EXHIBIT 10.98
PERFORMANCE ACCELERATED STOCK OPTION AGREEMENT
UNDER
PINNACLE WEST CAPITAL CORPORATION 2002
LONG-TERM INCENTIVE PLAN
THIS AWARD AGREEMENT is made and entered into as of _________ __, 20___
(the "Date of Grant"), by and between Pinnacle West Capital Corporation (the
"Company"), and (Name) ("Employee").
BACKGROUND
A. The Board of Directors of the Company (the "Board of Directors") has
adopted, and the Company's shareholders have approved, the Pinnacle
West Capital Corporation 2002 Long-Term Incentive Plan (the "Plan"),
pursuant to which options to purchase shares of the common stock of
the Company may be granted to employees of the Company and its
subsidiaries and to certain other individuals.
B. The Company desires to grant to Employee the option to purchase
certain shares of its stock under the terms of the Plan.
C. Pursuant to the Plan, the Company and Employee agree as follows:
AGREEMENT
1. GRANT OF OPTION. Pursuant to action of the Committee (as
defined herein), which was taken on the Date of Grant, the
Company grants to Employee the option (the "Option") to
purchase all or any part of (Shares) shares of the Company's
Common Stock. This Option is not intended as, nor will it be
treated as, an "incentive stock option" under Section 422 of
the Code.
2. GRANT SUBJECT TO PLAN. This Option is granted under and is
expressly subject to, all the terms and provisions of the
Plan, which terms are incorporated herein by reference, and
this Award Agreement. The Committee referred to in Section 4
of the Plan (the "Committee") has been appointed by the Board
of Directors, and designated by it, as the Committee to make
grants of options.
3. PURCHASE PRICE. The price at which Employee will be entitled
to purchase the Common Stock covered by the Option is
$_________ per share.
4. VESTING OF OPTION. The Option will vest and become exercisable
as follows:
(a) On or after the first anniversary of the Date of Grant,
or _________ ___, 20___, Employee may purchase up to
one-third (1/3) of the total number of shares of Common
Stock subject to this Option.
(b) On or after the second anniversary of the Date of Grant,
or _________ ___, 20___, Employee may purchase up to an
additional one-third (1/3) of the total number of shares
of Common Stock subject to this Option; provided,
however, that if the Company has achieved the "First
Year Target" (as defined in Section 5(a) below),
Employee may purchase the shares of Common Stock
described in this Section 4(b) on or after the date
which is eighteen months after the Date of Grant, or
_________ ___, 20___.
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Performance Accelerated Stock Option
(c) On or after the third anniversary of the Date of Grant,
or _________ ___, 20___, Employee may purchase up to an
additional one-third (1/3) of the total number of shares
of Common Stock subject to this Option; provided,
however, that:
(i) If the Company has achieved the First Year Target
OR the "Second Year Target" (as defined in Section
5(b) below), Employee may purchase the shares of
Common Stock described in this Section 4(c) on or
after the date which is thirty months after the
Date of Grant, or _________ ___, 20___; and
(ii) If the Company has achieved the First Year Target
AND the Second Year Target, Employee may purchase
the shares of Common Stock described in this
Section 4(c) on or after the second anniversary of
the Date of Grant, or _________ ___, 20___.
(d) Notwithstanding the foregoing, if Employee has entered
into a KEESA with the Company, Employee may purchase
100% of the number of shares subject to this Option at
any time during the three (3) month period beginning on
Employee's Termination Date, as defined in the KEESA, in
the event the Employee's termination is described in
Section 11 of the KEESA.
(e) If any Option vesting date is not a business day on
which the New York Stock Exchange ("NYSE") is open, such
vesting date will be deemed to be the next succeeding
business day on which the NYSE is open. In no event will
this Option be re-priced, or deemed to be re-priced, as
a result of any acceleration of vesting periods, as
described in this Section 4.
(f) Attachment A provides generic examples of the operation
of a performance accelerated stock option.
5. TARGETS.
(a) FIRST YEAR TARGET. For purposes of this Award Agreement,
the Company will have achieved the "First Year Target"
if its "Earnings Per Share Growth" (as defined in
Section 5(c)) equals or exceeds the Earnings Per Share
Growth of the S&P Electric Utilities Index for the
fiscal year which includes the Date of Grant, or 20___.
(b) SECOND YEAR TARGET. For purposes of this Award
Agreement, the Company will have achieved the "Second
Year Target" if its Earnings Per Share Growth equals or
exceeds the Earnings Per Share Growth of the S&P
Electric Utilities Index for the fiscal year immediately
following the fiscal year which includes the Date of
Grant, or 20___.
(c) EARNINGS PER SHARE GROWTH.
(i) "Earnings Per Share Growth" for a given fiscal
year is the percentage increase, if any, of the
Company's earnings per share from continuing
operations, on a fully-diluted basis, as of the
end of the relevant fiscal year, over the earnings
per share from continuing operations, on a
fully-diluted basis, as of the end of the
immediately preceding fiscal year.
