SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10944 KU Energy Corporation 61-1141273
(A Kentucky Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
Securities registered pursuant to
Section 12(b) of the Act:
KU Energy Corporation
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, without par value New York Stock Exchange
Pacific Stock Exchange
Kentucky Utilities Company
Name of Each Exchange
Title of Each Class on Which Registered
Preferred Stock, 4 3/4% cumulative, Philadelphia Stock Exchange
stated value $100 Per Share
-1-
<PAGE>
Securities registered pursuant to
Section 12(g) of the Act:
KU Energy Corporation
None
Kentucky Utilities Company
Preferred Stock, cumulative, stated value $100 per share
(Title of Class)
KU Energy Corporation
Aggregate market value at March 10, 1997 of the voting stock held by
nonaffiliates of KU Energy Corporation (KU Energy): $1,148,718,044.
Number of shares of Common Stock outstanding at March 10, 1997:
37,817,878 shares.
Kentucky Utilities Company
Aggregate market value of the voting stock held by nonaffiliates of
Kentucky Utilities Company (KU): None
Number of shares of Common Stock outstanding at March 10, 1997:
37,817,878 shares (owned by the parent - KU Energy).
Documents Incorporated by Reference:
A portion of KU Energy's 1996 Annual Report to Shareholders is
incorporated by reference in Parts I and II.
A portion of KU Energy's Proxy Statement relating to the 1997 Annual
Shareholders Meeting is incorporated by reference in Part III.
Exhibit Index appears on page 42.
-2-
<PAGE>
KU ENERGY CORPORATION
AND
KENTUCKY UTILITIES COMPANY
Form 10-K
Annual Report to the Securities and Exchange Commission
For the Year Ended December 31, 1996*
TABLE OF CONTENTS
Item Page
PART I
1.Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 13
4.Submission of Matters to a Vote of Security Holders . . . . . . 13
Executive Officers of the Registrants . . . . . . . . . . . . . 14
PART II
5.Market for Registrants Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 17
6.Selected Financial Data . . . . . . . . . . . . . . . . . . . . 18
7.Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 22
8.Financial Statements and Supplementary Data . . . . . . . . . . 22
9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 40
PART III
10.Directors and Executive Officers of the Registrants . . . . . . 40
11.Executive Compensation . . . . . . . . . . . . . . . . . . . . 40
12.Security Ownership of Certain Beneficial Owners and Management . 40
13.Certain Relationships and Related Transactions . . . . . . . . 40
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 42
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 48
*Information included herein which relates solely to KU Energy Corporation
is provided solely by KU Energy Corporation and not by Kentucky Utilities
Company and shall be deemed not included in the Annual Report on Form 10-K
of Kentucky Utilities Company.
-3-
<PAGE>
PART I
Item 1. Business
KU Energy Corporation
KU Energy Corporation (KU Energy or the Company), an exempt utility holding
company, was incorporated in the state of Kentucky on June 23, 1988. On
December 1, 1991, KU Energy became the holder of all common stock of
Kentucky Utilities Company (KU). KU Energy has two wholly owned
subsidiaries, KU, an electric utility, and KU Capital Corporation (KU
Capital), a nonutility subsidiary. KU is KU Energy's principal subsidiary.
The Company is a public utility holding company as defined in the Public
Utility Holding Company Act of 1935 (the Holding Company Act). On
November 13, 1991, the Company obtained an order from the Securities and
Exchange Commission which granted an exemption from all provisions of the
Holding Company Act, except Section 9(a)(2) thereof which relates to the
acquisition of securities of public utility companies.
The ability of the Company to pay dividends on its common stock is
dependent upon distributions made to it by KU and KU Capital and on amounts
that may be earned by the Company on investments.
KU Capital Corporation
KU Capital continues to pursue a core energy strategy for its nonutility
business activities. Under this strategy, targeted opportunities are
energy-related activities that build on the Company's knowledge and
expertise and have the appropriate risk/reward profile.
Kentucky Utilities Company
General
KU is a wholly owned subsidiary of KU Energy. KU was incorporated in
Kentucky in 1912 and incorporated in Virginia in 1991. KU is a public
utility engaged in producing, transmitting and selling electric energy. KU
provides electric service to about 432,900 customers in over 600
communities and adjacent suburban and rural areas in 77 counties in
central, southeastern and western Kentucky, and to about 28,800 customers
in 5 counties in southwestern Virginia. In Virginia, KU operates under the
name Old Dominion Power Company. KU operates under appropriate franchises
in substantially all of the 161 Kentucky incorporated municipalities
served. No franchises are required in unincorporated Kentucky communities.
Service has been provided in Virginia without franchises for a number of
years. The lack of franchises is not expected to have a material adverse
effect on KU's operations. KU also sells electric energy at wholesale for
resale in 12 municipalities.
The territory served by KU has an aggregate population estimated at about
1,000,000. The largest city served is Lexington, Kentucky. The population
of the metropolitan Lexington area is estimated at about 225,000. The
populations of the next 10 largest cities served at retail range from about
21,000 to 9,000. The territory served includes most of the Bluegrass
Region of central Kentucky and parts of the coal mining areas in
southeastern and western Kentucky and southwestern Virginia. Lexington is
the center of the Bluegrass Region, in which thoroughbred horse, burley
tobacco and bourbon whiskey distilling industries are located. Among the
principal industries in the territory served are automotive and related
-4-
<PAGE>
industries, coal mining, the manufacture of paper and paper products,
electrical and other machinery, and rubber and miscellaneous plastic
products.
Revenues
KU's sources of electric revenues and the respective percentages of total
revenues for the three years 1994-1996 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
Amount % Amount % Amount %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 236,229 33 $ 232,760 34 $ 213,574 34
Commercial 150,640 21 151,778 22 142,207 22
Industrial 136,856 19 130,066 19 120,043 19
Mine Power 34,014 5 36,076 5 36,498 6
Public Authorities 56,023 8 54,161 8 49,869 8
Sales for Resale 89,208 13 75,940 11 89,665 14
Miscellaneous Revenues 8,741 1 5,649 1 4,181 -
Provision for Refund -
Litigation Settlement - - - - (19,385) (3)
Total $ 711,711 100 $ 686,430 100 $ 636,652 100
</TABLE>
The electric utility business is affected by seasonal weather patterns. As
a result, operating revenues (and associated operating expenses) are not
generated evenly throughout the year. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Sales and
Revenues in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13)
which is incorporated herein by reference for information related to
revenues.
Operations
KU's net generating capability was 3,639 megawatts at December 31, 1996.
The net generating capability available for operation at any time may be
lower because of periodic outages of generating units due to inspection,
maintenance, fuel restrictions, or modifications required by regulatory
agencies. KU obtains power from other utilities under bulk power purchase
and interchange contracts. At December 31, 1996, KU's system capability,
including purchases from others, was 4,032 megawatts. On February 5, 1996,
an all-time system peak demand, on a one-hour integrated basis, was set at
3,391 megawatts. See Item 2, Properties-Construction for a discussion of
KU's plans to add additional peaking capacity.
The percentage of KU's system output which was internally generated and
purchased for the periods indicated was as follows:
1996 1995 1994
Internally Generated 84% 82% 83%
Purchased 16% 18% 17%
KU is one of 28 members of the East Central Area Reliability Coordination
Agreement, the purpose of which is to augment the reliability of the
members' bulk power supply through coordination of planning and operation
of generation and transmission facilities. The members are engaged in the
-5-
<PAGE>
generation, transmission and sale of electric power and energy in the east
central area of the United States, which covers all or portions of
Michigan, Indiana, Ohio, Kentucky, Pennsylvania, Virginia, West Virginia
and Maryland. KU also has interconnections and contractually established
operating arrangements with neighboring utilities and cooperatives.
Under a contract with Owensboro Municipal Utilities (OMU), KU has agreed to
purchase from OMU the surplus output of the 150-megawatt and 250-megawatt
generating units at OMU's Elmer Smith station. Purchases under the
contract are made under a contractual formula which has resulted in costs
which were and are expected to be comparable to the cost of other power
purchased or generated by KU. Such power constituted about 8% of KU's net
system output during 1996. See Note 4 of the Notes to Financial
Statements, Commitments and Contingencies under Item 8.
KU owns 20% of the common stock of Electric Energy, Inc. (EEI), which owns
and operates a 1,000-megawatt generating station in southern Illinois.
KU's entitlement is 20% of the available capacity of the station.
Purchases from EEI are made under a contractual formula which has resulted
in costs which were and are expected to be comparable to the cost of other
power purchased or generated by KU. Such power constituted about 8% of
KU's net system output in 1996. See Note 4 of the Notes to Financial
Statements, Commitments and Contingencies, under Item 8.
KU had approximately 2,160 employees at December 31, 1996, of which about
300 are covered by union contracts expiring August 1, 1997.
Fuel Matters
Coal-fired generating units provided more than 99% of KU's net kilowatt-
hour generation for 1996. The remainder of KU's net generation for 1996
was provided by hydroelectric plants, oil and/or natural gas burning units.
The average delivered cost of coal purchased per million BTU (MBTU) and the
percentage of spot coal purchases for the periods indicated were as
follows:
1996 1995 1994
Per MBTU - all sources $ 1.14 $ 1.16 $ 1.19
Per MBTU - spot purchases only $ 1.08 $ 1.10 $ 1.16
Spot purchases as % of all sources 33% 30% 46%
KU maintains its fuel inventory at levels estimated to be necessary to
avoid operational disruptions at its coal-fired generating units.
Reliability of coal deliveries can be affected from time to time by a
number of factors, including coal mine labor strikes and other supplier or
transporter operating difficulties.
KU believes there are adequate reserves available to supply its existing
base-load generating units with the quantity and quality of coal required
for those units throughout their useful lives. KU intends to meet a
substantial portion of its coal requirements with 3-year and 5-year
contracts. KU anticipates that coal supplied under such contracts will
represent about two-thirds of the requirements over the next several years.
As part of this strategy, KU will continue to negotiate replacement
contracts as contracts expire. KU does not anticipate any problems
negotiating new contracts for future coal needs. The balance of coal
-6-
<PAGE>
requirements will be met through spot purchases. See Note 4 of the Notes
to Financial Statements, Commitments and Contingencies, under Item 8 for
the estimated obligations under existing fuel contracts for each of the
years 1997 through 2001.
KU has no long-term contracts in place for the purchase of natural gas for
its combustion turbine peaking units. KU has met its gas requirements
through spot purchases. KU does not anticipate encountering any
significant problems acquiring an adequate supply of fuel necessary to
operate its peaking units. See Item 2, Properties-Construction for a
discussion of KU's plans to add additional peaking capacity.
Environmental Matters
Federal and state agencies have adopted environmental protection standards
which apply to the electric operations of KU. Capital expenditures to
comply with environmental requirements amounted to about $187 million
during the 1992-1996 time period.
KU's generating units are operated in compliance with the Kentucky Natural
Resources and Environmental Protection Cabinet's (Cabinet) State
Implementation Plan (KYSIP) and New Source Performance Standards developed
under the Clean Air Act. The KYSIP is a federally approved plan for the
attainment of the national ambient air quality standards. The KYSIP
contains standards relating to the emissions of various pollutants (sulfur
dioxide, particulates and nitrogen oxides) from KU's fossil-fuel fired
steam electric generating units. These emission standards are of varying
stringencies and compliance with these standards is attained through a
variety of air pollution control technologies (scrubbers, electrostatic
precipitators, and low nitrogen oxide burners) and the use of low-sulfur
coal. KU's operations are in substantial compliance with current emission
standards. The operating permit program under the 1990 Clean Air Act
Amendments required KU to make application to the Cabinet for new operating
permits for its six generating stations. KU s existing permits to operate
air contaminant sources continue in effect until new permits are issued.
The acid rain control provisions of the 1990 Clean Air Act Amendments,
which are effective in two phases, require KU to further decrease the
emissions of sulfur dioxide and nitrogen oxides from its fossil-fuel fired
steam electric generating units. Ghent Unit 1, E. W. Brown Units 1, 2
and 3, and Green River Unit 4 were designated as Phase I affected units
which were required to comply with sulfur dioxide emission reduction
obligations beginning January 1, 1995. In order to comply with these
sulfur dioxide emission limitations, KU installed a scrubber and related
facilities on Ghent Unit 1 and switched to lower sulfur coal on some other
Phase I affected units. In addition, these units were retrofitted with low
nitrogen oxide burners in order to comply with applicable nitrogen oxide
limitations under United States Environmental Protection Agency (EPA)
regulations. The EPA issued final acid rain permits for each of KU's
Phase I affected units. The EPA's approval of KU's acid rain compliance
plan was accompanied by bonus allowances awarded for the installation of
the scrubber on Ghent Unit 1. KU's current emission allowance strategy, in
part, includes the accumulation of unused sulfur dioxide emission
allowances. These unused allowances result from the bonus allowances
received from the EPA and the expected reduced sulfur dioxide emissions
from the installation of the Ghent Unit 1 scrubber. The accumulated
-7-
<PAGE>
allowances are expected to allow KU to delay capital expenditures
associated with KU's Phase II acid rain compliance obligations, which are
effective January 1, 2000. KU's Phase II compliance strategy, in addition
to utilizing accumulated allowances, may include additional fuel switching
or the installation of additional scrubbers. However, KU will continue to
reassess its options for complying with Phase II emission reduction
requirements to determine an overall least cost strategy. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Construction Requirements and - Environmental Matters in KU Energy's 1996
Annual Report to Shareholders (Exhibit 13) incorporated herein by reference
for additional discussion.
EPA has proposed revisions to the National Ambient Air Quality Standards
for ozone and particulate matter which may result in the EPA seeking
additional reductions of sulfur dioxide and nitrogen oxide emissions from
coal-fired boilers. Because of the magnitude of these additional
reductions (50 percent beyond that already required by the Phase II acid
rain control provisions of the 1990 Clean Air Act Amendments which become
effective January 1, 2000), substantial costs could be incurred to meet
future compliance obligations for KU's coal-fired boilers. The proposed
revisions are expected to be finalized in 1997. The revisions would be
effective some time after the effective date of the Phase II acid rain
control provisions of the 1990 Clean Air Act Amendments.
During 1996, each of KU's five fossil-fuel fired steam electric generating
stations was re-issued a wastewater discharge permit by the Cabinet under
the Clean Water Act's National Pollutant Discharge Elimination System.
These 5-year permits place water quality-based effluent limitations (i.e.,
thermal and chemical limits) on each of the power plant's discharges. KU's
operations are in substantial compliance with the conditions in the
permits.
Pursuant to the Resource Conservation and Recovery Act, utility wastes (fly
ash, bottom ash and scrubber sludge) have been categorized as special
wastes (i.e., wastes of large volume, but low environmental hazard). The
EPA has concluded that the disposal of coal combustion byproducts by
practices common to the utility industry is adequate for the protection of
human health and the environment. The Cabinet also regulates utility
wastes as special wastes under its waste management program.
