
sentence of Section 2.4) at such point in time. Except as provided in the preceding sentence
and the resolution of the Board defining such term, “Separation from Service” and “Separates
from Service” shall be determined in accordance with the default rules set forth in the
regulations issued under Code Section 409A.
	 
	1.29	 	“Short-Term Payout” shall mean the payout set forth in Section 4.1.
	 
	1.30	 	“Specified Employee” shall have the meaning set forth in Section 409A of the Code, the
regulations issued thereunder, and the resolution issued by the Board defining such term.
	 
	1.31	 	“Termination Benefit” shall mean the benefit set forth in Article 5.
	 
	1.32	 	“Unforeseeable Financial Emergency” shall mean a severe financial hardship to the Participant
resulting from (i) an illness or accident of the Participant, the Participant’s Beneficiary,
or the Participant’s spouse or dependent (as defined in Code Section 152(a)), (ii) loss of the
Participant’s property due to casualty or (iii) other similar extraordinary and unforeseeable

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	 	 	circumstances arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
	 
	1.33	 	“Year-End Bonus” shall mean compensation paid to a Participant who is an employee as an
annual bonus under any Employer’s regular annual bonus and incentive plans. Special bonuses,
nuclear-specific bonuses, estimated bonuses paid by SunCor Development Company, large asset
bonus plan payments, and incentive payments made to a Participant shall not constitute
“Year-End Bonuses.”
	 
	1.34	 	“Years of Plan Participation” shall mean the total number of full Plan Years a Participant
has been a Participant in the Plan and has either (i) made deferral elections or (ii) had an
Account Balance. For purposes of a Participant’s first Plan Year of participation only, any
partial Plan Year of participation shall be treated as a full Plan Year. For purposes of a
Participant’s final Plan Year of participation only, a Participant shall be awarded a Year of
Plan Participation if, and only if, he or she has been credited with 1,000 hours of service in
such Plan Year. A single Plan Year of Plan participation described above shall be referred to
as a “Year of Plan Participation.”
	 
	1.35	 	“Years of Service” shall mean the total number of years of employment during which a
Participant has been credited with at least 1,000 hours of service in each of those years.
For purposes of this definition only, (i) Participants who are employees shall be credited
with ten (10) hours of service for each working day during which they are employed by the
Employer and Participants who are Directors shall be credited with ten (10) hours of service
for each day (other than weekend days) during which they serve as a Director, provided that no
Participant shall be credited with more than 1,000 hours of service in any one year of
employment, and (ii) a year of employment shall be a 365 day period (or 366 day period in the
case of a leap year) that, for the first year of employment, commences on the employee’s date
of hiring or the date the Director begins his or her service as a Director and that, for any
subsequent year, commences on an anniversary of that date.

ARTICLE 2

Selection, Enrollment, Eligibility

	2.1	 	Eligibility. Participation in the Plan shall be limited to a select group of management,
highly compensated employees and Directors of the Employers. All officers and members of the
Senior Management Group may participate in the Plan, excluding presidents of subsidiaries of
SunCor Development Company.
	 
	2.2	 	Enrollment Requirements. As a condition to participation, each selected employee or
Director shall complete, execute and return to the Company an Election Form and a Beneficiary
Designation Form. To the extent permitted by the Committee, a selected employee or Director
may enroll in the Plan and make elections by electronic means. In addition, the Committee,
in its sole discretion, may establish from time to time such other enrollment requirements as
it determines in its sole discretion are necessary.
	 
	2.3	 	Eligibility; Commencement of Participation. When an employee or Director first becomes
eligible to participate in the Plan, that employee or Director may commence participation in
the Plan at any time within 30 days after his or her initial qualification for eligibility.
When a Participant has ceased being eligible to participate in the Plan (other than by the
accrual of earnings), and subsequently becomes eligible to participate in the Plan again more
than 24 months after first not being eligible to participate in the Plan, the Participant
will be treated as a new Participant and will be allowed to recommence participation in the
Plan at any time within

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	 	 	30 days after his or
her requalification for eligibility. If an employee or Director fails to submit an Election
Form to the Company within 30 days after his or her initial qualification or requalification
for eligibility, that employee or Director shall not be eligible to submit an Election Form
until the election period effective the following January 1.
	 
	2.4	 	Loss of Eligibility to Participate. If the status of a Participant changes, without a
Separation from Service, so that he or she is no longer an employee eligible to participate
pursuant to Section 2.1, he or she shall become an inactive Participant as of the last day of
the Plan Year in which such change of status occurred. Inactive Participants shall continue
to participate in the Plan for all purposes other than for purposes of making deferrals under
Section 3.1 and 3.2.

ARTICLE 3

Deferral Commitments/Interest Crediting

	3.1	 	Deferral. Subject to Section 3.2 below, a Participant may defer eligible compensation for
each Plan Year starting with his or her commencement of participation in the Plan and ending
immediately prior to his or her death or Separation from Service.
	 
	3.2	 	Maximum Deferral. Subject to Section 3.3, for each Plan Year, a Participant may defer up
to fifty percent (50%) of his or her Base Annual Salary, up to one hundred percent (100%) of
his or her Year-End Bonus, up to 100% of his or her Restricted Stock Units (if the Company
allows deferrals of Restricted Stock Units), and/or up to one hundred percent (100%) of his or
her Directors Fees.
	 
	3.3	 	Election to Defer; Effect of Election Form. In connection with a Participant’s initial
commencement (or in certain cases described in Section 2.3, recommencement) of participation
in the Plan, the Participant may file an Election Form within 30 days after becoming eligible
to participate. If this initial Election Form is filed after the beginning of the calendar
year to which the Election Form relates, the Participant may elect only to defer his or her
Base Annual Salary for pay periods commencing after the filing of his or her Election Form.
For each succeeding Plan Year, a Participant may elect to defer from his or her Base Annual
Salary, Year-End Bonus and/or Directors Fees (and Restricted Stock Units to the extent
permitted by the Company) an Annual Deferral by delivering to the Company a completed Election
Form before the January 1 of the calendar year in which the Participant earns the compensation
he or she is deferring, which election and form shall be irrevocable during the Plan Year
except as provided in Section 4.2. Notwithstanding the foregoing, with respect to Restricted
Stock Units, the Committee may permit a Participant to file an Election Form on or before the
thirtieth day after the Participant obtains the right to the Restricted Stock Units, provided
that the Election Form is filed at least twelve months in advance of the earliest date at
which the forfeiture condition with respect to the Restricted Stock Units could lapse. If no
Election Form is delivered and accepted for a Plan Year, no Annual Deferral will be withheld
for that Plan Year. Any such Election Form shall designate the time and form of payment of
the compensation deferred. With respect to any interest credits above the Crediting Rate with
respect to the December 31, 2004 Account Balance of any Participant who had less than five
years of Plan Participation as of December 31, 2004, the election of the form and time of
payment made by such Participant with respect to the calendar year in which the Participant
first earns five years of Plan Participation shall govern the form and time of payment of such
interest credits. Except as provided in Section 3.6, such time and form of payment may not be
changed, although a Participant may elect a different time and form of payment with respect to
the Annual Deferral for each separate Plan Year.

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	3.4	 	Withholding of Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the
Annual Deferral shall be withheld periodically from the Participant’s Base Annual Salary. The
Year-End
Bonus, Restricted Stock Unit, and/or Directors Fees portion of the Annual Deferral shall be
withheld at the time the Year-End Bonus and/or Director Fees and/or compensation
attributable to Restricted Stock Units are or would otherwise be paid to the Participant.
	 
	3.5	 	Interest Crediting Prior to Distribution. Prior to any distribution of benefits under
Article 5, interest shall be credited in accordance with rules established by the Company.
The rate of interest for crediting shall be the Preferred Rate; provided, however in the case
of a Participant who Separates from Service (other than at Retirement) more than six months
before any Change of Control and with less than five years of Plan Participation, the
Crediting Rate shall be used with respect to his or her Termination Benefit. If a Short-Term
Payout is made, for purposes of crediting interest, the Account Balance shall be reduced as of
the first day of the Plan Year in which the Short-Term Payout is made.
	 