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Performance Accelerated Stock Option
(ii) The "Earnings Per Share Growth of the S&P Electric
Utilities Index" for a given Fiscal Year is the
percentage increase, if any, of the S&P Electric
Utilities Index earnings per share, as of the end
of the relevant fiscal year, over the earnings per
share as of the end of the immediately preceding
fiscal year. The Earnings Per Share Growth of the
S&P Electric Utilities Index will be determined
using the S&P Compustat system. The S&P Electric
Utilities Index earnings per share is a weighted
average number provided in the S&P Compustat
system. If the S&P Compustat system is no longer
in use, the Committee will replace it with the
most comparable third party data system then in
use. If the S&P Electric Utilities Index is
discontinued, the S&P comparable replacement index
for the sector will be used for computing Earnings
Per Share Growth of the S&P Electric Utilities
Index. If S&P no longer computes an index for the
electric utility sector, the Committee shall
select the most comparable index then in use for
the sector comparison. In addition, if the sector
comparison is no longer representative of the
Company's industry or business, the Committee
shall replace the index with the most
representative index then in use.
(iii) All results will be verified by the Company's
independent auditors using generally accepted
accounting principles, consistently applied.
6. TERM OF OPTION. This Option will be in full force and effect
for a period of ten (10) years from the Date of Grant, through
and including the close of business of the Company on
_________ ___, 20___; however, this Option will terminate
earlier upon the occurrence of the events described in this
Section 6, with no continuation of vesting.
(a) TERMINATION-GENERAL. Any vested Option will terminate
and be of no further force and effect ninety (90) days
after the date that Employee is no longer actively
employed by the Company or any of its subsidiaries (the
"Termination Date") unless:
(i) The Termination Date results from Employee's
Retirement, in which case this Option will
terminate at the time described in Section 6(b)
below;
(ii) The Termination Date results from Employee's
Disability, in which case this Option will
terminate at the time described in Section 6(c)
below; or
(iii) The Termination Date results from Employee's
death, in which case this Option will terminate at
the time described in Section 6(d) below.
(b) RETIREMENT OF EMPLOYEE. If the Termination Date results
from Employee's "Retirement" (as hereinafter defined),
any vested Option will terminate fifteen (15) months
after the Termination Date. Any options that have not
vested will expire upon Retirement. If Employee's
Retirement occurs on or after Employee's 60th birthday,
this Option will also become fully vested, to the extent
not already fully vested.
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Performance Accelerated Stock Option
(c) DISABILITY OF EMPLOYEE. If the Termination Date results
from Employee's "Disability" (as hereinafter defined),
any vested Option will terminate fifteen (15) months
after the Termination Date. If the Termination Date
results from Employee's Disability, and Employee dies
within one (1) year of the Termination Date, this Option
may be exercised, to the extent that Employee was
entitled to exercise it at the date of Employee's death,
by a legatee or legatees of Employee under Employee's
last will, or by Employee's personal representatives or
distributees (or by a transferee under Section 9), at
any time within a period of fifteen (15) months after
Employee's date of death.
(d) DEATH OF EMPLOYEE. If the Termination Date results from
Employee's death, any vested Option may be exercised, to
the extent that Employee was entitled to exercise it at
the date of Employee's death, by a legatee or legatees
of Employee under Employee's last will, or by Employee's
personal representatives or distributees (or by a
transferee under Section 9), at any time within a period
of fifteen (15) months after the Termination Date. If
Employee dies within ninety (90) days of Employee's
Termination Date, this Option may be exercised, to the
extent that Employee was entitled to exercise it at the
date of Employee's death, by a legatee or legatees of
Employee under Employee's last will, or by Employee's
personal representatives or distributees (or by a
transferee under Section 9), at any time within a period
of fifteen (15) months after Employee's date of death.
(e) Notwithstanding the foregoing, (i) except as otherwise
provided in Section 6(b) above, this Option will cease
vesting as of the Termination Date and (ii) in no event
may this Option be exercised after the tenth (10th)
anniversary of the Date of Grant.
7. OPTION EXERCISE.
(a) NOTICE TO COMPANY OF OPTION EXERCISE. Employee may
exercise this Option, in whole or in part, by providing
written notice to the Company, accompanied by payment of
the Option purchase price, as set forth below.
(b) PAYMENT OF OPTION PURCHASE PRICE. The price at which
shares of Common Stock may be purchased under this
Option will be paid in full in cash at the time of
exercise or, if permitted by the Committee, by means of
tendering Common Stock or surrendering another Award (as
defined in the Plan), or any combination thereof, on
such terms and conditions as the Committee deems
appropriate. In addition, Employee may effect a
"cashless exercise" of this Option in which all or a
portion of the shares subject to this Option are sold
through a broker and a portion of the proceeds to cover
the exercise price is paid to the Company.
8. TAX WITHHOLDING. Employee must pay, or make arrangements
acceptable to the Company for the payment of, any and all
federal, state, and local income and payroll tax withholding
that in the opinion of the Company is required by law. Unless
Employee satisfies any such tax withholding obligation by
paying the amount in cash or by check, the Company will
withhold shares of Common Stock having a Fair Market Value on
the date of withholding sufficient to cover the withholding
obligation.