Under the Toxic Substances Control Act, the EPA regulates the use,
servicing, repair, storage and disposal of electrical equipment containing
polychlorinated biphenyls (PCB). To comply with these regulations, KU
implemented procedures to be followed in the handling, storage and disposal
of PCBs. In addition, KU completed the mandated phase out of all of its
pole-class PCB capacitors and has no vault-type PCB transformers in use in
or near commercial buildings.
On February 13, 1990, KU received a letter from the EPA identifying KU and
others as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA or Superfund)
for a disposal site in Daviess County, Kentucky. The letter also asked KU
and the other persons or entities named to proceed voluntarily with a
remediation program at the site. Under Superfund, a responsible party may
be liable for all or a portion of all monies expended by the government to
take corrective action at the site. The EPA has turned over responsibility
for investigation of the site and development of a remediation plan to a
-8-
<PAGE>
group (not including KU) originally named as potentially responsible
parties. KU has entered into an agreement with the group as to the portion
of the investigation and development costs to be borne by KU in connection
with the site. The agreement does not cover costs which may be incurred in
connection with any remediation plan. The remediation plan has been
approved by the EPA. The remediation work is scheduled for completion in
1997. KU does not believe that any liability with respect to the site will
have a material impact on its financial position or results of operations.
Regulation
KU is subject to the jurisdiction of the Kentucky Public Service Commission
(PSC) and the Virginia State Corporation Commission (SCC) as to retail
rates and service, accounts, issuance of securities and in other respects.
The Federal Energy Regulatory Commission (FERC) has jurisdiction under the
Federal Power Act over certain of the electric utility facilities and
operations, wholesale sale of power and related transactions and accounting
practices of KU, and in certain other respects as provided in the Act. The
FERC has classified KU as a "public utility" as defined in the Act. By
reason of owning and operating a small amount of electric utility property
in one county in Tennessee (having a gross book value of about $226,000),
KU may also be subject to the jurisdiction of the Tennessee Public Service
Commission as to retail rates, accounts, issuance of securities and in
other respects. Since 1992, utilities in Kentucky have had the option to
use either a historical test period or a forward-looking test period in
rate filings.
KU's fuel adjustment clause for Kentucky customers, which operates to
reflect changes in the cost of fuel in billings to customers, is designed
to conform to a general regulation providing for a uniform monthly fuel
adjustment clause for all electric utilities in Kentucky subject to the
jurisdiction of the PSC. The clause is based on a formula approved by the
FERC but with certain modifications, including the exclusion of excess fuel
expense attributable to certain forced outages, the filing of fuel
procurement documentation, a procedure for billing over and under
recoveries of fuel cost fluctuations from the base rate level and provision
for periodic public hearings to review past adjustments, to make allowance
for any past adjustments found not justified, to disallow any improper
expenses and to re-index base rates to include current fuel costs. The
fuel adjustment clause mechanism for Virginia customers uses an average
fuel cost factor based primarily on projected fuel costs. The fuel cost
factor is adjusted annually for the over or under collection of fuel costs
from the previous year.
Rate regulation in Kentucky allows each electric utility, with a PSC-
approved environmental compliance plan and environmental surcharge, to
recover on a current basis the cost of complying with federal, state or
local environmental requirements, including the Federal Clean Air Act as
amended, which applies to coal combustion wastes and byproducts from
facilities utilized for the production of energy from coal. In 1994, the
PSC approved KU's environmental surcharge, which is designed to allow KU to
recover compliance related operating expenses and to earn a return on those
compliance-related capital expenditures not already included in existing
rates through the application of the surcharge each month to customers'
bills. Surcharge billings are subject to periodic PSC review of the level
of environmental expenditures and reconciliation of previous surcharge
billings with actual costs. For additional information regarding the
environmental surcharge, including information concerning pending legal
proceedings, see Management's Discussion and Analysis of Financial
-9-
<PAGE>
Condition and Results of Operations - Environmental Cost Recovery in KU
Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated
herein by reference and Note 9 of the Notes to Financial Statements,
"Environmental Cost Recovery," under Item 8.
Integrated resource planning regulations in Kentucky require KU and the
other major utilities to make triennial filings with the PSC, of various
historical and forecasted information relating to forecasted load, capacity
margins and demand-side management techniques.
Pursuant to Kentucky law, the PSC has established the boundaries of the
service territory or area of each retail electric supplier in Kentucky
(including KU), other than municipal corporations, within which each such
supplier shall have the exclusive right to render retail electric service.
The SCC requires each Virginia utility to make annual filings of either a
base rate change or an Annual Informational Filing consisting of a set of
standard financial schedules. These filings are subject to review by the
SCC Staff (Staff). The Staff issues a Staff Report, which includes any
findings or recommendations to the SCC relating to the individual utility's
financial performance during the historic 12-month period, including
previously accepted adjustments. The Staff Report may lead to an
adjustment in rates.
KU is presently exempt from all the provisions of the Public Utility
Holding Company Act of 1935, except Section 9(a)(2) thereof (which relates
to the acquisition of securities of public utility companies), by virtue of
the exemption granted by an order of the Securities and Exchange Commission
dated April 19, 1949 and, absent further action by the Commission, by
virtue of annual exemption statements filed by KU with the Commission
pursuant to Rule 2 prescribed under the Act.
Competition
The electric utility industry has been rapidly moving to a less regulated
and more competitive environment since the passage of the National Energy
Policy Act of 1992 (NEPA). NEPA gave the FERC the authority to order
electric utilities to provide wholesale transmission access to independent
power producers and other utilities. It also reduced restrictions on the
ownership and operation of independent power producers. See Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Utility Issues - Competition in KU Energy's 1996 Annual Report to
Shareholders (Exhibit 13) incorporated herein by reference for further
discussion of competition.
In April 1996, the FERC issued two final rules and a new Notice of Proposed
Rulemaking (NOPR) to promote competition and deregulation in the wholesale
electric market. FERC Order No. 888 (Order 888) addressed both open access
transmission service and stranded cost issues. FERC Order No. 889 (Order
889) required utilities to establish an electronic Open Access Same-Time
Information System (OASIS) to share information about available
transmission capacity and also required the establishment by each utility
of standards of conduct for its transmission system operation. The 1996
NOPR proposes to establish a new system for utilities to use in reserving
capacity on their own and other's transmission lines. See Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Utility Issues - Competition in KU Energy's 1996 Annual Report to
Shareholders (Exhibit 13) incorporated herein by reference for further
discussion of the FERC orders.
-10-
<PAGE>
KU is one of 24 utilities in a ten-state region attempting to form the
Midwest Independent System Operator (ISO). The primary objectives of the
ISO are to advance wholesale competition by ensuring nondiscriminatory open
transmission access to all customers and to enhance transmission
reliability.
Cautionary Factors
See Management's Discussion and Analysis for information concerning forward
looking statements. Forward looking statements have been and will be made
in written documents and oral presentations of the Company and KU. All
statements made herein which are not based on historical facts are forward
looking and, accordingly, involve risks and uncertainties that could cause
actual results to differ materially from those discussed. In addition to
those forward looking statements and cautionary factors referred to in
Management's Discussion and Analysis, forward looking statements in this
Form 10-K include those relating to:
1. The need for franchise agreements.
2. The comparability of OMU and EEI power costs to generation and other
available power.
3. Maintaining necessary levels of fuel inventory and adequate supplies of
coal and gas to avoid operational disruptions.
4. Availability of coal reserves to supply baseload generating units over
their useful lives.
5. The amount of coal supplied by contract versus spot purchase.
6. Negotiations of new coal contracts for future coal needs.
7. KU's portion of EPA remediation plan costs at the Daviess County site.
8. The Company's future dividend policy.
9. The percent of total kWh requirements provided by OMU and EEI.
10. Estimates of future construction expenditures discussed under Item 2 -
Properties--Construction.
All such statements are and will be based on management's belief, judgment
and analysis as well as assumptions made by and information available to
management at the time the statements are made. When used in the Company's
or KU's documents or oral presentations, the words anticipate,
estimate, expect, believe and similar expressions are intended to
identify forward looking statements. In addition to any assumptions and
other factors referred to specifically in connection with such forward
looking statements, factors that could cause the Company's or KU's actual
results to differ materially from those contemplated in any forward looking
statements include, among others, those identified in Exhibit 99.06 hereto,
which is incorporated herein by reference.
-11-
<PAGE>
Item 2. Properties
Currently, KU Energy and KU Capital have no significant physical property.
KU owns and operates the following electric generating stations:
<TABLE>
<CAPTION>
Nameplate Effective
Rating (KW) Capability (KW)
<S> <C> <C> <C> <C>
Steam: Ghent Ghent, Ky 2,226,060 2,000,000
Green River South Carrollton, Ky 263,636 242,000
E. W. Brown Burgin, Ky 739,534 661,000
Tyrone Tyrone, Ky 137,500 136,000
Pineville Four Mile, Ky 37,500 33,000
Hydro: Dix Dam &
Lock #7 Burgin, Ky 30,297 24,000
Gas/Oil Peaking: Haefling Lexington, Ky 62,100 59,000
E.W. Brown Burgin, Ky 504,000 484,000
4,000,627 3,639,000
</TABLE>
Substantially all properties are subject to the lien of KU's Mortgage
Indenture.
Construction
Four 126-MW combustion turbine peaking units have been installed over the
past three years. The first peaking unit was placed into commercial
operation in late 1994. The second and third units were placed into
commercial operation in February 1995 and December 1995, respectively. The
fourth unit was placed into commercial operation in May 1996. Total
construction expenditures for the years 1997 through 2001 are estimated at
$531 million. Such expenditures include an estimated $168 million for
generating facilities, $72 million for transmission facilities and
$291 million for distribution and general facilities. Included in total
construction expenditures for the 1997-2001 period are $95 million for
360 MW of peak generating capacity to be added during 1997-2001. KU has no
plans to install baseload generating capacity before 2010. Construction
expenditures for the years 1992 through 1996 aggregated about $688 million.
See Note 4 of the Notes to Financial Statements, Commitments and
Contingencies, under Item 8, for the estimated amounts of construction
expenditures for each of the years 1997 through 2001.
KU frequently reviews its construction program and construction
expenditures, which may be affected by numerous factors, including
competition and deregulation, the rate of load growth, changes in
construction costs, changes in environmental regulations, least cost
planning, the adequacy of rate relief and KU's ability to raise necessary
capital. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity & Capital Resources - Capital
Requirements in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13)
incorporated herein by reference. KU's planned additions to its electric
generating capacity are based on future load projections using estimated
load growth rates. Consideration is also given to projections by
neighboring utilities of their future loads and capacity. However,
forecasts of future loads are subject to numerous uncertainties, including
economic conditions and effectiveness of energy conservation measures.
-12-
<PAGE>
Item 3. Legal Proceedings
KU Energy and KU Capital are involved in no material legal proceedings.
See Management's Discussion and Analysis - Environmental Matters -
Environmental Cost Recovery in KU Energy's 1996 Annual Report to
Shareholders (Exhibit 13) incorporated herein by reference and Note 9 of
the Notes to Financial Statements, "Environmental Cost Recovery," for a
discussion of KU's environmental surcharge legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of either KU
Energy or KU during the three months ended December 31, 1996.
-13-
<PAGE>
Executive Officers of KU Energy
Current Positions Held During at Least the
Name and Age Positions Held Last 5 Years
Michael R. Whitley Chairman and Chairman of the Board of KU Energy
Age 53 President* since August 1995 and President of
KU Energy since November 1994.
Director of KU Energy since March
1992. Senior Vice-President from
1988 to November 1994. Secretary
of KU Energy from 1988 to November
1992.
O. M. Goodlett Senior Vice- Senior Vice-President of KU Energy
Age 49 President* since November 1994.
James W. Tipton Senior Vice- Senior Vice-President of KU Energy
Age 53 President since November 1994. Senior Vice-
President of Kentucky Utilities
from November 1986 to November
1994.
George S. Brooks II General Corporate Secretary of KU Energy
Age 46 Counsel and since November 1992, and General
Corporate Counsel since 1988.
Secretary*
William N. English Treasurer* Treasurer of KU Energy since 1988.
Age 46
Michael D. Robinson Controller* Controller of KU Energy since June
Age 41 1990.
Note: Officers are elected annually by the Board of Directors. There is
no family relationship between any executive officer and any other
executive officer or any director.
* Certain executive officers of KU may be considered "executive officers"
of KU Energy for certain purposes. Identified persons hold positions with
the same titles at KU. Refer to KU's listing of executive officers for
information concerning positions held during the last five years and
information concerning KU executive officers.
-14-
<PAGE>
Executive Officers of KU
Current Positions Held During at Least the
Name and Age Positions Held Last 5 Years
Michael R. Whitley Chairman and Chairman of the Board of KU since
Age 53 President* August 1995 and President from
November 1994. Director of KU
since March 1992. Senior Vice-
President of KU from March 1987 to
November 1994. Secretary of KU
from July 1978 to November 1992.
James M. Allison Senior Vice- Senior Vice-President of KU since
Age 43 President** November 1994. Vice-President of
KU from February 1993 to November
1994. President and Chief
Operating Officer of Wheeling
Power Company from October 1989 to
January 1993.
O. M. Goodlett Senior Vice- Senior Vice-President of KU since
Age 49 President* November 1992. Vice-President of
KU from April 1982 to November
1992.
Wayne T. Lucas Senior Vice- Senior Vice-President of KU since
Age 49 President November 1994. Vice President of
KU from November 1986 to November
1994.
George S. Brooks II General Corporate Secretary of KU since
Age 46 Counsel and November 1992, and General Counsel
Corporate since January 1988.
Secretary*
Gary E. Blake Vice-President Vice-President of KU since
Age 43 November 1992. Western Division
Manager of KU from October 1991 to
November 1992. Assistant Western
Division Manager of KU from March
1990 to October 1991.
William E. Casebier Vice-President Vice-President of KU since May
Age 54 1988.
-15-
<PAGE>
Executive Officers of KU (continued)
Current Positions Held During at Least the
Name and Age Positions Held Last 5 Years
Linda M. DiMascio Vice-President Vice-President of KU since
Age 42 February 1995. Director of Human
Resources of Tucker Housewares
from September 1994 to February
1995. Senior Area Coordinator for
U.S. Manufacturing Department of
Mobil Oil Corporation from April
1992 to September 1994. Assistant
Employee Relations Manager,
Torrance Refinery of Mobil Oil
Corporation from October 1989 to
April 1992.
Gary L. Hawley Vice-President Vice President of KU since January
Age 48 1996. Director of Bulk Power
Planning from November 1986 to
January 1996.