	3.6	 	Change in Time and Form of Payment. A Participant may change an election as to time and
form of payment with respect to Short-Term Payouts or Termination Benefits if such an Election
Form is filed in accordance with rules established by the Committee no later than December 31,
2008. Any such election must not defer benefits which would otherwise be payable in the
calendar year of election to a later calendar year or accelerate benefits which would be
payable in a later calendar year into the calendar year of election. On and after January 1,
2009, a Participant may change an election as to time and form of payment with respect to
Termination Benefits under the Plan if an Election Form is filed in accordance with rules
established by the Committee, provided (a) such election must not take effect until at least
12 months after the date on which the Election Form is properly filed, (b) the first payment
with respect to which such election is made must be deferred for a period of not less than 5
years from the date such payment would otherwise have been made, and (c) any election related
to a payment that was otherwise to be made at a specified time may not be made less than 12
months prior to the date of the first scheduled payment. For purposes of the preceding
sentence, a series of installment payments shall be considered a single payment. Subject to
the foregoing, the Election Form most recently filed with the Company for each calendar year
shall govern the payout of all Termination Benefits for such calendar year.
	 
	3.7	 	Installment Distribution. In the event a benefit is paid in installments, installment
payment amounts shall be determined in the following manner:

	 	(a)	 	Interest Rate. The interest rate to be used to calculate installment payment
amounts shall be a fixed interest rate that is determined by averaging the Preferred
Rates for the Plan Year in which a Participant becomes eligible to receive a benefit
and the four (4) preceding Plan Years. If a Participant who Separates from Service
other than on account of Retirement has completed fewer than five (5) Years of Plan
Participation, this average shall be determined using the Crediting Rates for the Plan
Years during which the Participant participated in the Plan; provided, however, in the
event that installment payment amounts commence on or after the date which is six
months before a Change of Control, the interest rate to be used to calculate
installment payment amounts shall be a fixed interest rate that is determined by
averaging the Preferred Rates for the relevant Plan Years in which the Participant
participated in the Plan.
	 
	 	(b)	 	Installment Payments. For purposes of calculating installment payment amounts, each
annual installment payment, starting with the first payment, which for this purpose is
deemed to be paid as of the date that the Participant becomes eligible to receive a
benefit under this Plan without respect to any six-month delay in benefit commencement
for a

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	 	 	 	Specified Employee (the “Eligibility Date”), and continuing thereafter for each
additional year that starts on the anniversary of the Eligibility Date until the
Participant’s Account Balance is
paid in full, shall be deemed to have been paid prior to the crediting of interest
for that year. (The result of this is that interest crediting shall be made after
taking into account the annual installment payment for that year.)
	 
	 	(c)	 	Amortization. Based on the interest rate determined in accordance with Section
3.7(b) above, the Participant’s Account Balance shall be amortized in equal installment
payments over the term of the specified payment period. The resulting number shall be
the installment payment that is to be paid each year.
	 
	 	(d)	 	Timing of Payments. The initial installment payment shall be made at the time set
forth in Section 5.1(a). Installment payments for subsequent years shall be made in
January of such year, subject to the requirement that payment of any installment amount
following Separation from Service shall not be made prior to the date which is six (6)
months after the date of the Participant’s Separation from Service in the case of a
Participant who is determined to be a Specified Employee.

	3.8	 	FICA Taxes. For each Plan Year in which an Annual Deferral is being withheld, the
Participant’s Employer(s) shall withhold from the Participant’s compensation that is not being
deferred the Participant’s share of FICA taxes.

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ARTICLE 4

Short-Term Payout and Unforeseeable Financial Emergencies

	4.1	 	Short-Term Payout. At the same time as each election to defer an Annual Deferral, a
Participant may elect to receive a future Short-Term Payout from the Plan with respect to that
Annual Deferral. The Short-Term Payout shall be a lump sum payment in an amount that is equal
to the Annual Deferral plus interest credited at the Preferred Rate, and it shall be paid in
January of the Plan Year that is five (5) years after the first day of the Plan Year in which
the Annual Deferral is actually deferred; provided, however, that if the Participant Separates
from Service or dies before the Plan Year in which a Short-Term Payout is to be made,
distribution will be made in accordance with Article 5 instead of this Section 4.1. Except as
provided in Section 3.6, such election shall be irrevocable.
	 
	4.2	 	Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies. If the Participant
experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee
to receive a partial or full payout from the Plan. The payout shall not exceed the lesser of
(i) the Participant’s Account Balance, calculated as if such Participant were receiving a
Termination Benefit, or (ii) the amount reasonably needed to satisfy the Unforeseeable
Financial Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of
the distribution, after taking into account the extent to which such hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise or by liquidation of
the Participant’s assets (to the extent the liquidation of such assets would not itself cause
severe financial hardship) or by cessation of deferrals under this Plan. If the petition for
a payout is approved, the payout shall be made within sixty (60) days after the date of
approval. In the event that the Participant takes an Unforeseeable Financial Emergency
withdrawal under this Plan, the Participant’s deferral election for the Plan Year shall
immediately terminate for the remainder of such Plan Year.

ARTICLE 5

Payment of Benefits

	5.1	 	Payment of Termination Benefit.

	 	(a)	 	Lump Sum or Installments. A Participant may elect to receive his or
her Termination Benefit in a lump sum or in equal annual payments over a period of five
(5), ten (l0) or fifteen (15) years (the latter determined in accordance with Section
3.7 above) by so electing on an Election Form. If a Participant elects a lump sum
payment, he or she shall specify whether the lump sum will be paid within 30 days
following (i) his or her Separation from Service or, if later, (ii) his or her
attainment of age fifty-five (55) following Separation from Service. If the
Participant elects installment payments, they will begin within 30 days after the
Participant’s 55th birthday (or his or her Separation from Service, if the Participant
is over age fifty-five (55) upon his or her Separation from Service). The Participant
may change his or her election to an allowable alternative payout date or period by
submitting a new Election Form to the Company in accordance with Section 3.6. Failure
to make an election will result in the benefits being paid in a lump sum within 30 days
after the Participant’s Separation from Service. Any election under this Section 5.1
shall be irrevocable, except to the extent provided in Section 3.6. Notwithstanding
the foregoing, payment of the Termination Benefit shall not be made or commence prior
to the date which is six (6) months after the date of a Participant’s

8

 

	 	 	 	Separation from Service in the case of a Participant who is determined to be a
Specified Employee.
	 
	 	(b)	 	Automatic Distribution of Termination Benefits. Notwithstanding any
provision of this Section 5.2 to the contrary, if, upon a Participant’s Separation from
Service, his or her Account Balance, as determined pursuant to Section 5.1, when added
to his or her Retirement Account Balance Benefit under the Pinnacle West Capital
Corporation Supplemental Excess Benefit Retirement Plan of 2005, does not exceed the
amount specified in Code Section 402(g) for the calendar year in which such Separation
from Service occurs, the Participant’s Termination Benefit shall be distributed in a
lump sum within thirty (30) days following his or her Separation from Service.
Notwithstanding the foregoing, payment of the Termination Benefit shall not be made
prior to the date which is six (6) months after the date of a Participant’s Separation
from Service in the case of a Participant who is determined to be a Specified Employee.

	5.2	 	Death Prior to Pay Out.

	 	(a)	 	Death Prior to Commencement of Payments. If a Participant dies prior to the payout
date that he or she elected for his or her Termination Benefit, his or her Termination
Benefit shall be paid to the Participant’s Beneficiary in the survivor form elected by
the Participant (lump sum or installments over five, ten, or fifteen years) commencing
in the January immediately after the Participant’s death.
	 
	 	(b)	 	Death After Commencement. If a Participant dies after the commencement of the
payment of his or her Termination Benefit, but before the Termination Benefit is paid
in full, the Participant’s unpaid Termination Benefit payments shall continue and shall
be paid to the Participant’s Beneficiary over the remaining number of years and in the
same amounts as that benefit would have been paid to the Participant had the
Participant survived.

ARTICLE 6

Disability Credit

	6.1	 	Disability Credit.

	 	(a)	 	Eligibility. By participating in the Plan, all Participants are
eligible for this credit.
	 
	 	(b)	 	Credit for Plan Year of Disability. A Participant who is determined to
be suffering from a Disability, and who is not receiving Base Annual Salary, Year-End
Bonus and/or Directors Fees, shall be credited with an amount equal to that portion of
the Annual Deferral commitment that would otherwise have been withheld from the
Participant’s Base Annual Salary, Year-End Bonus and/or Directors Fees for the Plan
Year during which the Participant first suffers Disability, unless the Disability
ceases in the Plan Year that it commences, in which case the crediting shall apply only
for the period of Disability.

