Exhibit 10.1
THIS AWARD AGREEMENT is made and entered into as of
, 2010 (the “
Date of
Grant”), by and between
Pinnacle West Capital Corporation (the “Company”), and
(“
Employee”).
BACKGROUND
| A. |
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The Board of Directors of the Company has adopted, and the Company’s shareholders have
approved, the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (the “Plan”),
pursuant to which Performance Share Awards and Dividend Equivalent Awards may be granted to
employees of the Company and its Subsidiaries and certain other individuals. |
| B. |
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The Company desires to grant to Employee a Performance Share Award and the related Dividend
Equivalent Award under the terms of the Plan. |
| C. |
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Pursuant to the Plan, the Company and Employee agree as follows: |
AGREEMENT
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1. |
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Grant of Award. Pursuant to action of the Committee, which was taken
on the Date of Grant, the Company grants to Employee ( )
Performance
Shares and Dividend Equivalents. The Performance Shares granted under this Section 1
are referred to in this Award Agreement as the “Base Grant.” |
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2. |
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Award Subject to Plan. This Performance Share Award and the related
Dividend Equivalent Award are granted under and are expressly subject to all of the
terms and provisions of the Plan, which terms are incorporated herein by reference, and
this Award Agreement. |
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3. |
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Performance Period. The Performance Period for this Award begins
January 1, 2010 and ends December 31, 2012. |
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(a) |
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Performance Shares Payable In Stock. As soon as
practicable in the fiscal year immediately following the end of the Performance
Period, the Company will determine (i) the Company’s Total Shareholder Return
(as defined herein) as compared to the Total Shareholder Return of the
companies in the S&P 1500 Super Composite Electric Utility Index (the
“Growth Index”) over the Performance Period and (ii) the Company’s
Average Performance with respect to the Performance Metrics (as defined
herein). The Company will then deliver to Employee one (1) share of the
Company’s Stock for each then-outstanding Performance Share under this Award
Agreement, subject to adjustment pursuant to Section 5 below. The
Company anticipates that the Stock payout, if any, related to the Company’s
Total Shareholder Return will be made on or about January 25, 2013. The
Company anticipates that the Stock payout, if any, related to the Performance
Metrics will be made on or about November 30, 2013. In no event will the Stock
payouts described in this Subsection 5(a) be made later than December
31, 2013. |
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(b) |
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Retirement. In the case of Employee’s Retirement (as
defined herein) during the Performance Period, Employee shall be deemed to have
been employed by the
Company through the end of the Performance Period and Employee will receive
the Stock and Dividend Equivalents, if any, to which Employee is entitled at
the time specified in this Section. For purposes of this Award Agreement,
“Retirement” means a termination of employment which constitutes an
“Early Retirement” or a “Normal Retirement” under the
Pinnacle West Capital Corporation Retirement Plan. |
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(c) |
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Dividend Equivalents. In satisfaction of the Dividend
Equivalents Award made pursuant to Section 1, at the time of the
Company’s delivery of Stock to Employee pursuant to Subsection 4(a)
above, the Company also will deliver to Employee fully transferrable shares of
stock equal in value to the amount of dividends, if any, that Employee would
have received if Employee had directly owned the Stock to which the Performance
Shares relate from the Date of Grant to the date of the Stock payout, plus
interest on such amount at the rate of 5 percent compounded quarterly, as
determined pursuant to the Plan. The number of shares of Stock distributed to
Employee will be determined by dividing the amount due by the Fair Market Value
of one share of Stock as of the date of the Stock payout. |
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5. |
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Performance Criteria and Adjustments. Fifty percent (50%) of the
Performance Shares awarded under this Award Agreement will be determined pursuant to
Section 5(a) and fifty percent (50%) of the Performance Shares awarded under this Award
Agreement will be determined pursuant to Section 5(b). In no event will Employee be
entitled to receive a number of Performance Shares pursuant to this Award Agreement
greater than 2.0 times the Base Grant. |
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(a) |
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Adjustment of Base Grant for Total Shareholder Return.