Robert M. Hewett Vice-President Vice-President of KU since January
Age 49 1982.
William N. English Treasurer* Treasurer of KU since April 1982.
Age 46
Michael D. Robinson Controller* Controller of KU since August
Age 41 1990.
John J. Maloy, Jr. Assistant Assistant Treasurer of KU since
Age 42 Treasurer August 1984.
(Not an Executive Officer)
Note: Officers are elected annually by the Board of Directors. There is
no family relationship between any executive officer and any other
executive officer or any director.
* Certain executive officers of KU may be considered "executive officers"
of KU Energy for certain purposes. Identified persons hold positions with
the same titles at KU Energy.
** Mr. Allison resigned effective February 21, 1997. His duties were
temporarily assigned to Mr. Goodlett, who also continues as the Company's
Chief Financial Officer and Senior Vice-President of Finance and
Administration.
-16-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
KU Energy
KU Energy's common stock is listed on the New York and Pacific stock
exchanges under the ticker symbol "KU." Quotes in daily newspapers can be
found under the listing "KU Engy."
The table below sets forth the high and low sales prices and the dividends
paid for the Company's common stock for the periods shown.
<TABLE>
<CAPTION>
1996 1995
Dividend Price Dividend Price
Quarter Paid High Low Paid High Low
<S> <C> <C> <C> <C> <C> <C>
First $.43 30 5/8 28 5/8 $.42 28 7/8 26 5/8
Second $.43 30 28 3/8 $.42 28 3/8 26 1/4
Third $.43 30 27 $.42 29 3/8 26
Fourth $.43 30 1/2 28 1/8 $.42 30 5/8 28 3/4
</TABLE>
KU Energy's Board has declared a common stock dividend of $.44 per share
payable March 14, 1997, to shareholders of record on February 25, 1997.
As of December 31, 1996, KU Energy had approximately 29,344 common
shareholders of record.
KU has paid cash dividends since 1939. KU Energy expects to continue this
policy, although future dividends are dependent on future earnings, capital
requirements and financial conditions. The dividend payout ratio (cash
dividends as a percentage of net income) was 79% for 1996 and 84% for 1995.
See Note 5 of the Notes to Consolidated Financial Statements, Common
Stock, in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13)
incorporated herein by reference for information regarding dividend
restrictions.
KU
All of the outstanding common stock of KU is held by KU Energy.
The following table sets forth the cash distributions (in thousands of
dollars) on common stock paid by KU for the periods indicated:
1996 1995
First Quarter $16,261 $15,789
Second Quarter $16,262 $15,789
Third Quarter $16,262 $15,789
Fourth Quarter $16,262 $15,883
See Note 5 of the Notes to Financial Statements, Common Stock, under
Item 8 for information regarding dividend restrictions.
-17-
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data - KU Energy
Year ended December 31, 1996 1995 1994 1993 1992
(dollars in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $ 236,229 $ 232,760 $ 213,574 $ 210,759 $ 194,817
Commercial 150,640 151,778 142,207 138,271 133,519
Industrial 136,856 130,066 120,043 111,857 102,808
Mine power 34,014 36,076 36,498 34,977 36,696
Public authorities 56,023 54,161 49,869 48,142 45,570
Total retail revenues 613,762 604,841 562,191 544,006 513,410
Sales for resale 89,208 75,940 89,665 62,463 58,979
Miscellaneous revenues and other 8,716 5,619 4,157 3,448 3,871
Provision for refund - litigation
settlement - - (19,385) (3,309) -
Total operating revenues 711,686 686,400 636,628 606,608 576,260
Operating Expenses:
Fuel used in generation (1) 198,198 189,845 170,654 178,910 168,470
Electric power purchased 62,490 69,579 61,442 34,711 32,753
Other operating expenses 125,351 124,044 114,551 106,124 95,109
Maintenance 64,170 62,599 66,141 59,458 61,270
Depreciation 80,612 75,268 65,441 60,811 58,931
Federal and state income taxes 50,247 43,426 43,904 47,752 40,992
Other taxes 15,049 15,038 14,789 14,357 13,401
Total operating expenses 596,117 579,799 536,922 502,123 470,926
Net Operating Income 115,569 106,601 99,706 104,485 105,334
Other Income and Deductions 8,203 11,655 11,530 10,362 12,162
Income Before Interest and
Other Charges and AFUDC 123,772 118,256 111,236 114,847 117,496
Interest and Other Charges:
Interest on long-term debt 37,584 36,095 32,147 31,650 39,571
Preferred stock dividend
requirements of Subsidiary 2,256 2,256 2,384 2,558 2,518
Other interest 2,120 4,031 2,414 1,249 1,394
Total interest and other charges 41,960 42,382 36,945 35,457 43,483
AFUDC 137 179 1,585 593 169
Net Income $ 81,949 $ 76,053 $ 75,876 $ 79,983 $ 74,182
Earnings per Average Common Share $ 2.17 $ 2.01 $ 2.01 $ 2.11 $ 1.96
Common Stock Data:
Shares Outstanding - average and
year-end 37,818 37,818 37,818 37,818 37,818
Dividends per Share of
Common Stock $ 1.72 $ 1.68 $ 1.64 $ 1.60 $ 1.56
(1) Amounts for 1994 and 1993 reflect reductions of $23 million and $4 million,
respectively, associated with refunds to customers related to a litigation
settlement with a former coal supplier.
</TABLE>
-18-
<PAGE>
<TABLE>
Item 6. Selected Financial Data - KU Energy
(continued)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,726,948 $1,714,974 $1,669,294 $1,573,194 $1,457,100
Capitalization: (in thousands)
Bonds $ 546,330 $ 545,830 $ 495,830 $ 441,830 $ 443,330
Notes 43 64 86 107 128
Unamortized premium on
long-term debt - 86 96 108 519
Preferred stock 40,000 40,000 40,000 40,000 40,000
Common stock equity 645,513 628,611 616,092 602,503 583,319
Total capitalization $1,231,886 $1,214,591 $1,152,104 $1,084,548 $1,067,296
% Total Capitalization
Represented by:
Long-term debt 44.4 44.9 43.0 40.8 41.6
Preferred stock 3.2 3.3 3.5 3.7 3.7
Common stock equity 52.4 51.8 53.5 55.5 54.7
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 16,510,347 15,223,851 15,524,844 14,934,839 13,700,313
Power purchased 3,165,589 3,254,861 3,066,917 1,926,299 2,032,110
Power interchanged - net 12,450 (6,569) 2,638 1,556 3,393
Total 19,688,386 18,472,143 18,594,399 16,862,694 15,735,816
Less - losses and company use 1,057,808 1,054,589 998,010 1,066,251 876,862
Kilowatt-hours sold 18,630,578 17,417,554 17,596,389 15,796,443 14,858,954
Sales classified:
Residential 5,148,364 5,016,012 4,706,058 4,702,697 4,278,098
Commercial 3,410,710 3,403,054 3,272,370 3,217,504 3,080,045
Industrial 4,107,537 3,850,647 3,641,469 3,409,213 3,093,113
Mine power 893,650 926,873 974,233 933,317 977,032
Public authorities 1,349,948 1,297,913 1,225,668 1,199,893 1,123,494
Total retail sales 14,910,209 14,494,499 13,819,798 13,462,624 12,551,782
Sales for resale 3,720,369 2,923,055 3,776,591 2,333,819 2,307,172
Total 18,630,578 17,417,554 17,596,389 15,796,443 14,858,954
Average Number of Customers 456,167 449,144 440,590 432,636 425,403
Residential Sales (per customer):
Average kilowatt-hours 13,531 13,377 12,781 12,995 12,007
Average revenue $ 620.87 $ 620.75 $ 580.05 $ 582.41 $ 546.80
System Capability - Megawatts:
KU's plants 3,639 3,509 3,265 3,164 3,163
Purchased contracts 393 394 540 365 293
Total system capability 4,032 3,903 3,805 3,529 3,456
Net System Maximum Demand -
Megawatts 3,391 3,341 3,127 3,176 2,845
Load Factor (%) 59.3 58.7 59.8 57.7 59.4
Heat Rate (BTU per KWH) (1) 10,351 10,377 10,306 10,367 10,344
Fuel - Average Cost per Ton (1) $ 27.68 $ 28.49 $ 28.84 $ 28.31 $ 27.88
Average Cost per Million BTU (1) $ 1.14 $ 1.18 $ 1.19 $ 1.17 $ 1.18
(1) Based on coal consumed
</TABLE>
-19-
<PAGE>
<TABLE>
Item 6. Selected Financial Data - KU
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
(in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $ 236,229 $ 232,760 $ 213,574 $ 210,759 $ 194,817
Commercial 150,640 151,778 142,207 138,271 133,519
Industrial 136,856 130,066 120,043 111,857 102,808
Mine power 34,014 36,076 36,498 34,977 36,696
Public authorities 56,023 54,161 49,869 48,142 45,570
Total retail revenues 613,762 604,841 562,191 544,006 513,410
Sales for resale 89,208 75,940 89,665 62,463 58,979
Miscellaneous revenues and other 8,741 5,649 4,181 3,428 3,432
Provision for refund -
litigation settlement - - (19,385) (3,309) -
Total operating revenues 711,711 686,430 636,652 606,588 575,821
Operating Expenses:
Fuel used in generation (1) 198,198 189,845 170,654 178,910 168,470
Electric power purchased 62,490 69,579 61,442 34,711 32,753
Other operating expenses 122,872 121,426 112,712 104,930 93,915
Maintenance 64,161 62,592 66,134 59,451 61,118
Depreciation 80,424 75,080 65,259 60,800 58,849
Federal and state income taxes 51,452 44,670 44,683 48,178 41,489
Other taxes 14,777 14,694 14,582 14,347 13,359
Total operating expenses 594,374 577,886 535,466 501,327 469,953
Net Operating Income 117,337 108,544 101,186 105,261 105,868
Other Income and Deductions 8,377 8,235 9,299 8,331 11,226
Income Before Interest Charges
and AFUDC 125,714 116,779 110,485 113,592 117,094
Interest Charges:
Interest on long-term debt 37,584 36,095 32,147 31,650 39,571
Other interest 2,104 4,021 2,411 1,249 1,394
Total interest charges 39,688 40,116 34,558 32,899 40,965
AFUDC 137 179 1,585 593 169
Net Income $ 86,163 $ 76,842 $ 77,512 $ 81,286 $ 76,298
Preferred Stock Dividend
Requirements 2,256 2,256 2,384 2,558 2,518
Net Income Applicable to Common
Stock $ 83,907 $ 74,586 $ 75,128 $ 78,728 $ 73,780
Common Dividends $ 65,047 $ 63,250 $ 61,644 $ 60,509 $ 108,996
(1) Amounts for 1994 and 1993 reflect reductions of $23 million and $4 million,
respectively, associated with refunds to customers related to a litigation settlement
with a former coal supplier.
</TABLE>
-20-
<PAGE>
<TABLE>
Item 6. Selected Financial Data - KU
(continued)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,673,055 $1,659,988 $1,618,100 $1,523,274 $1,408,453
Capitalization: (in thousands)
Bonds $ 546,330 $ 545,830 $ 495,830 $ 441,830 $ 443,330
Notes 43 64 86 107 128
Unamortized premium on
long-term debt - 86 96 108 519
Preferred stock 40,000 40,000 40,000 40,000 40,000
Preferred stock with mandatory
redemption - - - - -
Common stock equity 595,397 576,537 565,201 552,106 534,073
Total capitalization $1,181,770 $1,162,517 $1,101,213 $1,034,151 $1,018,050
% Total Capitalization
Represented by:
Long-term debt 46.2 47.0 45.1 42.7 43.6
Preferred stock 3.4 3.4 3.6 3.9 3.9
Common stock equity 50.4 49.6 51.3 53.4 52.5
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 16,510,347 15,223,851 15,524,844 14,934,839 13,700,313
Power purchased 3,165,589 3,254,861 3,066,917 1,926,299 2,032,110
Power interchanged - net 12,450 (6,569) 2,638 1,556 3,393
Total 19,688,386 18,472,143 18,594,399 16,862,694 15,735,816
Less - losses and company use 1,057,808 1,054,589 998,010 1,066,251 876,862
Kilowatt-hours sold 18,630,578 17,417,554 17,596,389 15,796,443 14,858,954
Sales classified:
Residential 5,148,364 5,016,012 4,706,058 4,702,697 4,278,098
Commercial 3,410,710 3,403,054 3,272,370 3,217,504 3,080,045
Industrial 4,107,537 3,850,647 3,641,469 3,409,213 3,093,113
Mine power 893,650 926,873 974,233 933,317 977,032
Public authorities 1,349,948 1,297,913 1,225,668 1,199,893 1,123,494
Total retail sales 14,910,209 14,494,499 13,819,798 13,462,624 12,551,782
Sales for resale 3,720,369 2,923,055 3,776,591 2,333,819 2,307,172
Total 18,630,578 17,417,554 17,596,389 15,796,443 14,858,954
Average Number of Customers 456,167 449,144 440,590 432,636 425,403
Residential Sales (per customer):
Average kilowatt-hours 13,531 13,377 12,781 12,995 12,007
Average revenue $ 620.87 $ 620.75 $ 580.05 $ 582.41 $ 546.80
System Capability - Megawatts:
KU's plants 3,639 3,509 3,265 3,164 3,163
Purchased contracts 393 394 540 365 293
Total system capability 4,032 3,903 3,805 3,529 3,456
Net System Maximum Demand -
Megawatts 3,391 3,341 3,127 3,176 2,845
Load Factor (%) 59.3 58.7 59.8 57.7 59.4
Heat Rate (BTU per KWH) (1) 10,351 10,377 10,306 10,367 10,344
Fuel - Average Cost per Ton(1) $ 27.68 $ 28.49 $ 28.84 $ 28.31 $ 27.88
Average Cost per Million BTU(1) $ 1.14 $ 1.18 $ 1.19 $ 1.17 $ 1.18
(1) Based on coal consumed
</TABLE>
-21-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information under the heading Management's Discussion and Analysis of
Financial Condition and Results of Operation is combined for KU Energy and
KU on pages 14 through 19 of KU Energy's 1996 Annual Report to Shareholders
(Exhibit 13) and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
KU ENERGY
The financial statements and supplementary data on pages 20 through 33 of KU
Energy's 1996 Annual Report to Shareholders (Exhibit 13) are incorporated
herein by reference.