ARTICLE 7

Beneficiary Designation

9

 

	7.1	 	Beneficiary. Each Participant shall have the right, at any time, to designate his or her
Beneficiary (both primary as well as contingent) to receive any benefits payable under the
Plan to a Beneficiary upon the death of a Participant.
	 
	7.2	 	Beneficiary Designation and Change; Spousal Consent. A Participant shall designate his
or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning
it to the Company or its designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary
Designation Form and the Committee’s rules and procedures, as in effect from time to time.
If the Participant names, with respect to more than fifty percent (50%) of his or her benefit
under this Plan, someone other than his or her spouse as a Beneficiary, a spousal consent, in
the form designated by the Committee, must be signed by that Participant’s spouse and
returned to the Company. Upon submission to the Company of a new Beneficiary Designation
Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall
be entitled to rely on the last Beneficiary Designation Form filed by the Participant prior
to his or her death.
	 
	7.3	 	Acknowledgment. No designation or change in designation of a Beneficiary shall be
effective until received by the Company or its designated agent.
	 
	7.4	 	No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided
in Sections 7.1, 7.2 and 7.3 above, or if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant’s benefits, then the
Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse with
respect to any undistributed benefits. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the
executor or personal representative of the Participant’s estate.
	 
	7.5	 	Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to
receive payments pursuant to this Plan, the Committee shall have the right, exercisable in
its discretion, to cause the Participant’s Employer to withhold such payments until this
matter is resolved to the Committee’s satisfaction.
	 
	7.6	 	Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall
fully and completely discharge all Employers and the Committee from all further obligations
under this Plan with respect to the Participant.

ARTICLE 8

Leave of Absence

	8.1	 	Paid Leave of Absence. If a Participant is authorized by the Participant’s Employer for
any reason to take a paid leave of absence from the employment of the Employer, the
Participant shall continue to be considered employed by the Employer and the Annual Deferral
shall continue to be withheld during such paid leave of absence in accordance with Section
3.3.
	 
	8.2	 	Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer for
any reason to take an unpaid leave of absence from the employment of the Employer, the
Participant shall continue to be considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such expiration or
return, deferrals shall resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any, made for that Plan Year
prior to the leave of absence.

10

 

	8.3	 	Definition of Leave of Absence. Whether a Participant is on a leave of absence shall be
determined in accordance with the default rules under the regulations issued pursuant to
Section 409A of the Code.

ARTICLE 9

Termination, Amendment or Modification

	9.1	 	Termination. Subject to the requirements of Code Section 409A, any Employer reserves the
right to terminate the Plan at any time with respect to Participants whose services are
retained by that Employer. Upon the termination of the Plan in accordance with the
requirements of Section 409A of the Code, a Participant’s Account Balance shall be paid out in
accordance with the regulations issued under Section 409A of the Code. The termination of the
Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the
payment of any benefits under the Plan as of the date of termination.
	 
	9.2	 	Amendment. The Company may, at any time, amend or modify the Plan in whole or in part
with respect to any Employer or all Employers, provided, however, that no amendment or
modification shall be effective to the extent it would cause an amount to become taxable or
be subject to additional taxes on account of such amendment under Code Section 409A or the
regulations or other guidance issued thereunder.

ARTICLE 10

Administration

	10.1	 	Committee Duties. This Plan shall be administered by a Committee, which shall consist of
persons approved by the Board. Members of the Committee may be Participants under this Plan.
The Committee shall also have the discretion and authority to make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of this Plan and decide
or resolve any and all questions including interpretations of this Plan, as may arise in
connection with the Plan.
	 
	10.2	 	Agents. In the administration of this Plan, the Committee may, from time to time, employ
agents and delegate to them such administrative duties as it sees fit and may from time to
time consult with counsel who may be counsel to any Employer.
	 
	10.3	 	Binding Effect of Decisions. The decision or action of the Committee with respect to any
question arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the Plan.
	 
	10.4	 	Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the
Committee against any and all claims, losses, damages, expenses or liabilities arising from
any action or failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee or any of its members.
	 
	10.5	 	Employer Information. To enable the Committee to perform its functions, each Employer
shall supply full and timely information to the Committee on all matters relating to the
compensation of its Participants, the date and circumstances of the Retirement, Disability,
death or Separation from Service of its Participants, and such other pertinent information as
the Committee may reasonably require.

11

 

ARTICLE 11

Other Benefits and Agreements

	11.1	 	Coordination with Other Benefits. Except as provided in this Section, the benefits
provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any
other benefits available to such Participant under any other plan or program for employees or
directors of the Participant’s Employer. The Plan shall supplement and shall not supersede,
modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE 12

Claims Procedures

	12.1	 	Claims. Any Participant, Beneficiary or any authorized representative acting on
behalf of the Participant or Beneficiary (“Claimant”) claiming benefits, eligibility,
participation or any other right or interest under this Plan may file a written claim
setting forth the basis of the claim under the procedures set forth in the Pinnacle West
Capital Corporation Savings Plan.

ARTICLE 13

Miscellaneous

	13.1	 	Unsecured General Creditor. Amounts payable to a Participant or his or her Beneficiary
under this Plan shall be paid from the general assets of an Employer. Participants and their
Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest
or claims in any property or assets of an Employer. Any and all of an Employer’s assets shall
be, and remain, the general, unpledged, unrestricted assets of the Employer. An Employer’s
obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future and Participants and their Beneficiaries shall be unsecured creditors of
the Participant’s Employer.
	 
	13.2	 	Employer’s Liability. An Employer’s liability for the payment of benefits shall be
defined only by the Plan. An Employer shall have no obligation to a Participant under the
Plan except as expressly provided in the Plan.
	 
	13.3	 	Nonassignability. Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, and all rights to such amounts are expressly declared to be
unassignable and non-transferable, except that the foregoing shall not apply to any family
support obligations set forth in a court order which is determined by the Committee to be a
qualified domestic relations order as defined in Code Section 414(p). No part of the amounts
payable shall, prior to actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the event of a Participant’s or any
other person’s bankruptcy or insolvency.
	 
	13.4	 	Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed
to constitute a contract of employment between any Employer and the Participant. Such
employment is hereby acknowledged to be an “at will” employment relationship that can be
terminated at any time for any reason, with or without cause, unless expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to give a Participant the
right to be retained in the service of any Employer or to be retained as a Director, or to
interfere with the right of any Employer to discipline or discharge the Participant at any
time.

12

 

	13.5	 	Furnishing Information. A Participant will cooperate with the Committee by furnishing any
and all information requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the Committee
may deem necessary.
	 
	13.6	 	Terms. Whenever any words are used herein in the singular or in the plural, they shall be
construed as though they were used in the plural or the singular, as the case may be, in all
cases where they would so apply.
	 
	13.7	 	Captions. The captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of any of its
provisions.
	 
	13.8	 	Governing Law. The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Arizona to the extent not preempted by Federal law.
	 
	13.9	 	Validity. In case any provision of this Plan shall be illegal or invalid for any reason,
said illegality or invalidity shall not affect the remaining parts hereof, but this Plan
shall be construed and enforced as if such illegal and invalid provision had never been
inserted herein.
	 
	13.10	 	Notice. Any notice or filing required or permitted to be given to the Committee under
this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or
certified mail, to the addresses indicated below:
	 
	 	 	If a Participant’s Employer is Pinnacle West Capital Corporation or one of its subsidiaries,
then to:
	 
	 	 	Pinnacle West Capital Corporation

400 North 5th Street

P.O. Box 53999

Phoenix, Arizona 85072-3999

Attn: Manager of Benefit Services

Station 8460
	 
	 	 	Such notice shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or certification.
	 
	 	 	Any notice or filing required or permitted to be given to a Participant under this Plan
shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known
address of the Participant.
	 
	13.11	 	Successors. The provisions of this Plan shall bind and inure to the benefit of the
Participant’s Employer and its successors and assigns and the Participant, the Participant’s
Beneficiaries, and their permitted successors and assigns.
	 