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Performance Accelerated Stock Option
9. NON-TRANSFERABILITY. Neither this Option 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. This Option may be exercised
during Employee's lifetime only by Employee. Notwithstanding
the foregoing, this Option may be transferred by gift or
otherwise to a member of Employee's immediate family and/or
trusts whose beneficiaries are members of Employee's immediate
family, or to such other persons or entities as may be
approved by the Committee.
10. DEFINITIONS: COPY OF PLAN AND PLAN PROSPECTUS. For the
purposes of this Award Agreement, the following terms shall
have the following meanings:
(a) "Disability" shall mean a period of disability during
which Employee qualifies for benefits under employer's
long-term disability plan, or, if Employee does not
participate in such a plan, a period of disability
during which Employee would have qualified for benefits
under such a plan, as determined by the Committee, had
Employee been a participant in such a plan. The
Committee may require such medical or other evidence, as
it deems necessary to judge the nature of Employee's
condition.
(b) "KEESA" means the Key Executive Employment and Severance
Agreement, as the same may be amended from time to time.
(c) "Retirement" means a termination of employment under
which Employee is immediately eligible to receive
payments under the Company's qualified pension plan.
To the extent not specifically defined in this Award
Agreement, all capitalized terms used in this Award
Agreement will have the same meanings ascribed to them
in the Plan. By signing this Award Agreement, Employee
acknowledges receipt of a copy of the Plan and the
related Plan Prospectus.
11. CHOICE OF LAW. This 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 Agreement to another
jurisdiction.
An authorized representative of the Company has signed this Award
Agreement, and Employee has signed this Award Agreement to evidence Employee's
acceptance of the Option on the terms specified in this Award Agreement, all as
of the Date of Grant.
PINNACLE WEST CAPITAL CORPORATION
By: _________________________________________
Its: Vice President and Treasurer
_____________________________________________
Employee
ATTACHMENT A
GENERIC EXAMPLE
(PERFORMANCE ACCELERATED STOCK OPTION)
ASSUMPTION:
On _________ ___, 20___, Employee is granted an Option to purchase 750 shares of
Common Stock. Unless accelerated, the option will vest in 1/3 increments over 3
separate 12-month periods:
- 250 shares will vest on _________ ___, 20___;
- 250 shares will vest on _________ ___, 20___; and
- 250 shares will vest on _________ ___, 20___.
SCENARIO #1:
- The Company's Earnings Per Share Growth for fiscal year 20___ is
greater than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The First Year Target is
met.)
- The Company's Earnings Per Share Growth for fiscal year 20___ is
greater than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The Second Year Target is
met.)
Vesting of Options under Scenario # 1:
- 1/3 of the Option (250 shares) vests on _________ ___, 20___.
- Based on the achievement of the First Year Target, the remaining
Options vest on _________ ___, 20___ and _________ ___, 20___ (the
achievement of the First Year Target accelerates the standard
vesting period by 6 months).
- Based on the achievement of the Second Year Target, the remaining
Options vest on _________ ___, 20___ (the achievement of the Second
Year Target accelerates the vesting period by another 6 months).
SCENARIO #2:
- The Company's Earnings Per Share Growth for fiscal year 20___ is
greater than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The First Year Target is
met.)
- The Company's Earnings Per Share Growth for Fiscal Year 20___ is
less than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The Second Year Target is
not met.)
Vesting of Options Under Scenario #2:
- 1/3 of the Option (250 shares) vests on _________ ___, 20___.
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Performance Accelerated Stock Option
- Based on the achievement of the First Year Target, the remaining
Options vest on _________ ___, 20___ and _________ ___, 20___ (the
achievement of the First Year Target accelerates the standard
vesting period by 6 months.)
- Based on the failure to achieve the Second Year Target, the
remaining Options vest on _________ ___, 20___ (the failure to
achieve the Second Year Target results in the remaining standard
vesting period for the final 250 shares.)
SCENARIO #3:
- The Company's Earnings Per Share Growth for fiscal year 20___ is
less than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The First Year Target is not
met.)
- The Company's Earnings Per Share Growth for fiscal year 20___ is
greater than the Earnings Per Share Growth of the S&P Electric
Utilities Index for fiscal year 20___. (The Second Year Target is
met.)
Vesting of Options Under Scenario #3:
- 1/3 of the Option (250 shares) vests on _________ ___, 20___.
- Based on the failure to achieve the First Year Target, the remaining
Options vests on _________ ___, 20___ and _________ ___, 20___ (the
failure to achieve the First Year Target results in a standard
vesting period).
- Based on the achievement of the Second Year Target, the remaining
Options (the final 250 shares) vest on _________ ___, 20___ (the
achievement of the Second Year Target accelerates the standard
vesting period and _________ ___, 20___ vesting date by 6 months).
W:/Performance Accelerated Stock Option