Fifty percent (50%) of the Base Grant will increase or decrease based upon the
Company’s “Total Shareholder Return” as compared to the Total Shareholder
Return of the companies in the Growth Index during the Performance Period, as
follows: |
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| If the Company’s Total Shareholder Return Over The |
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| Performance Period As Compared to the Total |
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The Number of |
| Shareholder Return of the Companies in the Growth |
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Performance Shares will |
| Index is: |
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be: |
| 90th Percentile or greater
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1.0 X Base Grant |
| 75th Percentile
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.75 X Base Grant |
| 50th Percentile
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0.5 X Base Grant |
| 25th Percentile
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0.25 X Base Grant |
| Less than 25th Percentile
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None |
If intermediate percentiles are achieved, the number of Performance
Shares awarded will be prorated (partial shares will be rounded down to the
nearest whole share when applicable). For example, if the Company’s Total
Shareholder Return during the Performance Period places the Company’s
performance in the 60th percentile, then the number of Performance Shares
would be increased to 0.60 (0.5 X 60/50) multiplied by the Base Grant. In no
event will Employee be entitled to receive a number of Performance Shares
pursuant to this Subsection 5(a) greater than 1.0 times the Base
Grant.
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(b) |
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Adjustment of Base Grant for Performance Metrics.
Fifty percent (50%) of the Base Grant will increase or decrease based upon the
Company’s “Average Performance” with respect to the “Performance Metrics,” as
follows: |
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The Number of |
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Performance Shares will |
| If the Company’s Average Performance is: |
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be: |
| 90th Percentile or greater
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1.0 X Base Grant |
| 75th Percentile
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.75 X Base Grant |
| 50th Percentile
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0.5 X Base Grant |
| 25th Percentile
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0.25 X Base Grant |
| Less than 25th Percentile
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None |
If intermediate percentiles are achieved, the number of Performance
Shares awarded pursuant to this Subsection 5(b) will be prorated
(partial shares will be rounded down to the nearest whole share when
applicable). For example, if the Company’s Average Performance during the
Performance Period places the Company’s performance in the 60th percentile,
then the number of Performance Shares would be increased to .60 (0.5 X 60/50)
multiplied by the Base Grant. In no event will Employee be entitled to
receive a number of Performance Shares pursuant to this Subsection
(b) greater than 1.0 times the Base Grant.
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(a) |
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Performance Metrics. The “Performance Metrics”
for the Performance Period are (i) the JD Power Residential Survey for
investor-owned utilities in the Western Region; (ii) the System Average
Interruption Frequency Index (Major Events Excluded) (“XXXXX”); (iii)
Arizona Public Service Company’s customer to employee improvement ratio; (iv)
the OSHA rate (All Incident Injury Rate); (v) nuclear capacity factor; and (vi)
coal capacity factor. |
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(1) |
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With respect to the Performance Metric described
in clause (i) of this Subsection 6(a), the JD Power
Residential Survey will provide data on an annual basis reflecting the
Company’s percentile ranking, relative to other participating companies. |
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(2) |
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With respect to the Performance Metric described
in clause (ii) of this Subsection 6(a), the Edison
Electric Institute (“EEI”) will provide on an annual basis the
quartile rankings (or percentile rankings, if available) associated with
the XXXXX result of the participating companies; the Company will
determine its XXXXX result for the year in question and determine its
quartile ranking (or percentile ranking, if percentile rankings are
available) based on the information provided by EEI. |
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(3) |
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With respect to the Performance Metric described
in clause (iii) of this Subsection 6(a), SNL, an
independent third party data system, will provide data on an annual
basis regarding the customer and employee counts; the Company will use
its customer and employee counts for the year in question and determine
its percentile ranking based on the information provided by SNL. Only
those companies whose customers and employees were included in the data
provided by SNL in each of the years of the Performance Period will be
considered. |
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(4) |
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With respect to the Performance Metric described
in clause (iv) of this Subsection 6(a), EEI will provide
data on an annual basis regarding the OSHA rate of the participating
companies; the Company will calculate its OSHA rate for the year in
question and determine its percentile ranking based on the information
provided by EEI. |
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(5) |
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With respect to the Performance Metric described
in clause (v) of this Subsection 6(a), SNL will provide
data on an annual basis regarding the nuclear capacity factors of the
participating nuclear plants; the Company will calculate its nuclear
capacity factor for the year in question and determine its percentile
ranking based on the information provided by SNL. Only those plants
that were included in the data provided by SNL in each of the years of
the Performance Period will be considered. |