	13.12	 	Spouse’s Interest. The interest in the benefits hereunder of a spouse of a Participant who
has predeceased the Participant shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not limited to such spouse’s will,
nor shall such interest pass under the laws of intestate succession.
	 
	13.13	 	Incompetent. If the Committee, in its discretion, determines that a benefit under this
Plan is to be paid to a minor, a person declared incompetent or to a person incapable of
handling the

13

 

	 	 	disposition of
that person’s property, the Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of such minor, incompetent or
incapable person. The Committee may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment
of a benefit shall be a payment for the account of the Participant and the Participant’s
Beneficiary, as the case may be, and shall be a complete discharge of any liability under
the Plan for such payment amount.
	 
	13.14	 	Commencement of Payments. In all cases in which amounts are payable within a fixed month
(for example, the January after a Participant Separates from Service), payment is deemed to be
made within the fixed month if the payment is made on the first day of such month or a later
date within the same calendar year or, if later, by the fifteenth day of the third calendar
month following the first day of such fixed month (provided the Participant is not permitted,
directly or indirectly, to designate the taxable year of payment). In addition, a payment is
treated as made upon the date specified under the Plan if the payment is made no earlier than
thirty (30) days before the first day of such fixed month and the Participant is not
permitted, directly or indirectly, to designate the taxable year of payment.
	 
	13.15	 	Interpretation of Plan Provisions. This Plan shall be interpreted in a manner consistent
with the provisions of Section 409A of the Code and the regulations thereunder.

14

 

          IN WITNESS WHEREOF the Company has caused this Plan to be executed by its duly authorized
officers this 19th day of December 2008.

	 	 	 	 	 	 	 
	 	 	PINNACLE WEST CAPITAL CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Barbara M. Gomez	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	   Its: VP and Treasurer	 	 

	 	 	 	 	 
	ATTEST:
	 
	 	 	 	 
	By:

	 	/s/ Donna L. Thomas	 	 
	 

	 	 	 	 
	 

	 	Its: HR Services Director	 	 

15exv10w03w02

Exhibit 10.3.2

PINNACLE WEST CAPITAL CORPORATION

SUPPLEMENTAL EXCESS BENEFIT

RETIREMENT PLAN OF 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	PAGE	 
	ARTICLE ONE — PREAMBLE
	 	 	1	 
	 
	 	 	 	 
	ARTICLE TWO — CONSTRUCTION
	 	 	3	 
	 
	 	 	 	 
	ARTICLE THREE — ELIGIBILITY AND PARTICIPATION
	 	 	3	 
	(a) Officers
	 	 	3	 
	(b) SMG Participants
	 	 	4	 
	(c) Commencement of Participation
	 	 	4	 
	(d) Status Change
	 	 	4	 
	(e) Rehires
	 	 	4	 
	 
	 	 	 	 
	ARTICLE FOUR — BENEFITS
	 	 	4	 
	(a) Officer Benefits
	 	 	4	 
	(1) Group A Participants
	 	 	4	 
	(2) Group B Participants
	 	 	5	 
	(3) Group C Participants
	 	 	6	 
	(4) Compensation
	 	 	7	 
	(5) Promotion to Officer Status
	 	 	8	 
	(b) SMG Participants
	 	 	8	 
	(c) Average Monthly Compensation
	 	 	9	 
	(d) Disability Accrual
	 	 	9	 
	(e) Recognition of Benefits under Separate Agreements
	 	 	9	 
	 
	 	 	 	 
	ARTICLE FIVE — PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009
	 	 	10	 
	(a) Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i)
	 	 	10	 
	(1) Time for Commencement
	 	 	10	 
	(2) Form of Payment
	 	 	11	 
	(3) Actuarial Adjustments
	 	 	11	 
	(b) Spouse’s Benefit with Respect to Officer Traditional Benefits Described in
Sections 4(a)(1) and 4(a)(2)(i) 
	 	 	12	 
	(c) Officer Retirement Account Balance Benefits Described in Sections
4(a)(2)(ii) and 4(a)(3) 
	 	 	13	 
	(1) Time and Form of Payment
	 	 	13	 
	(2) Actuarial Adjustments
	 	 	13	 
	(3) Payment Upon Death
	 	 	14	 
	(d) SMG Traditional and Retirement Account Balance Benefits Described in Section 4(b)
	 	 	15	 
	(1) Form of Payment — Traditional Benefits
	 	 	15	 
	(2) Time of Payment — Traditional Benefits
	 	 	15	 
	(3) Form and Time of Payment — Retirement Account Balance Benefit
	 	 	16	 
	(4) Actuarial Adjustments
	 	 	16	 
	(5) Time and Form of Benefits Payable Upon Death
	 	 	17	 
	(e) Change in Time and Form of Payment
	 	 	17	 
	(f) Cash-Out Provisions
	 	 	17	 
	(g) Reemployment
	 	 	18	 
	 
	 	 	 	 
	ARTICLE SIX — PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009
	 	 	18	 

i

 

	 	 	 	 	 
	 	 	PAGE	 
	ARTICLE SEVEN — SECTION 409A COMPLIANCE
	 	 	19	 
	 
	 	 	 	 
	ARTICLE EIGHT — FUNDING
	 	 	20	 
	 
	 	 	 	 
	ARTICLE NINE — ADMINISTRATION
	 	 	20	 
	 
	 	 	 	 
	ARTICLE TEN — AMENDMENT AND TERMINATION OF THE PLAN
	 	 	20	 
	 
	 	 	 	 
	ARTICLE ELEVEN — ASSIGNMENT
	 	 	21	 
	 
	 	 	 	 
	ARTICLE TWELVE — WITHHOLDING
	 	 	21	 
	 
	 	 	 	 
	ARTICLE THIRTEEN — OTHER BENEFIT PLANS OF THE COMPANY
	 	 	21	 
	 
	 	 	 	 
	ARTICLE FOURTEEN — SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS
	 	 	22	 
	 
	 	 	 	 
	ARTICLE FIFTEEN — MISCELLANEOUS
	 	 	22	 
	 
	 	 	 	 
	ARTICLE SIXTEEN — EFFECTIVE DATE
	 	 	22	 

ii

 

PINNACLE WEST CAPITAL CORPORATION

SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN OF 2005

ARTICLE ONE — PREAMBLE

          Effective January 1, 1987, PINNACLE WEST CAPITAL CORPORATION (the “Company”) adopted the
PINNACLE WEST CAPITAL CORPORATION SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the “Prior Plan”)
for the purpose of paying retirement benefits to certain employees in excess of the benefits
permitted to be paid under the Pinnacle West Capital Corporation Retirement Plan (the “Retirement
Plan”) by reason of Section 415 of the Internal Revenue Code (the “Code”). The Prior Plan was
thereafter amended several times to provide additional benefits, thereby changing the Prior Plan
from an “excess benefit plan” under the Employee Retirement Income Security Act of 1974, as amended
(the “Act”), to a “top hat” plan under the Act.

          Effective January 1, 1982, ARIZONA PUBLIC SERVICE COMPANY (“APS”) adopted the ARIZONA PUBLIC
SERVICE COMPANY SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the “APS Plan”) for the purpose of
paying retirement benefits to certain employees in excess of the benefits permitted to be paid
under the Arizona Public Service Company Employees’ Retirement Plan (the “APS Retirement Plan”) by
reason of Section 415 of the Code. The APS Plan was thereafter amended several times to provide
additional benefits, thereby changing the APS Plan from an “excess benefit plan” under the Act to a
“top hat” plan under the Act.

          Effective January 1, 2000, the Company and APS amended and restated the Prior Plan and the APS
Plan to merge the APS Plan into the Prior Plan and to make other technical changes. The Prior Plan
was amended several times thereafter.

          Effective January 1, 2003, the Company amended the Prior Plan to add a new benefit structure.

1

 

          Effective December 31, 2004, the Company amended the Prior Plan to “grandfather” from the
application of Code Section 409A benefits with respect to only those participants who neither
earned nor became vested in a supplemental excess benefit after December 31, 2004. Only the
benefits of such participants are provided under the terms of the Prior Plan.

          This Plan applies to the entire benefit of any participant who either earned or became vested
in all or any portion of his or her benefits on or after January 1, 2005.