KU
Page(s)
Index to Financial Statements and Supplementary Data:
Report of Independent Public Accountants 23
Statements of Income and Retained Earnings 24
Statements of Cash Flows 25
Balance Sheets 26
Statements of Capitalization 27
Notes to Financial Statements 28-38
Supplemental Quarterly Financial Information 39
-22-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kentucky Utilities Company:
We have audited the accompanying balance sheets and statements of
capitalization of Kentucky Utilities Company (a Kentucky and Virginia
corporation) as of December 31, 1996 and 1995, and the related statements of
income and retained earnings, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the management of Kentucky Utilities Company. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kentucky Utilities Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
January 28, 1997
-23-
<PAGE>
<TABLE>
Statements of
Income and
Retained
Earnings
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<S> <C> <C> <C>
Operating Revenues $ 711,711 $ 686,430 $ 636,652
Operating Expenses:
Fuel, principally coal, used in generation 198,198 189,845 170,654
Electric power purchased 62,490 69,579 61,442
Other operating expenses 122,872 121,426 112,712
Maintenance 64,161 62,592 66,134
Depreciation 80,424 75,080 65,259
Federal and state income taxes 51,452 44,670 44,683
Other taxes 14,777 14,694 14,582
Total Operating Expenses 594,374 577,886 535,466
Net Operating Income 117,337 108,544 101,186
Other Income and Deductions:
Interest and dividend income 1,733 2,838 4,295
Other income and deductions - net 6,710 5,467 6,098
Total Other Income and Deductions 8,443 8,305 10,393
Income Before Interest Charges 125,780 116,849 111,579
Interest Charges:
Interest on long-term debt 37,584 36,095 32,147
Other interest charges 2,033 3,912 1,920
Total Interest Charges 39,617 40,007 34,067
Net Income 86,163 76,842 77,512
Preferred Stock Dividend Requirements 2,256 2,256 2,384
Net Income Applicable to Common Stock $ 83,907 $ 74,586 $ 75,128
Retained Earnings Beginning of Year $ 268,992 $ 257,656 $ 244,429
Add Net Income 86,163 76,842 77,512
355,155 334,498 321,941
Deduct:
Dividends on preferred stock 2,256 2,256 2,384
Dividends on common stock 65,047 63,250 61,644
Preferred stock redemption expense - - 257
67,303 65,506 64,285
Retained Earnings End of Year $ 287,852 $ 268,992 $ 257,656
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
-24-
<PAGE>
<TABLE>
Statements of
Cash Flows
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 86,163 $ 76,842 $ 77,512
Items not requiring (providing) cash currently:
Depreciation 80,424 75,080 65,259
Deferred income taxes 3,750 15,502 (1,559)
Investment tax credit deferred (4,013) (4,095) (4,110)
Changes in current assets and liabilities:
Change in accounts receivable (1,111) (7,759) (255)
Change in accounts payable (9,040) (11,517) 5,511
Change in liability to ratepayers (6,599) (310) (29,958)
Change in escrow funds 6,599 312 30,841
Change in other current assets and liabilities 6,923 (511) (8,116)
Other - net 8,701 5,515 6,839
Net Cash Provided by Operating Activities 171,797 149,059 141,964
Cash Flows from Investing Activities:
Construction expenditures - utility (106,503) (124,515) (193,344)
Other 178 (119) 371
Net Cash Used by Investing Activities (106,325) (124,634) (192,973)
Cash Flows from Financing Activities:
Short-term borrowings - net (1,400) (20,700) 76,300
Issuance of long-term debt 35,666 49,288 53,305
Funds deposited with trustee - net 3,779 15,100 95
Retirement of long-term debt, including premiums (36,192) (21) (21)
Retirement of preferred stock, including premiums - - (20,302)
Payment of dividends (67,303) (65,506) (64,089)
Net Cash Provided (Used) by Financing Activities (65,450) (21,839) 45,288
Net Increase (Decrease) in Cash and Cash Equivalents 22 2,586 (5,721)
Cash and Cash Equivalents Beginning of Year 5,697 3,111 8,832
Cash and Cash Equivalents End of Year $ 5,719 $ 5,697 $ 3,111
Supplemental Disclosures
Cash paid for:
Interest $ 36,729 $ 37,961 $ 31,864
Income Taxes $ 47,539 $ 31,974 $ 45,270
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
-25-
<PAGE>
<TABLE>
Balance
Sheets Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Assets
Utility Plant:
<S> <C> <C>
Plant in service, at cost $ 2,482,812 $ 2,394,018
Less: Accumulated depreciation 1,067,911 997,366
1,414,901 1,396,652
Construction work in progress 63,435 61,410
Total Utility Plant 1,478,336 1,458,062
Current Assets:
Cash and cash equivalents 5,719 5,697
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable, net of allowance
for doubtful accounts 50,582 49,471
Accrued utility revenues 24,239 27,900
Fuel, principally coal, at average cost 30,895 29,438
Plant materials and operating supplies, at average cost 21,656 23,064
Other 7,486 8,121
Total Current Assets 140,577 154,033
Other Assets:
Unamortized loss on reacquired debt 10,838 11,304
Other 43,304 36,589
Total Other Assets 54,142 47,893
Total Assets $ 1,673,055 $ 1,659,988
Capitalization and Liabilities
Capitalization: (See Statements of Capitalization)
Common stock equity $ 595,397 $ 576,537
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
Total Capitalization 1,181,770 1,162,517
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 54,200 55,600
Accounts payable 28,960 38,000
Accrued interest 8,048 7,556
Accrued taxes 5,383 5,201
Customer deposits 8,746 6,876
Accrued payroll and vacations 9,862 8,706
Liability to ratepayers - coal contract litigation - 6,599
Other 5,728 6,752
Total Current Liabilities 120,948 135,311
Other Liabilities:
Accumulated deferred income taxes 238,542 231,717
Accumulated deferred investment tax credits 30,167 34,180
Regulatory tax liability 54,388 57,726
Other 47,240 38,537
Total Other Liabilities 370,337 362,160
Total Capitalization and Liabilities $ 1,673,055 $ 1,659,988
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
-26-
<PAGE>
<TABLE>
Statements of
Capitalization
Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Common Stock Equity:
Common stock, without par value,
<S> <C> <C>
outstanding 37,817,878 shares $ 308,140 $ 308,140
Capital stock expense and other (595) (595)
Retained earnings 287,852 268,992
Total Common Stock Equity 595,397 576,537
Preferred Stock, cumulative, without par value, $100 stated value
4 3/4%, outstanding 200,000 shares 20,000 20,000
6.53%, outstanding 200,000 shares 20,000 20,000
Total Preferred Stock 40,000 40,000
Long-Term Debt:
First Mortgage Bonds:
5.95% Series Q, due June 15, 2000 61,500 61,500
7 3/8% Series K, due December 1, 2002 - 35,500
6.32% Series Q, due June 15, 2003 62,000 62,000
5.99% Series S, due January 15, 2006 36,000 -
7.92% Series P, due May 15, 2007 53,000 53,000
7.55% Series R, due June 1, 2025 50,000 50,000
8.55% Series P, due May 15, 2027 33,000 33,000
295,500 295,000
First Mortgage Bonds, Pollution Control Series:
7 3/8% Pollution Control Series 7, due May 1, 2010 4,000 4,000
7.45% Pollution Control Series 8, due September 15, 2016 96,000 96,000
6 1/4% Pollution Control Series 1B, due February 1, 2018 20,930 20,930
6 1/4% Pollution Control Series 2B, due February 1, 2018 2,400 2,400
6 1/4% Pollution Control Series 3B, due February 1, 2018 7,200 7,200
6 1/4% Pollution Control Series 4B, due February 1, 2018 7,400 7,400
7.60% Pollution Control Series 7, due May 1, 2020 8,900 8,900
5 3/4% Pollution Control Series 9, due December 1, 2023 50,000 50,000
Variable Rate Pollution Control Series 10, due
November 1, 2024 54,000 50,800
Variable Rate County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facility Revenue Bonds, due
November 1, 2024 - 3,200
250,830 250,830
Total First Mortgage Bonds 546,330 545,830
Unamortized premium - 86
8% secured note, due January 5, 1999 (net of current maturity) 43 64
Total Long-Term Debt 546,373 545,980
Total Capitalization $ 1,181,770 $1,162,517
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
-27-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
1. Summary of Significant Accounting Policies
General
Kentucky Utilities Company (KU) is the principal subsidiary of KU Energy
Corporation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Certain amounts from prior periods have been
reclassified to conform with the current year presentation.
KU is a public utility engaged in producing, transmitting and selling
electric energy. KU provides electric service to about 432,900 customers
in over 600 communities and adjacent suburban and rural areas in 77
counties in central, southeastern and western Kentucky and to about
28,800 customers in 5 counties in southwestern Virginia.
Regulation
KU is exempt from regulation as a registered holding company under the
Public Utility Holding Company Act of 1935. KU is subject to regulation
by the Kentucky Public Service Commission (PSC), the Virginia State
Corporation Commission (SCC) and the Federal Energy Regulatory Commission
(FERC). With respect to accounting matters, KU maintains its accounts in
accordance with the Uniform System of Accounts as defined by these
agencies. KU's accounting policies conform to generally accepted
accounting principles applicable to rate regulated enterprises and
reflect the effects of the ratemaking process. Other than the
unamortized loss on reacquired debt, KU's regulatory assets are
immaterial.
Utility Plant
Utility plant is stated at the original cost of construction. The cost
of repairs of property units and replacements of minor items is charged
to maintenance expense as incurred. Property unit replacements are
capitalized and the depreciation reserve is charged with the cost, less
net salvage, of units retired.
Depreciation
Provision for depreciation of utility plant is based on straight-line
composite rates applied to the cost of depreciable property. The rates
approximated 3.5% in 1996 and 1995 and 3.4% in 1994.
Cash and Cash Equivalents
For purposes of reporting cash flows, KU considers highly liquid
investments with a maturity of three months or less from the date of
purchase to be cash equivalents.
-28-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
KU utilizes a cash management mechanism that funds certain bank accounts
for checks as they are presented to those banks. KU classified checks
written but not presented to those banks, which amounted to $6.1 million
and $10.5 million at December 31, 1996 and 1995, respectively, in
accounts payable.
Financial Instruments
KU's temporary cash investments are classified as held-to-maturity and
are reported under the caption "Cash and cash equivalents" on the Balance
Sheet.
Stock-Based Compensation
KU adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," in 1996 by continuing to
account for stock compensation in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." If KU
had recognized compensation expense for awards under its stock-based
compensation plan according to the new standard, net income and earnings
per share for the year ended 1996, 1995 and 1994 would not have been
materially different from amounts recorded.
Unamortized Loss on Reacquired Debt
KU defers costs (primarily call premiums) arising from the reacquisition
or retirement of long-term debt. Costs related to refinanced debt are
amortized over the lives of the new debt issues. Costs related to
retired debt not refinanced are amortized over the period to the
scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. KU
accrues an estimate of revenues for electric service furnished from the
meter reading dates to the end of each accounting period. Cost of fuel
used in electric generation is charged to expense as the fuel is
consumed. Fuel adjustment clauses adjust operating revenues for changes
in the level of fuel costs charged to expense. An environmental
surcharge for Kentucky retail customers, implemented in August 1994,
permits the utility to recover certain ongoing operating and capital
costs of compliance with federal, state or local environmental
requirements associated with the production of energy from coal,
including the Federal Clean Air Act as amended. See Note 9 of the Notes
to Financial Statements, "Environmental Cost Recovery," for an update of
environmental surcharge legal proceedings.
Pursuant to regulatory orders, KU had been refunding fuel cost savings
related to the resolution of a coal contract dispute. Refunds were made
to Virginia retail customers during the period August 1993 through
June 1994. Refunds were made to wholesale customers under the
jurisdiction of the FERC in lump sum payments in September 1993. Refunds
to Kentucky retail customers commenced in July 1994. Pursuant to
-29-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
legislation adopted in 1996, KU paid the remaining balance of unclaimed
Kentucky retail customer refunds to the Kentucky Workers' Compensation
Funding Commission to pay certain workers compensation benefits.
By virtue of the legislation, KU's payment of the unclaimed refunds to
the State released KU from any future liability to customers relating to
such refunds. The legislation also preserved the rights of ratepayers
entitled to claim a refund who have not yet done so and authorized the
Funding Commission to honor future refund claims using any funds
available.
Operating revenues and fuel expense for 1994 were reduced by
$19.4 million and $23.1 million, respectively, resulting from the above-
mentioned refunds. The refunds had no impact on operating revenues or
fuel expense for 1995 or 1996. The difference between the reduction in
operating revenues and the reduction in fuel expense is attributable to
incurred litigation costs, fuel cost savings related to opportunity sales
and costs incurred to administer the refund plan. These amounts were
retained by KU pursuant to regulatory orders.
Income Taxes
KU establishes deferred tax assets and liabilities, as appropriate, for
all temporary differences, and adjusts deferred tax balances to reflect
changes in tax rates expected to be in effect during the periods the
temporary differences reverse. Investment tax credits resulted from
provisions of the tax law which permitted a reduction of KU's tax
liability based on certain construction expenditures. Such credits have
been deferred in the accounts and are being amortized as reductions in
income tax expense over the life of the related property. Because of
rate regulation, changes in tax rates are deferred and amortized as the
temporary differences reverse.
2. Income Taxes
KU is included in the consolidated federal tax return of its parent
company, KU Energy. Income taxes are allocated to the individual
companies, including KU, based on their respective taxable income or
loss.
-30-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
The accumulated deferred income taxes as set forth in the Balance Sheet
arise from the following temporary differences:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Deferred Tax Assets:
Unamortized investment tax credit and other property
<S> <C> <C>
related differences $ 29,294 $ 31,667
Other 20,583 15,990
Less: Amounts included in current assets 4,723 4,985
45,154 42,672
Deferred Tax Liabilities:
Accelerated depreciation and other property
related differences 278,036 268,203
Other 5,660 6,186
283,696 274,389
Net accumulated deferred income tax liability $238,542 $231,717
</TABLE>
<TABLE>
The components of income tax expense are as follows:
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<CAPTION>
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 35,656 $ 23,597 $ 37,058
- state 7,387 5,134 8,812
43,043 28,731 45,870
Deferred - federal 5,510 12,165 (1,114)
- state 2,899 3,845 13
8,409 16,010 (1,101)
Deferred investment tax credit - (71) (86)
51,452 44,670 44,683
Income taxes charged to Other Income and Deductions:
Current - federal 3,565 854 1,537
- state 861 190 344
4,426 1,044 1,881
Deferred - federal (3,665) (406) (365)
- state (994) (102) (93)
(4,659) (508) (458)
Amortization of deferred investment tax credit (4,013) (4,024) (4,024)
(4,246) (3,488) (2,601)
Total income tax expense $ 47,206 $ 41,182 $ 42,082
</TABLE>
-31-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
KU's effective income tax rate, determined by dividing income taxes by
the sum of such taxes and net income, was 35.4% in 1996, 34.9% in 1995
and 35.2% in 1994. The difference between the effective rate and the
statutory federal income tax rate is attributable to the following
factors:
<TABLE>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Federal income tax computed at 35% $ 46,679 $ 41,308 $ 41,858
Add (Deduct):
State income taxes, net of federal
income tax benefit 6,599 5,894 5,899
Amortization of deferred investment tax credit (4,013) (4,095) (4,110)
Other, net (2,059) (1,925) (1,565)
Total income tax expense $ 47,206 $ 41,182 $ 42,082
</TABLE>
3. Retirement Benefits
Pensions
KU has a noncontributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan are based
on years of service, final average base pay and age at retirement. KU's
funding policy is to make such contributions as are necessary to finance
the benefits provided under the plan. KU's contributions meet the
funding standards set forth in the Employee Retirement Income Security
Act of 1974. The plan assets consist primarily of common stocks,
corporate bonds and U.S. Government Securities.