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(6) |
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With respect to the Performance Metric described
in clause (vi) of this Subsection 6(a), SNL will provide
data on an annual basis regarding the coal capacity factors of the
participating coal plants; the Company will calculate its coal capacity
factor for the year in question and determine its percentile ranking
based on the information provided by SNL. Only those plants that were
included in the data provided by SNL in each of the years of the
Performance Period will be considered. |
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(7) |
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The Company’s percentile ranking during the
Performance Period for each Performance Metric will be the average of
the Company’s percentile ranking for each Performance Metric during each
of the three years of the Performance Period (each, an “Average
Performance Metric”); provided, however, that if a Performance
Metric for 2012 is not calculable by December 15, 2013, the Performance
Metric shall consist of the three most recent years for which such
Performance Metric is calculable. The Company’s “Average
Performance,” for purposes of determining any Base Grant adjustments
pursuant to Subsection 5(b) above will be the average of the
Average Performance Metrics. If only quartile, rather than percentile,
rankings are available for a particular Performance Metric, the Average
Performance Metric for any such Performance Metric shall be expressed as
a percentile. For example, if the Performance Metric was in the top
quartile for two Performance Periods and in the lowest quartile in the
other Performance Period, the average of these quartiles would be 3 (the
average of 4, 4, and 1) and the Average Performance Metric would be the
75th percentile (3 /4). The calculations in this
Subsection 6(a)(7) will be verified by the Company’s internal
auditors. |
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(8) |
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If either EEI or SNL discontinues providing the
data specified above, the Committee shall select a data source that, in
the Committee’s judgment, will provide data most comparable to the data
provided by EEI or SNL, as the case may be. If the JD Power Residential
Survey for investor-owned utilities in the Western Region (or a
successor JD Power survey) is not available during each of the years of
the Performance Period, the Performance Metric associated with the JD
Power Residential Survey (Subsection 6(b)(1)) will be
disregarded and not included in the Company’s Average Performance for
purposes of determining any Base Grant adjustments pursuant to
Subsection 5(b). |
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(b) |
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Total Shareholder Return. “Total Shareholder
Return” for the Performance Period is the measure of a company’s stock
price appreciation plus any dividends paid during the Performance Period. Only
those companies that were included in the Growth Index in each of the years of
the Performance Period will be considered. Total Shareholder Return for the
Company and the companies in the Growth Index will be determined using the
Daily Comparative Return as calculated by Bloomberg [or other independent third
party data system]. If the Growth Index is discontinued, the Committee shall
select the most comparable index then in use for the sector comparison. In
addition, if the sector comparison is no longer representative of the Company’s
industry or business, the Committee shall replace the Growth |
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Index with the
most representative index then in use. Once the Total Shareholder Returns of the Company and all relevant companies in the Growth
Index have been determined, the member companies will be ranked from greatest
to least. Percentiles will be calculated based on a company’s relative
ranking. For example, company 1 out of 26 companies is given a percentile of
96.2% (1.0 — 1/26). Percentiles will be carried out to one (1) decimal
place. If the Company is not in the Growth Index, then its percentile will
be interpolated between the companies listed in the relative ranking. These
calculations will be verified by the Company’s internal auditors. |
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7. |
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Termination of Award. This Award Agreement will terminate and be of no
further force or effect on the date that Employee is no longer actively employed by the
Company or any of its Subsidiaries, whether due to voluntary or involuntary
termination, death, retirement, disability, or otherwise, except as specifically set
forth in Section 4. Employee will, however, be entitled to receive any Stock
and Dividend Equivalents payable under Section 4 of this Award Agreement if
Employee’s employment terminates after the end of the Performance Period but before
Employee’s receipt of such Stock and Dividend Equivalents. |
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8. |
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Section 409A Compliance. |
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(a) |
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Purpose of this Provision. Section 409A of the Code
imposes a number of requirements on “non-qualified deferred compensation” plans
and arrangements. Based on regulations issued by the Internal Revenue Service,
the Company has concluded that this Performance Share Award is subject to
Section 409A. As a result, unless the Plan and this Award Agreement are
administered to comply with the new rules, Employee will be required to pay an
additional 20% tax (in addition to regular income taxes) on the compensation
provided by this Award Agreement. In addition, under Section 409A additional
interest will be payable. |
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(b) |
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Compliance with Section 409A. The Company intends to
comply with Section 409A by assuring that all amounts to which Employee becomes
entitled hereunder are payable at a specified time or pursuant to a fixed
schedule within the meaning of Treas. Reg. § 1.409A-3(a)(4). As a result, any
payment or transfer to Employee shall be made at the time specified in
Section 4. The provisions of this Subsection 8(b) apply to all amounts due
pursuant to this Award Agreement. |
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(c) |