2

 

ARTICLE TWO

CONSTRUCTION

          Terms capitalized in this Plan shall have the meaning given in Article Two of the Retirement
Plan, governing definitions and construction, except where such terms are otherwise defined in this
Plan. If any provision of this Plan is determined to be invalid or unenforceable for any reason,
the remaining provisions shall continue in full force and effect. All of the provisions of this
Plan shall be construed and enforced according to the laws of the State of Arizona, and shall be
administered according to the laws of such state, except as otherwise required by the Act, the Code
or other applicable federal law. It is the intention of the Company that the Plan, as adopted by
the Company, shall constitute an “unfunded plan of deferred compensation for a select group of
management and highly compensated employees” within the meaning of Sections 201(2) and 301(3) of
the Act. Benefits under this Plan shall be paid from the Company’s general assets, and not from
any trust fund or other segregated fund, unless paid out of a rabbi trust established by the
Company. The assets of any such rabbi trust shall be subject to the claims of the general
creditors of the Company. This Plan shall be construed in a manner consistent with the Company’s
intention.

ARTICLE THREE

ELIGIBILITY AND PARTICIPATION

          Employees of the Company or its Affiliates who are individually designated as Plan
participants by the Human Resources Committee of the Board of Directors of the Company
(“Committee”), in its discretion, shall be eligible to participate in the Plan, and such designated
individuals shall be considered “Eligible Employees.”

          (a) Officers. Except as provided by the Committee, Eligible Employees who are
officers of the Company or an Affiliate which is a participating employer under the Retirement Plan
shall be entitled to the benefits described in Section 4(a); provided, however, that presidents and
other officers of APS Energy Services and subsidiaries of SunCor are not
eligible to participate in the Plan and are

3

 

therefore not considered officers for this purpose
unless otherwise selected for participation by the Committee.

          (b) SMG Participants. Except as provided by the Committee, Eligible Employees of the
Company or an Affiliate which is a participating employer under the Retirement Plan who are not
officers shall be entitled to the benefits described in Section 4(b).

          (c) Commencement of Participation. An Eligible Employee shall commence participation
in this Plan as of the first day of the Plan Year following the date the Committee designates him
or her as a participant. Such participation shall continue until the date on which the participant
is no longer designated as an Eligible Employee by the Committee.

          (d) Status Change. Notwithstanding the foregoing, if the status of a participant
changes for reasons other than separation from service with the Company or an Affiliate which is a
participating employer under the Retirement Plan, so that he or she no longer is eligible to
participate in the Plan, his or her participation in the Plan shall cease but his or her benefit
under this Plan as of the date of his or her change of status shall not be canceled or distributed,
but shall be determined upon his or her separation from service with the Company or an Affiliate.

          (e) Rehires. In the event that a Participant terminates employment and is later
rehired, he or she shall not be eligible to participate in the Plan again unless such individual is
again individually designated as a Plan participant by the Committee following his or her rehire.

ARTICLE FOUR

BENEFITS

          A participant whose entire benefit was both earned and vested on December 31, 2004 (as
determined under regulations issued under Code Section 409A) shall receive such benefit under the
Prior Plan. All other participants shall receive their entire benefit under the terms outlined
below.

          (a) Officer Benefits.

          (1) Group A Participants. Subject to ARTICLE SEVEN, a participant who is
eligible under Section 3(a) and who is a Group A Participant under the Retirement Plan shall
be

4

 

entitled to a monthly benefit for life commencing at age 65 equal to the lesser of (i) or
(ii), reduced by (iii), where

          (i) Equals three percent (3%) of the participant’s Average Monthly Compensation
multiplied by the participant’s Years of Service, not to exceed ten (10) Years of
Service, plus two percent (2%) of the participant’s Average Monthly Compensation
multiplied by the participant’s Years of Service in excess of ten (10) Years of
Service,

          (ii) Equals sixty percent (60%) of the participant’s Average Monthly
Compensation, and

          (iii) Equals the amount of such participant’s monthly benefit for life at age
65 determined under the terms of the Retirement Plan.

          (2) Group B Participants. Subject to ARTICLE SEVEN, a participant who is
eligible under Section 3(a) and who is a Group B Participant under the Retirement Plan shall
be entitled to a monthly benefit for life commencing at age 65 equal to the sum of (i) and
(ii), where

          (i) Equals the benefit determined under the formula set forth above in this
Section 4(a)(1) for a Group A Participant in the Retirement Plan based on the
participant’s Years of Service as of March 31, 2003 (March 31, 2006 in the case of a
SunCor participant) and his or her Average Monthly Compensation as of the date of
determination. Years of Service as of March 31, 2003 (March 31, 2006 in the case of
a SunCor participant) shall equal his or her full Years of Service as of such date
plus a partial Year of Service equal to the lesser of one (1) or a fraction, the
numerator of which is the participant’s Hours of Service earned during the period
beginning on the day after the last day of his or her Computation Period ending
prior to March 31, 2003 (March 31, 2006 in the case of a SunCor participant) and
ending on March 31, 2003 (March 31, 2006 in the case of a SunCor participant), and
the denominator of which is 1,000, and

5

 

          (ii) Equals the monthly benefit for life payable at age 65 which is the
Actuarial Equivalent of a lump sum benefit equal to the participant’s Supplemental
Retirement Account Balance minus the participant’s Retirement Account Balance under
the Retirement Plan. For the avoidance of doubt, if the amount under this Section
4(a)(2)(ii) is a negative number, it will serve as an offset against the amount
payable under Section 4(a)(2)(i).

          (3) Group C Participants. Subject to ARTICLE SEVEN, a participant who is
eligible under Section 3(a) and who is a Group C Participant under the Retirement Plan shall
be entitled to a monthly benefit for life commencing at age 65 equal to the Actuarial
Equivalent of a lump sum benefit equal to (i) reduced by (ii), where

          (i) Equals the participant’s Supplemental Retirement Account Balance, and

          (ii) Equals the participant’s Retirement Account Balance under the Retirement
Plan.

          A participant’s Supplemental Retirement Account Balance shall be a notional account
credited with Monthly Retirement Account Balance Credits and Interest Credits. For purposes
of this Plan, Monthly Retirement Account Balance Credits shall be determined under
the general methodology set forth in the Retirement Plan based on the participant’s Monthly
Compensation for the month but using the following chart; provided that, except for a Group
C Participant, a participant shall not receive a Monthly Retirement Account Balance Credit
after the last day of the calendar year in which he or she is credited with twenty-five (25)
Years of Service, with twenty-five years (25) Years of Service defined as twenty-five (25)
full twelve (12) month periods in duration.

6

 

	 	 	 	 	 
	Age at End of Plan Year in	 	Percent of Monthly 
	Which Month Occurs	 	Compensation Contribution Rate
	Less than 35
	 	 	12	%
	35-39
	 	 	14	%
	40-44
	 	 	16	%
	45-49
	 	 	20	%
	50-54
	 	 	24	%
	55 and over
	 	 	28	%

          (4) Compensation. For purposes of this Section 4(a), Compensation and Monthly
Compensation shall be determined without regard to the limitation set forth in Section
401(a)(17) of the Code and shall be increased by any cash payments made to the participant
pursuant to “year-end” bonus or incentive plans maintained by the Company or an Affiliate
which is a participating employer under the Retirement Plan for employees generally and by
any amounts deferred by the participant under any of the Company’s or such an Affiliate’s
deferred compensation plans for employees. Bonus or incentive payments made in a form other
than cash, bonus or incentive payments which are not “year-end” bonus or incentive payments,
bonus or incentive payments under individual agreements between the Company or such an
Affiliate and a participant, and large asset bonus plan payments shall not be taken into
account as Compensation and Monthly Compensation for purposes of this Plan unless the
Company’s President or Chief Executive Officer determines, in his or her discretion, that
such bonus or incentive payment shall be taken into account as Compensation and Monthly
Compensation under this Plan. Subject to the foregoing, (a) eligible bonuses and incentive
payments (including eligible bonuses and incentive payments paid after termination) shall be
taken into account as Compensation and Monthly Compensation in the year in which such
amounts are paid rather than in the year in which they are earned, provided that the
Company’s President or Chief Executive Officer shall have the authority to determine, in his
or her discretion, that such bonus or incentive payment shall be taken into account in the
year in which such amounts are earned rather than in the year in which they are paid, (b)
Retention Unit Awards granted in a calendar month which become

7

 

vested shall be counted as
Compensation paid and earned in such calendar month; provided, however, that if Retention
Unit Awards are taken into account in determining a participant’s Average Monthly
Compensation with respect to benefits described in Sections 4(a)(1) or 4(a)(2)(i), no more
than two other year-end bonus or incentive payments will be taken into account in
determining such Average Monthly Compensation. Effective for SunCor bonuses earned in 2006
and later years, bonuses paid to the SunCor President and Executive Vice Presidents shall be
included in Compensation or Monthly Compensation only to the extent of 100% of base pay, and
the bonuses paid to SunCor Vice Presidents shall be included in Compensation or Monthly
Compensation only to the extent of 70% of base pay. The Company’s President or Chief
Executive Officer shall have the sole and absolute discretion to determine whether a bonus
or incentive payment made to a participant constitutes Compensation or Monthly Compensation
for purposes of this Section 4(a) and may differentiate among individuals in establishing
the bonus or incentive payments that may be taken into account under the Plan.