KU also has a Supplemental Security Plan for certain management
personnel. Retirement benefits under this plan are based on years of
service, earnings and age at retirement. The plan has no advance
funding. Benefit payments are made to retired employees or their
beneficiaries from the general assets of KU.
The reconciliation of the funded status of the retirement plans and the
pension liability recorded by KU is as follows:
<TABLE>
As of December 31, (in thousands of dollars) 1996 1995
<CAPTION>
<S> <C> <C>
Fair value of plan assets $ 191,778 $ 179,203
Projected benefit obligation (194,874) (183,795)
Plan assets less than projected benefit obligation (3,096) (4,592)
Unrecognized net (gain)/loss from past
experience different than that assumed (12,448) (5,907)
Unrecognized prior service cost 3,990 4,344
Unrecognized net asset (1,500) (1,649)
Regulatory effect recorded 201 (1,634)
Pension liability $ (12,853) $ (9,438)
Accumulated benefit obligation (including vested benefits
of $147,103 and $139,250, respectively) $ 149,814 $ 141,531
</TABLE>
-32-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
Components of Net Pension Cost:
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 6,399 $ 6,060 $ 6,017
Interest cost on projected benefit obligation 13,856 13,560 12,366
Actual return on plan assets (20,798) (27,064) (3,723)
Net amortization and deferral 6,568 14,608 (8,765)
Regulatory effect recorded (1,835) (1,595) (1,916)
Net pension cost $ 4,190 $ 5,569 $ 3,979
</TABLE>
<TABLE>
<CAPTION>
Assumptions Used in Determining Actuarial Valuations:
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate used to
determine the projected benefit obligation 7.75% 7.75% 8.25%
Rate of increase for compensation levels (1) 4.75% 4.75% 5.50%
Weighted average expected long-term rate
of return on assets 8.25% 8.25% 8.25%
(1) 4.75%, 4.75%, and 6.00%, respectively, used for the Supplemental Security Plan
valuation.
</TABLE>
Other Postretirement Benefits
KU provides certain health care and life insurance benefits to eligible
retired employees and their dependents. KU accrues, during the years
that the employee renders service, the expected cost of providing these
benefits for retired employees, their beneficiaries and covered
dependents. The postretirement health care plan is contributory for
employees who retired after December 31, 1992, with retiree contributions
indexed annually based upon the experience of retiree medical expenses
for the preceding year. Pre-1993 retirees are not required to
contribute to the plan. KU's employees become eligible for retiree medical
benefits after 15 years of service and attainment of age 55. The life
insurance plan is noncontributory and is based on compensation levels
prior to retirement.
In 1993, KU began funding, in addition to current requirements for
benefit payments, the maximum tax-favored amount allowed through certain
tax deductible funding vehicles. KU anticipates making similar funding
decisions in future years, but will consider and make such funding
decisions on the basis of tax, regulatory and other relevant conditions
in effect at such times. The plan assets consist primarily of equity
investments.
-33-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
The reconciliation of the funded status of the plans and the
postretirement benefit liability recorded by KU is as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (29,313) $ (28,575)
Fully eligible active plan participants (8,678) (8,250)
Other active plan participants (28,528) (26,831)
(66,519) (63,656)
Plan assets at fair value 13,322 10,427
Accumulated postretirement benefit obligation
in excess of plan assets (53,197) (53,229)
Unrecognized net (gain)/loss from past
experience different from that assumed (20,029) (18,773)
Unrecognized transition obligation 53,460 56,801
Accrued postretirement benefit liability $ (19,766) $ (15,201)
</TABLE>
<TABLE>
Components of the net periodic postretirement benefit cost are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
Service cost (benefits attributed to service
<S> <C> <C> <C>
during the period) $ 1,859 $ 1,918 $ 2,105
Interest cost on accumulated postretirement
benefit obligation 4,751 4,926 4,926
Actual return on plan assets (1,633) (1,722) (80)
Net amortization and deferral 103 792 (118)
Amortization of transition obligation 3,341 3,341 3,341
Regulatory effect recorded - - 689
Net periodic postretirement benefit cost $ 8,421 $ 9,255 $ 10,863
</TABLE>
<TABLE>
Assumptions Used in Determining Actuarial Valuations: 1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate used to
determine the projected benefit obligation 7.75% 7.75% 8.25%
Rate of increase for compensation levels 4.75% 4.75% 5.50%
Weighted average expected long-term rate of
return on assets 8.00% 8.00% 8.25%
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits is assumed for 1997. The
health care cost trend rate is assumed to decrease gradually to 4.75%
through 2003 and remain at that level thereafter over the projected
payout period of the benefits. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996, by
$10.4 million (16%) and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year
by $1.2 million (19%).
-34-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
4. Commitments and Contingencies
<TABLE>
The effects of certain commitments made by KU are estimated below:
<CAPTION>
(in thousands of dollars) 1997 1998 1999 2000 2001 1997-2001
Estimated Construction
<S> <C> <C> <C> <C> <C> <C>
Expenditures $ 89,700 $ 98,300 $ 114,300 $ 113,700 $115,200 $ 531,200
Estimated Contract
Obligations:
Fuel 142,200 86,500 48,300 6,600 - 283,600
Purchased power 31,600 30,400 29,000 28,000 30,600 149,600
Operating leases 2,800 2,800 2,700 2,700 2,700 13,700
First Mortgage Bond
Maturities:
Series Q $ - $ - $ - $ 61,500 $ - $ 61,500
</TABLE>
Construction Program
KU frequently reviews its construction program and may revise its
projections of related expenditures based on revisions to its estimated
load growth and projections of its future load.
See Management's Discussion and Analysis - Construction Requirements in
KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated
herein by reference for a discussion of future construction expenditures
including those relating to construction of peaking units.
Coal Supply
Obligations under KU's coal purchase contracts are stated at prices
effective January 1, 1997, and are subject to changes as defined by the
terms of the contracts.
Purchased Power
KU has purchase power arrangements with Owensboro Municipal Utilities
(OMU), Electric Energy, Inc. (EEI), and other parties. Under the OMU
agreement, which expires on January 1, 2020, KU purchases, on an economic
basis, all of the output of a 400-MW generating station not required by
OMU. The amount of purchased power available to KU during 1997-2001,
which is expected to be approximately 8% of KU's total kWh requirements,
is dependent upon a number of factors including the units' availability,
maintenance schedules, fuel costs and OMU requirements. Payments are
based on the total costs of the station allocated per terms of the OMU
agreement, which generally follows delivered kWh. Included in the total
costs is KU's proportionate share of debt service requirements on
$192.9 million of OMU bonds outstanding at December 31, 1996. The debt
service is allocated to KU based on its annual allocated share of
capacity, which averaged approximately 48% in 1996.
KU has a 20% equity ownership in EEI, which is accounted for on the
equity method of accounting. KU's entitlement is 20% of the available
-35-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
capacity of a 1,000-MW station. Payments are based on the total costs of
the station allocated per terms of an agreement among the owners, which
generally follows delivered kWh.
KU has several other contracts for purchased power during 1997-2001 of
various MW capacities and for varying periods with a maximum entitlement
at any time of 282 MW.
Credit Arrangements
KU has aggregate bank lines of credit of $60 million, all of which
remained unused at December 31, 1996. All of these credit lines expire
in December 1999. In support of these lines of credit, KU compensates
the banks by paying a commitment fee.
5. Common Stock
KU is subject to restrictions applicable to all corporations under
Kentucky and Virginia law on the use of retained earnings for cash
dividends on common stock, as well as those contained in its Mortgage
Indenture and Articles of Incorporation. At December 31, 1996, there
were no restricted retained earnings.
6. Preferred and Preference Stock
Each series of preferred stock is redeemable at the option of KU upon 30
days' written notice as follows:
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.)
$103.265 through November 30, 2004, decreasing
approximately $.33 each twelve months thereafter to
$100 on or after December 1, 2013.
As of December 31, 1996, there were 5.3 million shares of KU preferred
stock, having a maximum aggregate stated value of $200 million,
authorized for issuance, of which 400,000 shares were outstanding.
As of December 31, 1996, there were 2 million shares of KU Preference
Stock without par value, authorized for issuance.
7. Short-Term and Long-Term Debt
KU's short-term financing requirements are satisfied through the sale of
commercial paper. The weighted average interest rate on the year-end
balance was 6.17% for 1996 and 5.83% for 1995.
-36-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
In 1994, KU entered into a loan agreement with the County of Carroll,
Kentucky to finance the construction of solid waste disposal facilities.
The County of Carroll issued $54 million of variable rate revenue bonds,
with the proceeds held in a construction fund. In 1994, 1995 and 1996,
KU drew down $35.7 million, $15.1 million and $3.2 million, respectively,
relating to these bonds. Kentucky Utilities Pollution Control Series 10
Bonds are issued under KU's Mortgage Indenture.
Under the provisions for the variable rate revenue bonds, KU can choose
between various interest rate options. Currently, the daily interest
rate option is being utilized. The average annual interest rate on the
bonds during 1996 and 1995 was 3.53% and 3.95%, respectively. The
variable rate bonds are subject to tender for purchase at the option of
the holder and to mandatory tender for purchase upon the occurrence of
certain events. If tendered bonds are not remarketed, KU has available
lines of credit which may be used to repurchase the bonds.
In January 1996, KU issued $36 million of Series S First Mortgage Bonds
which bear interest at 5.99% and will mature January 15, 2006. The
proceeds were used to redeem $35.5 million of Series K First Mortgage
Bonds.
Substantially all of KU's utility plant is pledged as security for the
first mortgage bonds.
8. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
The carrying values of cash and cash equivalents, escrow funds,
construction funds, short-term borrowings, commercial paper and customer
deposits approximate fair value because of the short maturity of these
amounts.
Long-term debt fair values are based on quoted market prices for KU's
first mortgage bonds and on current rates available to KU for debt of the
same remaining maturities for KU's pollution control bonds and promissory
note. The carrying value of long-term debt on December 31, 1996 and 1995
was $546 million and $546 million, respectively, and the estimated fair
value was $587 million and $594 million, respectively.
If the difference between fair value and carrying value of KU's long-term
debt were settled at amounts approximating those above, the anticipated
regulatory treatment (based on the current regulatory environment) would
allow recovery of these amounts in rates over a prescribed amortization
period. Accordingly, any settlement would not have a material impact on
KU's financial position or results of operations.
-37-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
9. Environmental Cost Recovery
Since August 1994, KU has been collecting an environmental surcharge from
its Kentucky retail customers under a Kentucky statute which authorizes
electric utilities (including KU) to implement, beginning January 1,
1993, an environmental surcharge. The surcharge is designed to recover
certain operating and capital costs of compliance with federal, state or
local environmental requirements associated with the production of energy
from coal, including the Federal Clean Air Act as amended. KU's
environmental surcharge was approved by the PSC in July 1994 and was
implemented in August 1994. The total surcharge collections from
August 1, 1994 through December 31, 1996 were approximately $40 million.
The constitutionality of the surcharge statute was challenged in the
Franklin County (Kentucky) Circuit Court in an action brought against KU
and the PSC by the Attorney General of Kentucky and joined by
representatives of consumer groups. In July 1995, the Circuit Court
entered a judgment upholding the constitutionality of the statute, but
vacating that part of the PSC's July 1994 order which the judgment
describes as allowing KU to recover, under the surcharge, certain
environmental expenditures characterized by the Circuit Court as having
been incurred before January 1, 1993. The Circuit Court further ordered
the case remanded to the PSC for a determination in accordance with the
judgment. KU and the PSC assert that none of the costs included in the
surcharge were incurred prior to June 1994.
The Attorney General and other consumer representatives appealed to the
Kentucky Court of Appeals that part of the Circuit Court judgment
upholding the constitutionality of the surcharge statute. The PSC and KU
appealed that part of the judgment denying recovery of certain
environmental expenditures characterized by the Circuit Court as having
been incurred before January 1, 1993. The PSC has ordered all surcharge
revenues collected by KU from February 1, 1995 subject to refund pending
final determination of all appeals. The total surcharge collections from
February 1, 1995 through December 31, 1996 were approximately
$36 million.
KU believes the constitutionality of the surcharge statute will be
upheld, but it cannot predict the outcome of that part of the Circuit
Court judgment disallowing recovery of certain environmental expenditures
characterized by the Circuit Court as having been incurred before
January 1, 1993. If the Circuit Court judgment is ultimately upheld as
entered, KU estimates that the amount it would be required to refund
(which is based solely on costs associated with certain environmental
expenditures characterized by the Circuit Court as having been incurred
before January 1, 1993) for surcharge collections through December 31,
1996, from the implementation of the surcharge would be approximately
$11 million, and from February 1, 1995 would be approximately $9 million.
At this time, KU has not recorded any reserve for refund.
-38-
<PAGE>
Supplementary
Quarterly
Financial
Information
(Unaudited)
Kentucky Utilities Company
Quarterly financial results for 1996 and 1995 are summarized below.
Generally, quarterly results may fluctuate due to seasonal variations,
changes in fuel costs and other factors.
<TABLE>
<CAPTION>
Quarter 4th 3rd 2nd 1st
(in thousands of dollars)
1996
<S> <C> <C> <C> <C>
Operating Revenues $ 174,924 $ 178,275 $ 167,516 $ 190,996
Net Operating Income 28,029 30,457 23,863 34,988
Net Income 19,746 22,724 16,190 27,503
Net Income Applicable
to Common Stock 19,182 22,160 15,626 26,939
1995
Operating Revenues $ 170,152 $ 194,373 $ 154,757 $ 167,148
Net Operating Income 30,626 33,073 18,283 26,562
Net Income 22,438 24,915 10,561 18,928
Net Income Applicable
to Common Stock 21,874 24,351 9,997 18,364
</TABLE>
These quarterly amounts reflect, in KU's opinion, all adjustments
(including only normal recurring adjustments) necessary for a fair
presentation.