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Miscellaneous Payment Provisions. If a payment is not
made due to a dispute in payments, payments can be delayed in accordance with
Treas. Reg. § 1.409A-3(g). |
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(d) |
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Ban on Acceleration or Deferral. Under no
circumstances may the time or schedule of any payment made or benefit provided
pursuant to this Award Agreement be accelerated or subject to a further
deferral except as otherwise permitted or required pursuant to regulations and
other guidance issued pursuant to Section 409A of the Code. |
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(e) |
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No Elections. Employee does not have any right to make
any election regarding the time or form of any payment due under this Award
Agreement. |
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(f) |
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Compliant Operation and Interpretation. The Plan and
this Award Agreement shall be administered in compliance with Section 409A and
each provision of the Award Agreement and the Plan shall be interpreted, to the
extent possible, to comply with Section 409A. |
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9. |
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Tax Withholding. Any and all payments made pursuant to this Award
Agreement shall be subject to applicable tax withholding requirements and employment
taxes. Employee must pay, or make arrangements acceptable to the Company for the
payment of any and all
required federal, state, and local income and payroll tax withholding. Employee may
satisfy any such tax withholding obligation by paying the amount by check. In the
alternative, Employee may elect to have the Company withhold shares of Stock having
a Fair Market Value on the date of the Stock payout sufficient to cover the
withholding obligation. Within
_____
days after the Date of Grant, Employee must
elect, on the provided election form, to satisfy any tax withholding obligation by
paying the amount by check or by having the Company withhold shares of Stock having
a Fair Market Value on the date of the Stock payout sufficient to cover the
withholding obligation. In the absence of a timely election by Employee, Employee’s
withholding obligation will be satisfied through the Company’s withholding shares of
Stock as set forth above. |
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10. |
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Continued Employment. Nothing in the Plan or this Award Agreement
shall be interpreted to interfere with or limit in any way the right of the Company to
terminate Employee’s employment or services at any time. In addition, nothing in the
Plan or this Award Agreement shall be interpreted to confer upon Employee the right to
continue in the employ or service of the Company. |
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11. |
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Voting Rights. Employee is not entitled to voting rights with respect
to shares of Stock by virtue of this Award. Upon issuance of Stock in settlement of
Employee’s Performance Share Awards, Employee will have voting rights with respect to
such shares of Stock. |
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12. |
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Non-Transferability. Neither this Award nor any rights under this
Award Agreement may be assigned, transferred, or in any manner encumbered except by
will or the laws of descent and distribution, and any attempted assignment, transfer,
mortgage, pledge or encumbrance except as herein authorized, will be void and of no
effect. |
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13. |
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Definitions: Copy of Plan and Plan Prospectus. To the extent not
specifically defined in this Award Agreement, all capitalized terms used in this Award
Agreement will have the same meanings ascribed to them in the Plan. Employee will
receive a copy of the Plan and the related Plan Prospectus. In the event of any
conflict between the terms and conditions of this Award Agreement and the Plan, the
provisions of the Plan shall control. |
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14. |
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Amendment. Except as otherwise provided in the Plan, this Award
Agreement may be amended only by a written agreement executed by the Company and
Employee. |
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15. |
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Choice of Law. This Award Agreement will be governed by the laws of
the State of Arizona, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of this Award Agreement to another
jurisdiction. |
An authorized representative of the Company has signed this Award Agreement as of the Date of
Grant.
6
PERFORMANCE SHARE AWARD
ELECTION FORM
INFORMATION ABOUT YOU
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First
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Middle Initial
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Employee ID# |
TAX WITHHOLDING ELECTION
I hereby elect to satisfy any tax withholding obligation associated with my receipt of
Stock pursuant to my
Performance Share Agreement in the following form (place an “X” in
the “Check” column or in the “Stock” column):
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| Check
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Stock |
(I will write a check for my taxes that are due and deliver it to the Company
within one (1) day of the release of the Stock)
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(The Company should withhold shares
of my stock to cover my taxes) |
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| To the extent permitted by law, I hereby elect
Federal tax withholding of percent (minimum may
not be less than 25% and maximum may not exceed 35%) |
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PARTICIPANT NAME (PLEASE PRINT)
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PARTICIPANT SIGNATURE
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DATE |
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| IMPORTANT NOTE: |
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Please complete and return this Election Form to Xxxxxxxx Xxxxxxx at Mail Station
9996 by __________, 2010. |
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