          (5) Promotion to Officer Status. In the event that an Eligible Employee is
promoted to officer status, his or her Traditional Benefit and Retirement Account Balance
Benefit shall be retroactively calculated as if he or she had served as an officer during
the entire period of his or her employment with the Company or any of its Affiliates.

          (b) SMG Participants.

          Subject to ARTICLE SIX and ARTICLE SEVEN, any participant who is designated for participation
pursuant to Section 3(b) and who receives a benefit under the Retirement Plan, or such
participant’s surviving spouse or beneficiary in the event of the participant’s death, shall be
entitled to a benefit payable in accordance with this ARTICLE FOUR and with ARTICLE FIVE equal to
(i) reduced by (ii), where

          (i) Equals the amount of such participant’s or surviving spouse’s or beneficiary’s
benefit under the Retirement Plan computed under the provisions of the Retirement Plan but
without regard to the cap on Compensation in Section 2.1(n) and the limitations in

8

 

Section
5.13 of the Retirement Plan and the provisions of Sections 401(a)(17) and 415 of the Code;
and

          (ii) Equals the amount of such participant’s or surviving spouse’s or beneficiary’s
benefit which would be payable under the terms of the Retirement Plan if the participant or
his or her surviving spouse or beneficiary were to receive payment under the Retirement Plan
at the same time and in the same form as benefits are payable under this Plan.

          For purposes of this Section 4(b), Compensation shall include any amount of the participant’s
regular salary that the participant elects to defer under any deferred compensation plans for
employees of the Company or an Affiliate which is a participating employer under the Retirement
Plan (including amounts deferred before participation in the Plan commences) and shall exclude all
bonus or incentive payments paid to the participant.

          (c) Average Monthly Compensation.

          For purposes of computing a participant’s Average Monthly Compensation, such term shall have
the same meaning as under the Retirement Plan except that the highest 36 consecutive months of
Compensation will be determined based on the participant’s entire period of employment (instead of
only the most recent 120 consecutive months of employment as provided in the Retirement Plan).

          (d) Disability Accrual.

          A participant who is earning a disability accrual under Section 4.5 of the Retirement Plan
shall continue to accrue benefits under this Plan until the earlier of the date disability accrual
ceases under the Retirement Plan or the date his or her benefits commence under this Plan.

          (e) Recognition of Benefits under Separate Agreements.

          In the event that the Company or an Affiliate enters into a separate agreement with an
Eligible Employee which provides that the payment of benefits under the Plan shall be modified as
provided in such agreement, the Plan shall be deemed to have been amended to reflect the terms of
any such agreement.

9

 

ARTICLE FIVE

PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009

          (a) Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i).

          (1) Time for Commencement. A participant may elect the time for commencement
of payment of benefits described in Sections 4(a)(1) and 4(a)(2)(i) on or before the later
of December 31, 2008 or the day before the Committee designates the individual as a
participant in this Plan. Any such election shall be irrevocable except as provided in
Section 5(e). A participant desiring to make the election described in the preceding
sentence may elect to receive his or her benefits described in Sections 4(a)(1) or
4(a)(2)(i) upon the later of separation from service or a specified age after age 55 (age 54
for an individual who has severed from employment before 2009 and, as a result of such
severance, has received an additional year of age and service under the Retirement Plan and
has therefore become entitled to receive Traditional Benefits under the Retirement Plan at
age 54) and on or before age 65. Such election of a commencement age before age 65 will be
effective only if the participant has ten Years of Service upon his or her separation from
service. In the absence of
such an election, the participant’s benefits described in Section 4(a)(1) or 4(a)(2)(i) will
commence as follows: (i) upon separation from service if at the time of such separation from
service he or she has either attained age sixty-five (65) or has both attained age
fifty-five (55) and completed ten (10) Years of Service; or (ii) age sixty-five (65) if at
the time of such separation from service he or she has neither attained age sixty-five (65)
nor both attained age fifty-five (55) and completed ten (10) Years of Service. Such
benefits shall be unreduced if they commence on or after the date on which the participant
attains the age of sixty-five (65) years or attains the age of

10

 

sixty (60) years and is
credited with at least twenty (20) Years of Service. If benefits commence earlier than as
provided in the preceding sentence, the portion of his or her benefit calculated in
accordance with Section 4(a)(1) or 4(a)(2)(i) shall be reduced by three percent (3%) for
each year (or part thereof) by which the participant’s retirement age precedes the date on
which he or she would have attained the age of sixty (60) years if he or she is credited
with at least twenty (20) Years of Service or the date on which he or she would have
attained the age of sixty-five (65) years if credited with less than twenty (20) Years of
Service.

          (2) Form of Payment. This section governs the election of the form of payment
of benefits described in Sections 4(a)(1) and 4(a)(2)(i). A participant may elect to
receive such benefits in the form of a life annuity or any joint and survivor annuity form
(with the participant’s spouse as joint annuitant) permitted under the Retirement Plan. In
addition, a participant who commences benefits after 2007 shall have a five-year installment
option with respect to any benefits payable after 2008 under Sections 4(a)(1) or 4(a)(2)(i).
However, a participant must elect the five-year installment form of benefit on or before
the later of December 31, 2008 or the day before the Committee designates the individual as
a participant in this Plan. If a participant has not elected the five-year installment form
of benefit as provided in the preceding sentence, then the participant may elect an annuity
form of payment at any time up until the date payments are scheduled to commence. Except as
provided in the preceding sentence or in Section 5(e), any such election of the form of
payment shall be
irrevocable. In the absence of an election regarding the form of payment, benefits payable
to a single participant under Section 4(a)(1) or Section 4(a)(2)(i) shall be payable as a
life annuity and to a married participant as a monthly payment to the participant for his or
her life equal to the amount determined under Section 4(a)(1) or Section 4(a)(2)(i) and upon
his or her death, shall provide monthly payments to the participant’s spouse for life equal
to one hundred percent (100%) of the monthly payment being received by the participant at
the time of his or her death. A participant may not elect to receive such benefits in any
form not described in this Section, such as the ten-year certain form or the method
described in Section 6.6 of the Retirement Plan (the “Over-and-Under Payment Method”).

          (3) Actuarial Adjustments. The joint and 50% survivor annuity form shall be
fully subsidized (i.e., the amount of the benefit payable for the participant’s life under
the joint

11

 

and 50% survivor annuity shall be equal to the amount of the benefit payable for
the participant’s life under the life only benefit). Alternate joint and survivor payment
forms shall be actuarially equivalent to the joint and 50% survivor form, using the same
actuarial adjustments as provided under the Retirement Plan. The five-year installment form
shall be actuarially equivalent to the single life annuity (increased for this purpose by
the subsidy for the joint and 50% survivor form), but using a discount rate assumption of
6.25% and the mortality table used by the Company for year-end financial reporting purposes
for the calendar year preceding the year in which the five-year installment benefit
commences.

          (b) Spouse’s Benefit with Respect to Officer Traditional Benefits Described in Sections
4(a)(1) and 4(a)(2)(i).