-39-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None for KU Energy or KU.
PART III
Item 10. Directors and Executive Officers of the Registrants
The information required by Item 10 for the Company and KU relating to each
director and each nominee for election as a director at the Company's and
KU's 1997 Annual Shareholders Meetings is set forth in the Company's
definitive proxy statement (the Proxy Statement) filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual
Shareholders Meeting. Such information is incorporated herein by reference
to the material appearing in the Proxy Statement under the caption
"Election of Directors--General" and is also filed herewith as
Exhibit 99.03. Information required by this item relating to executive
officers of the Company and KU is set forth under a separate caption in
Part I hereof.
Item 11. Executive Compensation
The information required by Item 11 for the Company and KU is incorporated
herein by reference to the material appearing in the Proxy Statement under
the caption "Election of Directors -- Directors' Compensation, and --
Executive Compensation" and is also filed herewith as Exhibit 99.03 (but
excluding any information contained under the subheadings -- "Report of
Compensation Committee on Executive Compensation," -- "Performance Graph").
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 for the Company and KU is incorporated
herein by reference to the material appearing in the Proxy Statement under
the caption "Election of Directors--Voting Securities Beneficially Owned by
Directors, Nominees and Executive Officers" and is also filed herewith as
Exhibit 99.03.
Item 13. Certain Relationships and Related Transactions
None for KU Energy or KU.
-40-
<PAGE>
PART IV
KU ENERGY AND KU
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page of this
Report on
Form 10-K
KU Energy KU
(a) (1) Financial Statements**
Report of Independent Public Accountants * 23
Statements of Income and Retained Earnings
for the years ended December 31, 1996,
1995 and 1994 * 24
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 * 25
Balance Sheets as of December 31, 1996 and 1995 * 26
Statements of Capitalization as of
December 31, 1996, and 1995 * 27
Notes to Financial Statements * 28
(a) (2) All financial statement schedules for KU Energy
and KU are omitted as not applicable or not
required under Regulation S-X.
* Incorporated by reference from KU Energy's 1996 Annual Report to
Shareholders (Exhibit 13).
** The KU Energy consolidated financial statements, including notes, are
not included in the KU Annual Report on Form 10-K.
-41-
<PAGE>
(3) Exhibits - KU Energy and KU
Applicable to Form
10-K of
KU
No. Description Energy KU Page(s)
3.01 Amended and Restated Articles of
Incorporation of KU Energy Corporation.
(Exhibit 3A to Form 10-K Annual Report of KU
Energy for the year ended December 31,
1992). Incorporated by reference. x
3.02 Amended and Restated Articles of
Incorporation of Kentucky Utilities Company.
(Exhibits 4.03 and 4.04 to Form 8-K Current
Report of KU, dated December 10, 1993).
Incorporated by reference. x
3.03 By-laws of KU Energy Corporation dated
July 29, 1996 (Exhibit 4.01 to Form 10-Q
Quarterly Report for the quarter ended
June 30, 1996 of KU Energy and KU).
Incorporated by reference. x
3.04 By-laws of Kentucky Utilities Company dated
July 29, 1996. (Exhibit 4.02 to Form 10-Q
Quarterly Report for the quarter ended
June 30, 1996 of KU Energy and KU).
Incorporated by reference. x
4.01 Rights Agreement, dated as of January 27,
1992, by and between KU Energy Corporation
and Illinois Stock Transfer Company
(Exhibit 4.1 to Form 8-K Current Report of
KU Energy dated January 27, 1992).
Incorporated by reference. x
4.02 Indenture of Mortgage or Deed of Trust dated
May 1, 1947, between Kentucky Utilities
Company and First Trust National Association
(successor Trustee) and a successor
individual co-trustee, as Trustees (the
Trustees) (Amended Exhibit 7(a) in File No.
2-7061), and Supplemental Indentures thereto
dated, respectively, January 1, 1949 (Second
Amended Exhibit 7.02 in File No. 2-7802),
July 1, 1950 (Amended Exhibit 7.02 in File
No. 2-8499), June 15, 1951 (Exhibit 7.02(a)
in File No. 2-8499), June 1, 1952 (Amended
Exhibit 4.02 in File No. 2-9658), April 1,
1953 (Amended Exhibit 4.02 in File
No. 2-10120), April 1, 1955 (Amended
Exhibit 4.02 in File No. 2-11476), April 1,
1956 (Amended Exhibit 2.02 in File
-42-
<PAGE>
Applicable to Form
10-K of
KU
No. Description Energy KU Page(s)
4.02 No. 2-12322), May 1, 1969 (Amended
con. Exhibit 2.02 in File No. 2-32602), April 1,
1970 (Amended Exhibit 2.02 in File No.
2-36410), September 1, 1971 (Amended
Exhibit 2.02 in File No. 2-41467),
December 1, 1972 (Amended Exhibit 2.02 in
File No. 2-46161), April 1, 1974 (Amended
Exhibit 2.02 in File No. 2-50344),
September 1, 1974 (Exhibit 2.04 in File
No. 2-59328), July 1, 1975 (Exhibit 2.05 in
File No. 2-59328), May 15, 1976 (Amended
Exhibit 2.02 in File No. 2-56126), April 15,
1977 (Exhibit 2.06 in File No. 2-59328),
August 1, 1979 (Exhibit 2.04 in File
No. 2-64969), May 1, 1980 (Exhibit 2 to
Form 10-Q Quarterly Report of KU for the
quarter ended June 30, 1980), September 15,
1982 (Exhibit 4.04 in File No. 2-79891),
August 1, 1984 (Exhibit 4B to Form 10-K
Annual Report of KU for the year ended
December 31, 1984), June 1, 1985 (Exhibit 4
to Form 10-Q Quarterly Report of KU for the
quarter ended June 30, 1985), May 1, 1990
(Exhibit 4 to Form 10-Q Quarterly Report of
KU for the quarter ended June 30, 1990),
May 1, 1991 (Exhibit 4 to Form 10-Q
Quarterly Report of KU for the quarter ended
June 30, 1991), May 15, 1992 (Exhibit 4.02
to Form 8-K of KU dated May 14, 1992),
August 1, 1992 (Exhibit 4 to Form 10-Q
Quarterly Report of KU for the quarter ended
September 30, 1992), June 15, 1993
(Exhibit 4.02 to Form 8-K of KU dated
June 15, 1993) and December 1, 1993
(Exhibit 4.01 to Form 8-K of KU dated
December 10, 1993), November 1, 1994
(Exhibit 4.C to Form 10-K Annual Report of
KU for the year ended December 31, 1994),
June 1, 1995 (Exhibit 4 to Form 10-Q
Quarterly Report of KU for the quarter ended
June 30, 1995) and January 15, 1996
(Exhibit 4.E to Form 10-K Annual Report of
KU for the year ended December 31, 1995).
Incorporated by reference. x x
-43-
<PAGE>
Applicable to Form
10-K of
KU
No. Description Energy KU Page(s)
4.03 Supplemental Indenture dated March 1, 1992
between Kentucky Utilities Company and the
Trustees, providing for the conveyance of
properties formerly held by Old Dominion
Power Company (Exhibit 4B to Form 10-K
Annual Report of KU for the year ended
December 31, 1992). Incorporated by
reference. x x
10.01 KU's Amended and Restated Performance Share
Plan (Exhibit 10.A to Form 10-Q Quarterly
Report of KU for the quarter ended June 30,
1993). Incorporated by reference. x x
10.02 KU's Annual Performance Incentive Plan
(Exhibit 10B to Form 10-K Annual Report of
KU for the year ended December 31, 1990).
Incorporated by reference. x x
10.03 Amendment No. 1 to KU's Annual Performance
Share Plan. x x 50-54
10.04 Amendment No. 1 to KU's Annual Performance
Incentive Plan (Exhibit 10D to Form 10-K
Annual Report of KU for the year ended
December 31, 1991). Incorporated by
reference. x x
10.05 Amendment No. 2 to KU's Annual Performance
Incentive Plan (Exhibit 10.H to Form 10-K
Annual Report of KU for the year ended
December 31, 1993). Incorporated by
reference. x x
10.06 Amendment No. 3 to KU's Annual Performance
Incentive Plan (Exhibit 10.I to Form 10-K
Annual Report of KU for the year ended
December 31, 1993). Incorporated by
reference. x x
10.07 Amendment No. 4 to KU's Annual Performance
Incentive Plan. x x 55-59
10.08 KU's Executive Optional Deferred
Compensation Plan. x x 60-81
10.09 KU's Director Retirement Retainer Program,
and Amendment No. 1 (Exhibit 10G to
Form 10-K Annual Report of KU for the year
ended December 31, 1991). Incorporated by
reference. x x
10.10 Amendment No. 2 to KU's Director Retirement
Retainer Program. x x 82-84
-44-
<PAGE>
Applicable to Form
10-K of
KU
No. Description Energy KU Page(s)
10.11 Amendment No. 3 to KU's Director Retirement
Retainer Program. x x 85-87
10.12 KU's Supplemental Security Plan (Exhibit 10I
to Form 10-K Annual Report of KU for the
year ended December 31, 1991). Incorporated
by reference. x x
10.13 Amendment No. 1 to KU's Supplemental
Security Plan (Exhibit 10.J to Form 10-K
Annual Report of KU for the year ended
December 31, 1994). Incorporated by
reference. x x
10.14 Amendment No. 2 to KU's Supplemental
Security Plan (Exhibit 10.K to Form 10-K
Annual Report of KU for the year ended
December 31, 1994). Incorporated by
reference. x x
10.15 Amendment No. 3 to KU's Supplemental
Security Plan. x x 88-94
10.16 KU's Amended and Restated Director Deferred
Compensation Plan. x x 95-116
10.17 KU Energy's Performance Share Plan
(Exhibit 10A to Form 10-Q Quarterly Report
of KU Energy for the quarter ended June 30,
1993). Incorporated by reference. x
10.18 Amendment No. 1 to KU Energy's Performance
Share Plan. x 117-121
10.19 KU Energy's Annual Performance Incentive
Plan of January 1993 (Exhibit 10.J to Form
10-K Annual Report of KU Energy for the year
ended December 31, 1993). Incorporated by
reference. x
10.20 Amendment No. 1 to KU Energy's Annual
Performance Incentive Plan (Exhibit 10.K to
Form 10-K Annual Report of KU Energy for the
year ended December 31, 1993).
Incorporated by reference. x
10.21 Amendment No. 2 to KU Energy's Annual
Performance Incentive Plan of January 1993. x 122-126
10.22 KU Energy's Annual Performance Incentive
Plan as amended and restated effective as of
January 28, 1997. x 127-148
10.23 KU Energy's Executive Optional Deferred
Compensation Plan. x 149-172
-45-
<PAGE>
Applicable to Form
10-K of
KU
No. Description Energy KU Page(s)
10.24 KU Energy's Director Retirement Retainer
Program (Exhibit 10J to Form 10-K Annual
Report of KU Energy for the year ended
December 31, 1992). Incorporated by
reference. x
10.25 Amendment No. 1 to KU Energy's Director
Retirement Retainer Program. x 173-175
10.26 KU Energy's Amended and Restated Director
Deferred Compensation Plan. x 176-197
10.27 KU Energy s Long-Term Incentive Plan. x 198-231
12 Computation of Ratio of Earnings to Fixed
Charges x 232
13 Portions of 1996 KU Energy Annual Report to
Shareholders x x* 233-260
21 List of Subsidiaries x x 261
23 Consent of Independent Public Accountants -
KU Energy and KU x x 262
27.01 Financial Data Schedule of KU Energy** x
27.02 Financial Data Schedule of KU** x
99.01 Description of Common Stock - KU Energy x 263-265
99.02 Description of Common Stock - KU x 266-267
99.03 Director and Officer Information x 268-276
99.04 KU Employee Savings Plan as Amended and
Restated effective as of January 1, 1997 x x 277-326
99.05 KU Employee Savings Plan Trust effective
January 2, 1997 x x 327-341
99.06 Cautionary Statements - KU Energy and KU x x 342-343
Note - Exhibit numbers 10.01 through 10.27 are management contracts or
compensatory plans or arrangements required to be filed as exhibits to this
Form 10-K.
* Only the Management's Discussion and Analysis of Financial Condition and
Results of Operations is included or incorporated in the Annual Report on
Form 10-K of Kentucky Utilities.
** Included in electronic filing only.
-46-
<PAGE>
The following instruments defining the rights of holders of certain long-
term debt of KU have not been filed with the Securities and Exchange
Commission but will be furnished to the Commission upon request.
1. Loan Agreement dated as of May 1, 1990 between KU and the County of
Mercer, Kentucky, in connection with $12,900,000 County of Mercer,
Kentucky, Collateralized Solid Waste Disposal Facility Revenue
Bonds (KU Project) 1990 Series A, due May 1, 2010 and May 1, 2020.
2. Loan Agreement dated as of May 1, 1991 between KU and the County of
Carroll, Kentucky, in connection with $96,000,000 County of Carroll,
Kentucky, Collateralized Pollution Control Revenue Bonds (KU
Project) 1992 Series A, due September 15, 2016.
3. Loan Agreement dated as of August 1, 1992 between KU and the County
of Carroll, Kentucky, in connection with $2,400,000 County of
Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds
(KU Project) 1992 Series C, due February 1, 2018.
4. Loan Agreement dated as of August 1, 1992 between KU and the County
of Muhlenberg, Kentucky, in connection with $7,200,000 County of
Muhlenberg, Kentucky, Collateralized Pollution Control Revenue Bonds
(KU Project) 1992 Series A, due February 1, 2018.
5. Loan Agreement dated as of August 1, 1992 between KU and the County
of Mercer, Kentucky, in connection with $7,400,000 County of Mercer,
Kentucky, Collateralized Pollution Control Revenue Bonds (KU
Project) 1992 Series A, due February 1, 2018.
6. Loan Agreement dated as of August 1, 1992 between KU and the County
of Carroll, Kentucky, in connection with $20,930,000 County of
Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds
(KU Project) 1992 Series B, due February 1, 2018.
7. Loan Agreement dated as of December 1, 1993, between KU and the
County of Carroll, Kentucky, in connection with $50,000,000 County
of Carroll, Kentucky, Collateralized Solid Waste Disposal Facilities
Revenue Bonds (KU Project) 1993 Series A due December 1, 2023.
8. Loan Agreement dated as of November 1, 1994, between KU and the
County of Carroll, Kentucky, in connection with $54,000,000 County
of Carroll, Kentucky, Collateralized Solid Waste Disposal
Facilities Revenue Bonds (KU Project) 1994 Series A due November 1,
2024.
(B) No reports on Form 8-K were filed by KU Energy or KU during the last
quarter of 1996.
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, KU Energy Corporation and Kentucky Utilities Company
have each duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 10, 1997.
