November 2, 2007 Dear___________:
Exhibit
10.1.9
November
2, 2007
Dear___________:
This
letter regards your Nonqualified Stock Option Agreement dated August 5, 2003
(the "Agreement") issued to you pursuant to the Great Plains Energy Incorporated
Long-Term Incentive Plan (the "Plan").
Generally,
the Agreement provides you with certain dividend equivalents which accrue
quarterly (in a notional account) and then are to be paid to you (in proportion
to the portion of the Option you are exercising) at the time you exercise the
Option. (No payment would be made under the Agreement if you were
exercising the Option at a time when the Option's exercise price exceeded the
current market value of the underlying stock.)
Unfortunately,
due to certain recent changes in the tax laws, this dividend payment arrangement
can no longer continue without causing you to incur significant tax
penalties. Additional information about these new tax laws is
provided in the attached Q&A.
Accordingly,
we are writing to provide you an opportunity to avoid the imposition of tax
penalties by electing to receive your dividend equivalents after the Options
have expired.
By
signing and returning this letter agreement to us no later than December 28,
2007, you will amend the current dividend equivalent payment arrangement such
that dividend equivalents will continue to accrue and potentially be paid to
you
as follows:
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Dividend
equivalent payments will continue to be credited to your notional
account
based on the number of shares underlying each unexercised portion
of the
Option covered by the Agreement. Once an Option (or portion thereof)
is
exercised and you own the stock, no additional dividend equivalent
will
accrue with respect to those
shares.
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In
the event of a Change in Control of Great Plains Energy (assuming
such
Change in Control constitutes a change in control payment event under
Section 409A of the Internal Revenue Code) prior to July 1st
of the first
tax year following the year the Option would have originally expired,
you
will be paid, in a lump-sum, an amount equal to the balance in your
notional dividend equivalent account, regardless of whether you have
exercised your Options.
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On
the earlier of (1) the first anniversary of your separation from
service
with the company or (2) July 1st
of the year
containing the 11th
anniversary
of the Option's date of grant (i.e., the year after the Option's
10-year
term will have expired), you will be paid, in a lump-sum, an amount
equal
to the balance in your notional dividend equivalent
account.
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No
interest will accrue on amounts credited to the notional
account.
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Transition
relief provided by the Internal Revenue Service allows you the opportunity
to
change the dividend equivalent payment feature. We strongly encourage
and recommend that you take advantage of the modification
election. If you do not elect to change when dividends equivalents
may be paid, the current income deferral element associated with the Options
subject to the Agreement will be immediately recognized as taxable income and
an
additional 20% income tax will be imposed by the federal government (in addition
to the ordinary tax rates).
If
you
wish to make this change to the payment of the dividends under your Agreement,
to that which is described above, please sign and date below, and return this
entire letter to the Corporate Secretary’s Office. You must
respond by December 28, 2007, if you intend to make this
change.
If
you
have any questions about this letter and its contents, please contact
me.
Sincerely,
Xxxxxxx
X. Xxxxx
Senior
Vice President-Corporate
Services
and Corporate Secretary
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I
hereby
elect to postpone payment of any dividend equivalent payment provided in my
Agreement until (1) a Change of Control of the company (assuming such Change
in
Control constitutes a change in control payment event under Section 409A of
the
Internal Revenue Code) or (2) the earlier of (a) the first anniversary of my
separation from service with the company or (b) July 1st of the
year
containing the 11th anniversary
of the
Option's date of grant.
__________________________________________________________________
Signed Date
Questions
and Answers Relating to Dividend Equivalent Payments Paid on Stock
Options.
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What
change in the law occurred which is necessitating this
change?
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In
2004,
Congress added Section 409A to the Internal Revenue Code (the "Code"), which
changes the treatment of nonqualified deferred compensation
plans. Code Section 409A defines nonqualified deferred compensation
generally as any arrangement that establishes a legally binding right to
compensation in a future tax year.
Section
409A substantially restricts
the right of employers and employees to change the terms of nonqualified
deferred compensation arrangements, especially changes to (i) the
time or event at which benefits are paid; and (ii) the
form in which benefits
are paid (such as lump sum or
installment payments).
Plans
may be amended to avoid
violations of Code Section 409A, subject to certain limitations.
Stock
options generally are considered nonqualified deferred
compensation. However, guidance issued by the Internal Revenue
Service provides an exemption from Code Section 409A for stock options that
meet
certain requirements. A stock option that does not meet these
requirements must comply with Code Section 409A to avoid penalty
taxes.
Among
other requirements, the exercise price of an exempt stock option must equal
or
exceed the fair market value of the underlying stock at the time of
grant. The dividend equivalent rights granted to you are considered
by the Internal Revenue Service as an offset to the exercise price, (thus
causing you to be deemed to have a "discounted" stock option) which would
subject your stock option to Code Section 409A. However, we can
correct this by allowing you to receive the dividend amounts independent of
exercising the stock option.
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What
happens if I elect not to change how dividends are
paid?
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If
you do
not change how your dividends are paid, your stock option will be subject to
Code Section 409A. However, the Agreement would violate Code Section
409A(a)(2)(A) because it allows you to exercise your stock option over a term
that extends over multiple years. As a result, the compensation you
could receive from your stock option will be subject to a 20% penalty tax,
in
addition to normal tax rates upon compensation. Depending upon the
year you are deemed to have received this compensation, interest penalties
can
apply as well.