          If a participant entitled to benefits under Section 4(a)(1) or Section 4(a)(2)(i) dies while
still employed by the Company or an Affiliate, the participant’s spouse shall be entitled to a
survivor annuity equal to one hundred percent (100%) of the monthly benefit that the participant
would have received under Section 4(a)(1) or Section 4(a)(2)(i) had he or she terminated employment
on the day
before he or she died, survived to the age on which he or she would first be eligible to commence
benefits under this Section 5(a), elected to retire and commence benefits under the Plan and the
Retirement Plan at that time in the form of a joint and 100% survivor annuity, and then died.
Benefits payable to the surviving spouse shall commence on the first day of the month following the
participant’s date of death. Benefits payable to a terminated participant entitled to benefits
under Section 4(a)(1) or 4(a)(2)(i) who dies prior to commencing benefits shall be paid in the form
of a survivor annuity equal to fifty percent (50%) of the monthly benefit for life which the
participant would have received had he or she survived to the earliest date under this Section 5(a)
upon which he or she could have commenced benefits. Such benefits shall commence as follows: (i)
upon death if at the time of such death the participant has either attained age sixty-five (65) or
has both attained age fifty-five (55) and completed ten (10) Years of Service; or (ii) age
sixty-five (65) if at the time of such death the participant has neither attained age sixty-five
(65) nor both attained age fifty-five (55) and completed ten (10) Years of Service.

12

 

          (c) Officer Retirement Account Balance Benefits Described in Sections 4(a)(2)(ii) and
4(a)(3).

          (1) Time and Form of Payment. The participant may elect the form and time of
payment of benefits described in Section 4(a)(2)(ii) or Section 4(a)(3) on or before the
later of December 31, 2008 or the day before the Committee designates the individual as a
participant in this Plan. Any such election shall be irrevocable except as provided in the
next sentence or Section 5(e). Any election of an annuity form of benefit may be changed to
any other actuarially equivalent annuity form of benefit on or before the date annuity
payments are to begin. A participant may elect to receive benefits described in Section
4(a)(2)(ii) or Section 4(a)(3) at any time permitted under the Retirement Plan. A
participant may elect to receive benefits described in Section 4(a)(2)(ii) or Section
4(a)(3) in the form of a lump sum, a life annuity, or in any joint and survivor annuity form
(with the participant’s spouse as joint annuitant) permitted under the Retirement Plan. In
addition, a participant who commences benefits after 2007 shall have a five-year installment
option with respect to any benefits payable after 2008. A participant may not elect to
receive such benefits in any other form, such as the ten-year certain form or the
Over-and-Under Payment Method. In the absence of an election regarding the form of
benefits, payments shall be made in a lump sum upon separation from service.

          (2) Actuarial Adjustments. The life annuity form of benefit shall be
actuarially equivalent to the participant’s Retirement Account Balance, using the actuarial
factors set forth in the Retirement Plan. The joint and 50% survivor annuity form shall be
fully subsidized (i.e., the amount of the benefit payable for the participant’s life under
the joint and
50% survivor annuity shall be equal to the amount of the benefit payable for
the participant’s life under the life only annuity benefit). The other joint and survivor
annuity forms of benefit shall be actuarially equivalent to the joint and 50% survivor
annuity form of benefit, using the actuarial assumptions in the Retirement Plan. The
five-year installment form shall be actuarially equivalent to the lump sum benefit
(increased for this purpose by the subsidy for the joint and

13

 

50% survivor form), but using a
discount rate assumption of 6.25% and the mortality table used by the Company for year-end
financial reporting purposes for the calendar year preceding the year in which the five-year
installment benefit commences.

          (3) Payment Upon Death. If a participant dies before commencement of benefits
described in Sections 4(a)(2)(ii) or 4(a)(3), such benefits shall be paid to the
participant’s spouse or beneficiary in a lump sum upon the participant’s death.

14

 

          (d) SMG Traditional and Retirement Account Balance Benefits Described in Section 4(b).

          (1) Form of Payment — Traditional Benefits. This section governs the election
of the form of payment of SMG benefits which supplement benefits described in Sections 5.1.1
and 5.1.2(a) of the Retirement Plan (“Traditional Benefits”). A participant may elect to
receive Traditional Benefits in any form permitted under the Retirement Plan except for the
Over-and-Under Payment Method. In addition, a participant who commences benefits after 2007
shall have a five-year installment option with respect to any Traditional Benefits payable
after 2008. However, a participant must elect the five-year installment form of benefit on
or before the later of December 31, 2008 or the day before the Committee designates the
individual as a participant in this Plan. If a participant has not elected the five-year
installment form of benefit as provided in the preceding sentence, then the participant may
elect the annuity form of payment of Traditional Benefits at any time up until the date
payments are scheduled to commence. Except as provided in the preceding sentence or in
Section 5(e), any such election of the form of payment shall be irrevocable. In the absence
of an election with respect to Traditional Benefits, Traditional Benefits payable to a
single participant shall be payable as a life annuity and to a married participant in the
form of a joint and 50% survivor annuity with the participant’s spouse as beneficiary.

          (2) Time of Payment — Traditional Benefits. The participant may elect the
time for payment of Traditional Benefits on or before the later of December 31, 2008 or the
day before the Committee designates the individual as a participant in this Plan. Any such
election shall be irrevocable except as provided in Section 5(e). A participant desiring to
make the election described in the
preceding sentence may elect to receive his or her Traditional Benefits upon the later of
separation from service or a specified age after age 55 and on or before age 65. Such
election of a commencement age before age 65 will be effective only if the participant has

15

 

ten Years of Service upon his or her separation from service. In the absence of such an
election, the participant’s Traditional Benefits will commence as follows: (i) upon
separation from service if at the time of such separation from service he or she has either
attained age sixty-five (65) or has both attained age fifty-five (55) and completed ten (10)
Years of Service; or (ii) age sixty-five (65) if at the time of such separation from service
he or she has neither attained age sixty-five (65) nor both attained age fifty-five (55) and
completed ten (10) Years of Service.

          (3) Form and Time of Payment — Retirement Account Balance Benefit. A
participant may elect the time and form of payment of his or her benefit which supplements
his or her Retirement Account Balance under the Retirement Plan (“Retirement Account Balance
Benefit”) on or before the later of December 31, 2008 or the day before the Committee
designates the individual as a participant in this Plan. A participant may elect to receive
his or her Retirement Account Balance Benefit at any time and in any form permitted under
the Retirement Plan, except for the Over-and-Under Payment Method. In addition, a
participant who commences benefits after 2007 shall have a five-year installment option with
respect to any benefits payable after 2008. However, a participant must elect the five-year
installment form of benefit on or before the later of December 31, 2008 or the day before
the Committee designates the individual as a participant in this Plan. Any election of a
form or time of payment for his or her Retirement Account Balance Benefit shall be
irrevocable except as provided in the next sentence or Section 5(e). If a participant
elects an annuity form of payment for his or her Retirement Account Balance Benefit, such
election may be changed to another actuarially equivalent annuity form available under the
Retirement Plan at any time on or before annuity payments are scheduled to
commence. In the absence of an election, his or her Retirement Account Balance Benefit
shall be paid in a lump sum upon separation from service.

          (4) Actuarial Adjustments. Alternate payment forms described in this Section
5(d) (other than the five-year installment form) shall be actuarially equivalent using the
assumptions provided under the Retirement Plan. The five-year installment form shall be

16

 

actuarially equivalent to the single life annuity for the Traditional Benefit or the lump
sum for the Retirement Account Balance Benefit, but using a discount rate assumption of
6.25% and the mortality assumption used by the Company for year-end financial reporting
purposes for the calendar year preceding the year in which the five-year installment benefit
commences.

          (5) Time and Form of Benefits Payable Upon Death. In the event a participant
dies before Traditional Benefits described in Section 4(b) commence, benefits shall be paid
to the surviving spouse for his or her life commencing as follows: (i) upon death if at the
time of such death the participant has either attained age sixty-five (65) or has both
attained age fifty-five (55) and completed ten (10) Years of Service; or (ii) age sixty-five
(65) if at the time of such death the participant has neither attained age sixty-five (65)
nor both attained age fifty-five (55) and completed ten (10) Years of Service. In the event
that the participant dies before Retirement Account Balance Benefits described in Section
4(b) commence to the participant, then such benefits shall be paid to the participant’s
spouse or beneficiary in a lump sum upon the participant’s death.

          (e) Change in Time and Form of Payment.