KU ENERGY CORPORATION AND
KENTUCKY UTILITIES COMPANY
(Registrants)
/s/Michael R. Whitley
Michael R. Whitley
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrants in the capacities and on the date indicated.
Signature Title
/s/Michael R. Whitley
Michael R. Whitley Chairman and President (Principal Executive
Officer) and Director
/s/O.M. Goodlett
O. M. Goodlett Senior Vice-President (Principal Financial
Officer)
/s/Michael D. Robinson
Michael D. Robinson Controller (Principal Accounting Officer)
/s/Mira S. Ball
Mira S. Ball Director
/s/Carol M. Gatton
Carol M. Gatton Director
/s/Harry M. Hoe
Harry M. Hoe Director
/s/Milton W. Hudson
Milton W. Hudson Director
/s/John T. Newton
John T. Newton Director
/s/Frank V. Ramsey, Jr.
Frank V. Ramsey, Jr. Director
/s/William L. Rouse, Jr.
William L. Rouse, Jr. Director
-48-
<PAGE>
Signature Title
/s/Charles L. Shearer
Charles L. Shearer Director
/s/Lee T. Todd, Jr.
Lee T. Todd, Jr. Director
March 10, 1997
-49-
EXHIBIT 10.03
AMENDMENT NO. 1 TO
KENTUCKY UTILITIES COMPANY
PERFORMANCE SHARE PLAN DOCUMENT
(As Amended and Restated Effective as of January 1, 1993)
The Kentucky Utilities Company Performance Share Plan
Document (As Amended and Restated Effective as of January 1,
1993), (the "Plan"), is hereby amended, effective as of
November 1, 1996, in the following respects:
1. By deleting Section 9.5 of the Plan.
2. By deleting Section 10.1 of the Plan and inserting
in lieu thereof the following:
"ARTICLE X - CHANGE IN CONTROL
10.1 A change in control ("Change in Control") for
purposes of the Plan shall have occurred if
at any time on or after November 1, 1996 any
of the following events shall occur:
(a) The Company or Parent (as defined below)
is merged or consolidated or reorganized
into or with another corporation or
other legal person, and as a result of
such merger, consolidation or
reorganization less than 60% of the
combined voting power of the then-
outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Parent
immediately prior to such transaction;
(b) The Company or Parent sells or otherwise
transfers all or substantially all of
its assets to any other corporation or
other legal entity, and as a result of
such sale or transfer less 60% of the
combined voting power of the then-
outstanding securities of such other
corporation or entity immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Stock
of the Parent immediately prior to such
sale or transfer;
-50-
<PAGE>
(c) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form or report or item
therein), each as promulgated pursuant
to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"),
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the
term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the
Exchange Act) of securities representing
10% or more of the combined voting power
of the Voting Stock of the Parent or the
Voting Stock of the Company;
(d) The Company or Parent files a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or
Schedule 14A (or any successor schedule, form
or report or item therein) that a change in
control of the Parent or the Company has or
may have occurred or will or may occur in the
future pursuant to any then-existing contract
or transactions; or
(e) If at any time during any period of two
consecutive years, individuals who at
the beginning of any such period
constitute the directors of the Parent
or the Company cease for any reason to
constitute at least a majority thereof,
unless the election, or the nomination
for election by such company's
stockholders, of each director of such
company first elected during such period
was approved by a vote of at least two-
thirds of the directors of such company
then still in office who were directors
of such company at the beginning of any
such period.
Notwithstanding the foregoing provisions
of paragraph (c) or (d) above, unless
otherwise determined in a specific case
by majority vote of the Board of
Directors of the Parent and the Company,
a "Change in Control" shall not be
deemed to have occurred for purposes of
the Plan solely because (i) the Parent,
(ii) an entity in which the Company or
the Parent or one or more other
-51-
<PAGE>
Subsidiaries directly or indirectly
beneficially owns 50% or more of the
voting securities (a "Subsidiary"), or
(iii) any Parent-sponsored, Company-
sponsored or Subsidiary-sponsored
employee stock ownership plan or any
other employee benefit plan of the
Company, Parent or Subsidiary, either
files or becomes obligated to file a
report or a proxy statement under or in
response to Schedule 13D, Schedule
14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or
item therein) under the Exchange Act,
disclosing beneficial ownership by it of
shares of Voting Stock of the Parent or
the Company, whether in excess of 10% or
otherwise, or because the Company, the
Parent or a Subsidiary reports that a
change in control of the Company or the
Parent has or may have occurred or will
or may occur in the future by reason of
such beneficial ownership. For purposes
of this Section 10.1, "Parent" shall
mean KU Energy Corporation."
3. By deleting Section 10.2 of the Plan and inserting
in lieu thereof the following:
"10.2 In the event of a Change in Control
under the preceding Section 10.1, a
Participant whose employment is
terminated, whether voluntarily or
involuntarily, after such Change of
Control will have a right to an
immediate payment in the form of Common
Stock of KU Energy Corporation (or any
successor thereto) for all Performance
Cycles in which he is then currently
participating. The number of shares of
Common Stock of KU Energy Corporation
(or any successor thereto) to be paid
shall be determined on the assumption
that the target for each outstanding
Performance Share Cycle has been met and
shall be the number of shares of Common
Stock of KU Energy Corporation (or any
successor thereto) equal to a fraction
of the Participant's total Performance
Shares for the applicable Performance
Cycle, the numerator of which fraction
is the whole and partial months in the
applicable Performance Cycle which have
passed as of the date of the Change in
-52-
<PAGE>
Control and the denominator of which is
the number of months in the applicable
Performance Cycle. In addition, the
restrictions applicable to any
Restricted Stock which the Participant
holds as a result of matured Performance
Cycles shall lapse as of the date of the
Change in Control. Notwithstanding the
foregoing, no shares of Restricted Stock
received by a Participant pursuant to
this Plan may be sold for a period of
six months after the receipt of such
shares, except in the case of the
Disability or death of the Participant."
4. By deleting the text of Article XI of the Plan and
inserting in lieu thereof the following:
"The Plan became effective for the year
commencing January 1, 1990, and may be
terminated, amended, modified, or
supplemented at any time by the Company with
the consent of KU Energy Corporation or any
successor thereto. Notwithstanding the
preceding sentence, no termination,
amendment, modification or supplement may be
made on or after the occurrence of a Change
in Control (as defined in Section 10.1) that
adversely affects the right of any person
without his prior written consent."
5. By adding a new Section 12.6 after Section 12.5 of
the Plan as follows:
"12.6 The Company shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all
or substantially all of the business and/or assets
of the Company expressly to assume and agree to
perform this Plan in the same manner and to the
same extent the Company would be required to
perform if no such succession had taken place.
This Plan shall be binding upon and inure to the
benefit of the Company and any successor to the
Company, including without limitation any persons
acquiring directly or indirectly all or
substantially all of the business and/or assets of
the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed to
"Company" for the purposes of this Plan). This
Plan shall inure to the benefit of and be
enforceable by Participant's personal or legal
-53-
<PAGE>
representatives, executors, administrators,
successors, heirs, Beneficiaries, distributees
and/or legatees."
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board, President and Chief Executive Officer and its
Corporate Seal to be hereunto affixed, attested by its Secretary,
as of the 16th day of December, 1996.
KENTUCKY UTILITIES COMPANY
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:/s/George S. Brooks II
This Amendment No. 1 is hereby consented to by KU Energy
Corporation
KU Energy Corporation
By /s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
-54-
EXHIBIT 10.07
AMENDMENT NO. 4 TO
KENTUCKY UTILITIES COMPANY
ANNUAL PERFORMANCE INCENTIVE PLAN
The Kentucky Utilities Company Annual Performance
Incentive Plan, as heretofore amended (the "Plan"), is hereby
further amended, effective as of November 1, 1996, in the
following respects:
1. By deleting Section 7.5 of the Plan and inserting
in lieu thereof the following:
"7.5 The Committee may adjust the threshold, target,
and maximum performance goals for each performance
criterion at any time during a Plan Year to
reflect any extraordinarily unusual occurrence
occurring prior to a Change in Control (as defined
in Section 13.1) which is outside the control of
management and/or any Participant, which
occurrence has a significant impact on the
Company."
2. By deleting Section 9.3 of the Plan and inserting
in lieu thereof the following:
"9.3 If the Participant's employment with the Employer
and Affiliates is terminated after the end of the
Plan Year, but prior to receipt of the
corresponding Incentive Award, the Participant, or
the Participant's Beneficiary in the case of the
Participant's death, shall be paid the full
Incentive Award at the time the other
Participants' Incentive Awards are paid, unless
termination occurs prior to the occurrence of a
Change in Control (as defined in Section 13.1) and
is the result of gross negligence or malfeasance
as determined by the Committee in which case no
award will be paid."
3. By deleting Section 9.4 of the Plan and inserting
in lieu thereof the following:
"9.4 Notwithstanding any provision of the Plan,
the Chief Executive Officer of the Company,
in his sole discretion, may limit or
eliminate any Participant's participation in
the Plan, provided such limitation or
elimination occurs both prior to the date the
award would otherwise be paid to the
-55-
<PAGE>
Participant and the date on which a Change in
Control (as defined in Section 13.1) occurs."
4. By deleting the second sentence of Article X of
the Plan and inserting in lieu thereof the following:
"Such election, however, shall not apply to all or
any part of an Incentive Award (i) payable for a
Plan Year in the event of the Participant's death
prior to the time other Participants' Incentive
Awards for that Plan Year are paid or (ii) payable
on or after the occurrence of a Change in Control
(as defined in Section 13.1)."
5. By adding a new sentence at the end of Article XI
of the Plan as follows:
"Notwithstanding the preceding sentence, no
termination, amendment, modification or supplement may
be made on or after the occurrence of a Change in
Control (as defined in Section 13.1) that adversely
affects the right of any person without his prior
written consent."
6. By adding a new Section 12.6 after Section 12.5 of
the Plan as follows:
"12.6 The Company shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all
or substantially all of the business and/or assets
of the Company expressly to assume and agree to
perform this Plan in the same manner and to the
same extent the Company would be required to
perform if no such succession had taken place.
This Plan shall be binding upon and inure to the
benefit of the Company and any successor to the
Company, including without limitation any persons
acquiring directly or indirectly all or
substantially all of the business and/or assets of
the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed to
"Company" for the purposes of this Plan). This
Plan shall inure to the benefit of and be
enforceable by Participant's personal or legal
representatives, executors, administrators,
successors, heirs, Beneficiaries, distributees
and/or legatees."
-56-
<PAGE>
7. By adding a new Article XIII to the Plan after
Article XII as follows:
"ARTICLE XIII - CHANGE IN CONTROL
13.1 A change in control ("Change in Control") for
purposes of the Plan shall have occurred if
at any time on or after November 1, 1996 any
of the following events shall occur:
(a) The Company or Parent (as defined below)
is merged or consolidated or reorganized
into or with another corporation or
other legal person, and as a result of
such merger, consolidation or
reorganization less than 60% of the
combined voting power of the then-
outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Parent
immediately prior to such transaction;
(b) The Company or Parent sells or otherwise
transfers all or substantially all of
its assets to any other corporation or
other legal entity, and as a result of
such sale or transfer less 60% of the
combined voting power of the then-
outstanding securities of such other
corporation or entity immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Stock
of the Parent immediately prior to such
sale or transfer;
(c) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form or report or item
therein), each as promulgated pursuant
to the Securities Exchange Act of 1934,
as amended (the "Exchange Act")
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the
term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the
Exchange Act) of securities representing
10% or more of the combined voting power
-57-
<PAGE>
of the Voting Stock of the Parent or the
Voting Stock of the Company; or
(d) If at any time during any period of two
consecutive years, individuals who at
the beginning of any such period
constitute the directors of the Parent
or the Company cease for any reason to
constitute at least a majority thereof,
unless the election, or the nomination
for election by such company's
stockholders, of each director of such
company first elected during such period
was approved by a vote of at least two-
thirds of the directors of such company
then still in office who were directors
of such company at the beginning of any
such period.
Notwithstanding the foregoing provisions
of paragraph (c) above, unless otherwise
determined in a specific case by
majority vote of the Board of Directors
of the Parent and the Company, a "Change
in Control" shall not be deemed to have
occurred for purposes of the Plan solely
because (i) the Parent, (ii) an entity
in which the Company or the Parent or
one or more other Subsidiaries directly
or indirectly beneficially owns 50% or
more of the voting securities (a
"Subsidiary"), or (iii) any Parent-
sponsored, Company-sponsored or
Subsidiary-sponsored employee stock
ownership plan or any other employee
benefit plan of the Company, Parent or
Subsidiary, either files or becomes
obligated to file a report under or in
response to Schedule 13D or
Schedule 14D-1 (or any successor
schedule, form or report or item
therein) under the Exchange Act,
disclosing beneficial ownership by it of
shares of Voting Stock of the Parent or
the Company, whether in excess of 10% or
otherwise. For purposes of this
Section 13.1, "Parent" shall mean KU
Energy Corporation.
13.2 In the event a Change in Control under the
preceding Section 13.1 occurs during a Plan
Year, then, notwithstanding anything to the
contrary in Article IX or otherwise in the
Plan, no payments of Incentive Awards shall
be made under Article IX for such Plan Year,
-58-
<PAGE>
but instead, each Participant employed by the
Employer or an Affiliate immediately prior to
the date on which the Change in Control
occurs and each Participant who had
terminated employment with the Employer and
Affiliates during the Plan Year by reason of
Retirement, Disability or death prior to the
occurrence of the Change in Control shall
have a right (or, in the case of the
Participant's death, his Beneficiary shall
have the right) to an immediate cash payment
of an Incentive Award based on actual base
salary earned during the Plan Year while a
Participant prior to the occurrence of the
Change in Control or earlier termination and
the assumption that established targets were
met. Such payments shall be made within 15
days after the date on which the Change in
Control occurs."
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board, President and Chief Executive Officer and its
Corporate Seal to be hereunto affixed, attested by its Secretary,
as of the 16th day of December, 1996.
KENTUCKY UTILITIES COMPANY
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:
/s/George S. Brooks II
-59-
EXHIBIT 10.08
EXECUTIVE OPTIONAL DEFERRED
COMPENSATION PLAN
OF
KENTUCKY UTILITIES COMPANY
(As Amended and Restated Effective
As Of January 1, 1997)
-60-
<PAGE>
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KENTUCKY UTILITIES COMPANY
(As Amended And Restated Effective As Of January 1, 1997)
ARTICLE I - PLAN
This Plan is an unfunded Deferred Compensation arrangement for a
select group of management or highly compensated employees who
are rendering service to an Employer.