          A participant may change an election as to the time and form of payment of his or her benefits
if an election is filed in accordance with rules established by the Committee, provided (i) such
election must not take effect until at least twelve months after the date on which the election is
properly
filed, (ii) the first payment with respect to which such election is made must be deferred for a
period of not less than five years from the date such payment would otherwise have been made, and
(iii) any election related to a payment that was otherwise to be made at a specified time may not
be made less than twelve months prior to the date of the first scheduled payment. Any such change
in election must provide for payment at a time permitted under the Retirement Plan and a form
permitted under this Plan.

          (f) Cash-Out Provisions.

          (1) If the present value of a participant’s or Spouse’s or Vested Survivor’s vested
Traditional Benefit under the Plan is less than the limit described in Code Section 402(g)

17

 

upon the participant’s death, retirement, or other separation from service which occurs
after 2008, the participant’s or Spouse’s or Vested Survivor’s vested Traditional Benefit
shall immediately be distributed in a single lump sum. If the value of a participant’s or
Spouse’s or Vested Survivor’s vested Retirement Account Balance Benefit plus the
participant’s vested benefit under the Pinnacle West Capital Corporation Deferred
Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates
is less than the limit described in Code Section 402(g) upon the participant’s retirement,
death, or other separation from service which occurs after 2008, such vested Retirement
Account Balance Benefit shall immediately be distributed in a single lump sum. The benefits
of a non-vested participant shall automatically be deemed to be cashed out pursuant to this
Section 5(f) upon such participant’s separation from service.

          (2) For purposes of calculating the present value of a participant’s vested benefits,
the Spouse’s Benefit or the Vested Survivor’s Benefit, the actuarial assumptions
incorporated by reference in Section 2.1(c) of the Retirement Plan shall be used, but in no
event shall such present value be less than the present value calculated using the
“applicable interest rate” and “applicable mortality table,” as defined in Section 5.19 of
the Retirement Plan.

          (g) Reemployment.

          For the avoidance of doubt, once benefits under this Plan have commenced, such benefits shall
not be suspended as a result of the participant’s reemployment by the Company or an Affiliate.

ARTICLE SIX

PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009

          A participant who separates from service before January 1, 2009 and who begins receiving
payment of his or her benefits under the Retirement Plan before January 1, 2009 shall receive
benefits under this Plan in the same manner and at the same time as the participant’s benefits
under the Retirement Plan are paid. Notwithstanding the foregoing, a participant who terminated
employment after December 31, 2007 will be entitled to change the form of payments of his or her
unpaid benefits as of December 31, 2008 under this Plan to the five-year installment option by
filing a special election on or

18

 

before December 31, 2008. Such special election shall only apply
to benefits payable after December 31, 2008.

ARTICLE SEVEN

SECTION 409A COMPLIANCE

          If a benefit becomes payable under this Plan to a specified employee, payments due within six
months following separation from service shall be delayed and distributed as a single payment on
the first day of the seventh month immediately following the participant’s separation from service,
with simple interest added to such payments from the date they otherwise would have been paid at
the crediting rate in effect under the Retirement Plan. The terms “separation from service” and
“specified employee” shall have the meaning set forth in Section 409A of the Code, the regulations
thereunder, and the resolution issued by the Board of Directors of the Company defining such terms,
except that a separation from service shall not include separation by reason of death. All
provisions of this Plan shall be interpreted in a manner so as to be consistent with Section 409A
of the Code and the regulations issued thereunder.

19

 

ARTICLE EIGHT

FUNDING

          Benefits under this Plan shall be payable from the general assets of the Company and shall not
be segregated in a trust fund or otherwise funded in any manner prior to the time of payment. No
Plan participant shall have any vested rights hereunder nor any right hereunder to any specific
assets of the Company.

ARTICLE NINE

ADMINISTRATION

          The Plan will be administered by the Administrative Committee that administers the Retirement
Plan. Except as otherwise expressly provided in this Plan, the Administrative Committee shall have
the same powers and responsibilities as it has under Sections 10.4 and 12.2 of the Retirement Plan.
Claims for benefits under the Plan shall be determined in the manner set forth in Article Eleven
of the Retirement Plan.

ARTICLE TEN

AMENDMENT AND TERMINATION OF THE PLAN

          The Plan may be amended in whole or in part, prospectively or retroactively, by action of the
Company’s Board of Directors, and may be terminated at any time by action of the Board of Directors
in accordance with the requirements of Code Section 409A and the regulations issued thereunder;
provided, however, that no such amendment or termination shall reduce any amount payable hereunder
to the extent such amount accrued prior to the date of amendment or termination. All amendments
shall be in writing, approved by the Company’s Board of Directors and executed by a duly authorized
officer of the Company.

20

 

ARTICLE ELEVEN

ASSIGNMENT

          No Plan participant or beneficiary of a Plan participant shall have any right to assign,
pledge, hypothecate, anticipate or any way create a lien on any amounts payable hereunder. No
amounts payable hereunder shall be subject to assignment or transfer or otherwise be alienable,
either by voluntary or involuntary act, or by operation of law, or be subject to attachment,
execution, garnishment, sequestration or other seizure under any legal, equitable or other process,
or be liable in any way for the debts or defaults of Plan participants and their beneficiaries.
Notwithstanding the foregoing, assignments of the benefits provided under this Plan shall be
permitted for purposes of satisfying family support obligations if such assignments are pursuant to
a court order which satisfies the requirements for a “qualified domestic relations order” as
defined in Section 206(d)(3) of the Act.

ARTICLE TWELVE

WITHHOLDING

          Any taxes required to be withheld from payments to the Plan participants hereunder shall be
deducted and withheld by the Company.

ARTICLE THIRTEEN

OTHER BENEFIT PLANS OF THE COMPANY

          Nothing contained in this Plan shall prevent a Plan participant prior to his or her death, or
his or her spouse or other beneficiary after his or her death, from receiving, in addition to any
payments provided for under this Plan, any payments provided for under the Retirement Plan or under
The Pinnacle West Capital Corporation Savings Plan, or which would otherwise be payable or
distributable to him or her, his or her surviving spouse or beneficiary under any plan or policy of
the Company or otherwise. Nothing in this Plan shall be construed as preventing the Company or any

21

 

of its subsidiaries from establishing any other or different plans providing for current or
deferred compensation for employees.

ARTICLE FOURTEEN

SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS

          To the extent required by the Company, a participant must obtain the consent of his or her
spouse to a form of benefit under which the spouse does not receive a survivor annuity or to a
beneficiary designation under which the spouse is not designated as the beneficiary. A participant
may designate his or her beneficiary to receive Retirement Account Benefits which have not yet
commenced upon his or her death. In the absence of any such beneficiary designation, the
participant’s beneficiary designation under the Retirement Plan shall control or, in the absence of
any such designation under the Retirement Plan, the participant’s Retirement Account Benefits shall
be paid to the same person or entity as under the Retirement Plan. A participant may also
designate a beneficiary to receive any remaining installment payments due upon his or her death
under the five-year installment option. In the absence of any such designation, the remaining
installment payments shall be paid to his or her spouse if he or she is living on the date of the
participant’s death or, in the absence of any such spouse, to his or her estate.

ARTICLE FIFTEEN

MISCELLANEOUS

          Nothing contained in this Plan shall be construed as a contract of employment between the
Company and an employee, or as a right of any employee to be continued in the employment of the
Company, or as a limitation of the right of the Company to discharge any of its employees, with or
without cause.

          All of the provisions of this Plan shall be binding upon all persons who shall be entitled to
any benefit hereunder, their heirs and personal representatives.

ARTICLE SIXTEEN

EFFECTIVE DATE

          The Plan, as amended and restated, shall be effective as of January 1, 2005.

22

 

          IN WITNESS WHEREOF, the Company has caused this Pinnacle West Capital Corporation Supplemental
Excess Benefit Retirement Plan, as amended and restated herein, to be executed by its duly
authorized officer this 19th day of December, 2008.

	 	 	 	 	 	 	 
	 	 	PINNACLE WEST CAPITAL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	      /s/ Barbara M. Gomez
	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Its
	 	     VP and Treasurer	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 
	Attest:	 	 	 	 
	 
	 	 	 	 	 	 
	By

	 	     /s/ Donna L. Thomas
	 	 
	 

	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Its
	 	     HR Services Director	 	 
	 

	 	 	 	 	 	 

23

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00153-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00153-of-00352.parquet"}]]