ARTICLE II - DEFINITIONS
For purposes of the Plan, the following definitions shall
control:
2.1 "Annual Performance Incentive Plan" -- The annual
incentive plan(s) sponsored by the Company as amended
from time to time.
2.2 "Beneficiary" -- Any person or persons designated by the
Executive to receive amounts payable in accordance with
this Plan in the event of the Executive's death. If no
Beneficiary has been designated or if no designated
Beneficiary shall survive the Executive, the Executive's
Beneficiary shall be deemed to be his or her estate.
-61-
<PAGE>
2.3 "Committee" -- The Compensation Committee of the Board of
Directors of the Company.
2.4 "Company" -- Kentucky Utilities Company, and successors
thereto.
2.5 "Death" -- Death from any cause.
2.6 "Deferred Compensation" -- The portion of a Participant's
annual incentive award (if any) which may be paid to the
Participant under the Company's Annual Performance
Incentive Plan(s) that has been deferred to this Plan.
2.7 "Deferred Compensation Account(s) " or "Account(s) " --
The accounts that may be established each year by the
Employer as a book reserve for each of its Participants
to which shall be credited the sum of the Participant's
Deferred Compensation for that year plus any earnings or
losses credited thereafter in accordance with Article VI.
2.8 "Deferral Election Form" -- The form made available
annually by the Committee to an Executive which, when
properly executed by the Executive, effects his or her
participation in the Plan for the applicable Performance
Cycle. A copy of the Deferral Election Form is attached
hereto as Exhibit A and is made a part hereof.
-62-
<PAGE>
2.9 "Disability" -- A physical or mental condition which
prevents a Participant from engaging in any occupation or
employment for remuneration or profit, except for the
purpose of rehabilitation not incompatible with such
findings. The determination shall be made (i) on medical
evidence by a licensed physician assigned by the
Committee, or (ii) on evidence that the Participant is
eligible for disability benefits under the Social
Security Act in effect at the date of disability.
Disability shall exclude disabilities arising from
(a) intentionally self-inflicted injury or self-induced
illness; or (b) a proven unlawful act or enterprise on
the part of the Participant.
2.10 "Employer" -- The Company and any Subsidiary to which the
Plan is extended by the Board of Directors of the Company
and which adopts the Plan.
2.11 "Executive" -- Any management or highly compensated
employee of an Employer who is deemed by the Committee to
be eligible for participation in this Plan.
2.12 "Fair Market Value" -- The closing price of the Parent's
Common Stock as reported in the listing of the New York
Stock Exchange - Composite Transactions on a specified
date.
-63-
<PAGE>
2.13 "Parent" -- KU Energy Corporation and successors thereto.
2.14 "Participant" -- Any employee designated as an Executive
who elects to participate in the Plan according to
Article IV or a person who was such at the time of his or
her Retirement, Death, Disability or Termination of
Service and who retains, or whose Beneficiary retains, a
benefit under the Plan which has not been forfeited or
distributed.
2.15 "Performance Cycle" -- The period of time during which
the value of an award under the Company's Annual
Performance Incentive Plan is determined.
2.16 "Plan" -- The Executive Optional Deferred Compensation
Plan of Kentucky Utilities Company set forth in this
instrument, as it may, from time to time, be amended.
2.17 "Return on Capital" -- The result of dividing the
Company's net income before interest charges by the
Company's total capitalization as both are reported on
the Company's financial statements.
2.18 "Subsidiary" -- Any corporation or other business entity
in an unbroken chain beginning with the Parent, if each
such corporation or other entity (other than the last in
the unbroken chain), or if each group of commonly
controlled corporations or other entities, then owns
-64-
<PAGE>
fifty percent (50%) or more of the total combined voting
power in one of the other corporations or entities in
such chain.
2.19 "Termination of Service" -- The termination for any
reason of a Participant's employment as a regular
employee of the Employers and the members of any
controlled group of corporations (as defined in Section
414(b) of the Internal Revenue Code (the 'Code')) of
which an Employer is a member, the members of any group
of trades or businesses which are under common control
(as defined in Section 414(c) of the Code) of which an
Employer is a member, the members of any affiliated
service group (as defined in Section 414(m) of the
Code) of which an Employer is a member, and all other
organizations deemed to be affiliated with an Employer
under Section 414(o) of the Code.
ARTICLE III - ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee. The Committee
shall have the full and exclusive power to construe and interpret
the Plan, to correct any defect, supply any omission, make any
factual determination or reconcile any inconsistency in such
manner and to such extent as the Committee in its sole and
absolute discretion may determine. The Committee is authorized
to establish and amend rules and regulations necessary for Plan
-65-
<PAGE>
administration. Decisions of the Committee shall be binding on
all persons claiming rights under the Plan. The Committee may
employ such counsel (who may be counsel for any Employer),
consultants and/or agents and may arrange for such services as it
may determine to be necessary or appropriate in the
administration of the Plan. All expenses incurred by the
Committee in administering the Plan shall be paid by the
Employers.
ARTICLE IV- PARTICIPANTS
4.1 Any Executive may elect for any Performance Cycle
beginning prior to January 1, 1998 to have all or any
portion of his or her award under the Company's Annual
Performance Incentive Plan deferred and credited with
earnings or losses in accordance with the terms and
conditions of this Plan.
4.2 An Executive desiring to exercise such election under
Paragraph 4.1 shall notify the Committee each time he or
she wishes to exercise a deferral election. Such notice
must be in writing, on a Deferral Election Form provided
by the Committee, and delivered to the Committee not
later than the December 31st preceding the start of a new
Performance Cycle. If an Executive becomes a participant
in the Company's Annual Performance Incentive Plan for a
Performance Cycle as of a date other than January 1st,
-66-
<PAGE>
that Executive may deliver such notice to the Committee
within 30 days of the date as of which that Executive
becomes a participant in the Annual Performance Incentive
Plan. Once delivered to the Committee, a deferral
election as made on a Deferral Election Form shall be
irrevocable.
4.3 The amount of a Participant's Deferred Compensation shall
be credited to his or her Deferred Compensation Account
at the time such amount would have otherwise been paid to
the Participant under the Company's Annual Performance
Incentive Plan but for his or her deferral election under
the Plan.
4.4 No Participant or the Participant's Beneficiary shall
acquire any property interest in his or her Deferred
Compensation Account or any other assets of the Employer,
their rights being limited to receiving from the Employer
deferred payments as set forth in this Plan and these
rights are conditioned upon continued compliance with the
terms and conditions of this Plan. To the extent that
any Participant or Beneficiary acquires a right to
receive benefits under this Plan, such right shall be no
greater than the right of any unsecured general creditor
of the Employer.
-67-
<PAGE>
ARTICLE V - CONTINUED PARTICIPATION IN THE PLAN
A Participant shall not actively participate in the Plan for any
Performance Cycle for which a Deferral Election Form has not been
timely executed and filed as provided by Paragraph 4.2 herein.
In this event, such a Participant's Deferred Compensation
Account(s) shall continue to be subject to the provisions of the
Plan and all previously submitted Deferral Election Forms. For
subsequent Performance Cycles, an Executive may again actively
participate hereunder by submitting the appropriate Deferral
Election Form in accordance with the provisions of Article IV
hereunder.
ARTICLE VI - CREDITING OF EARNINGS AND LOSSES
As of the last day of each calendar quarter each Participant's
Deferred Compensation Account(s) will be credited with earnings
or losses in addition to any amounts credited to such Account(s)
under Article IV of this Plan.
Earnings on each Deferred Compensation Account established for a
Participant shall be equal to the interest that would have been
earned during such calendar quarter on the average of the
balances of the Participant's Account at the end of each calendar
month during such calendar quarter at a rate per annum equal to
the greater of (1) the Company's Return on Capital for the
twelve-month period that ends coincident with that quarter or
-68-
<PAGE>
(2) the 13 week Treasury bill rate as reported in the Wall Street
Journal on the first business day coinciding with or next
following the end of that calendar quarter. However, effective
as of the first day of any calendar quarter beginning on or after
April 1, 1997, a Participant may elect, by filing with the
Committee written notice (on a form provided by the Committee) at
least 15 days prior to the effective date thereof, to have the
balance in any Deferred Compensation Accounts established for the
Participant for a Performance Cycle beginning on or after
January 1, 1993 and prior to January 1, 1998 be transferred or to
have any subsequent Deferred Compensation credits for such a
Performance Cycle be allocated, as the case may be, in specified
multiples of 10%, to a Subaccount II for adjustment in accordance
with Paragraph 6.1 below rather than be credited with earnings in
accordance with the preceding sentence. Once such an election
has been made for a Deferred Compensation Account established for
a Performance Cycle, it may not be changed.
6.1 Subaccount II of a Participant's Account shall be
adjusted each calendar quarter to equal the Fair Market
Value as of the last day of such calendar quarter (or, if
it is not a trading date, as of the trading date next
preceding such date) of the number of hypothetical shares
of Parent Common Stock allocated to Subaccount II of the
Participant's Account as of such date. The number of
hypothetical shares of Parent Common Stock allocated to
Subaccount II of a Participant's Account as of any date
shall be equal to the number of shares of Parent Common
-69-
<PAGE>
Stock that would be allocated to the Account as of such
date if (i) the Deferred Compensation credited to the
Participant's Account to be allocated, or the Account
balance to be transferred, to Subaccount II was invested
in the Parent's Common Stock at Fair Market Value on the
trading day that is coincident with or next preceding the
date on which such Deferred Compensation is credited or
transferred, as the case may be, to his or her Account,
(ii) cash dividends on the shares of Parent Common Stock
treated as allocated to Subaccount II of the
Participant's Account were automatically reinvested in
the Parent's Common Stock at Fair Market Value on the
trading day that is coincident with or next following the
applicable dividend payment date, and (iii) any
distributions from Subaccount II of the Participant's
Account were made at Fair Market Value on the trading day
that is coincident with or next preceding the effective
date of such distribution of the number of hypothetical
shares of Parent Common Stock needed to make such
distribution, which hypothetical shares shall be
subtracted from the number of shares treated as allocated
to Subaccount II of the Participant's Account as of the
effective date of the distribution.
ARTICLE VII - DISTRIBUTION OF AMOUNTS DEFERRED UNDER THE PLAN
All payments from the Plan will be made in cash by the Employer.
The Participant will receive payments from the Plan in accordance
-70-
<PAGE>
with the Deferral Election Form(s) on file. Notwithstanding the
preceding sentence, the remaining balance of a Participant's
Deferred Compensation Account(s) will be paid in a lump sum as
soon as practical after a Participant's Termination of Service or
if a change of control occurs as described in Article XI.
ARTICLE VIII - DEATH
8.1 At the time that an Executive becomes a Participant, the
Executive shall designate in writing a Beneficiary to
receive any payments to which the Executive would have
been entitled under the terms of this Plan. The
Beneficiary referred to in this paragraph may be
designated or changed by the Executive (without the
consent of any prior Beneficiary) on a form provided by
the Committee and delivered to the Committee before his
or her Death. If no such Beneficiary shall have been
designated, or if no designated Beneficiary shall survive
the Executive, payments shall be payable to the
Executive's estate.
8.2 If the Executive's employment is terminated because of
Death or if the Executive should die after his or her
Termination of Service but before his or her Deferred
Compensation Account balance has been paid, then the
Employer shall make payments of the Executive's remaining
balance in his or her Deferred Compensation Account to
-71-
<PAGE>
his or her Beneficiary in the same manner and to the
extent as provided in Article VII.
8.3 If after the Executive's Death, all of the Executive's
designated Beneficiary(ies) should die before all
payments are made by the Employer, then the value of the
remaining payments shall be paid as promptly as possible
in one lump sum to the estate of the last to die of such
designated Beneficiary(ies).
ARTICLE IX - DISABILITY
If the Executive's employment is terminated because of
Disability, then the Employer shall make payments to the
Executive in the same manner and to the same extent as provided
in Article VII.
ARTICLE X - INCAPACITY
If the Committee shall find that any person to whom any payment
is payable under this Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefore shall have been made
by a duly appointed guardian, committee or legal
representative) may be paid to the spouse, a child, a parent, a
brother or a sister or to any person determined by the Committee
-72-
<PAGE>
in such a manner as the Committee shall determine. For all
determinations made by the Committee under this Article, the
Committee shall have full acquittance. Any such payment shall be
a complete discharge of the liabilities of the Employer under
this agreement.
ARTICLE XI - CHANGE IN CONTROL
A "change in control" for purposes of the Plan shall have
occurred if at any time any of the following events shall occur:
(a) The Company or Parent is merged or consolidated or
reorganized into or with another corporation or
other legal person and, as a result of such
merger, consolidation, or reorganization, less
than a majority of the combined voting power of
the then-outstanding securities of such
corporation or person immediately after such
transaction is held in the aggregate by the
holders of the then-outstanding securities
entitled to vote generally in the election of
directors (the "Voting Stock") of the Parent
immediately prior to such transaction;
(b) The Company or Parent sells or otherwise transfers
all or substantially all of its assets to any
other corporation or other legal entity and, as a
-73-
<PAGE>
result of such sale or transfer, less than a
majority of the combined voting power of the
then-outstanding securities of such other
corporation or entity immediately after such sale
or transfer is held in the aggregate by the
holders of Voting Stock of the Parent immediately
prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report or item therein), each as promulgated
pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities
representing 10% or more of the combined voting
power of the Voting Stock of the Company or the
Voting Stock of the Parent;
(d) The Company or Parent files a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item
-74-
<PAGE>
therein) that a change in control of the Company
or the Parent has or may have occurred or will or
may occur in the future pursuant to any
then-existing contract or transaction; or
(e) If at any time during any period of two
consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or the Parent cease for
any reason to constitute at least a majority
thereof, unless the election, or the nomination
for election by such company's stockholders, of
each director of such company first elected during
such period was approved by a vote of at least
two-thirds of the directors of such company then
still in office who were directors of such company
at the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph (c) or
(d) above, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company and
Parent, a "change in control" shall not be deemed to have
occurred for purposes of the Plan solely because (i) the Parent,
(ii) a Subsidiary, or (iii) any Company-sponsored,
Parent-sponsored, or Subsidiary-sponsored employee stock
ownership plan or any other employee benefit plan of the Company,
Parent or Subsidiary, either files or becomes obligated to file a
report or a proxy statement under or in response to Schedule 13D,
-75-
<PAGE>
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock
of the Company or Parent, whether in excess of 10% or otherwise,
or because the Company, Parent or a Subsidiary reports that a
change in control of the Company or Parent has or may have
occurred or will or may occur in the future by reason of such
beneficial ownership. Notwithstanding the foregoing provisions
of this Article XI, a "change in control" shall not be deemed to
have occurred by reason of the Reorganization.
For purposes of this Article XI, "Reorganization" shall mean the
corporate reorganization whereby the Parent became the holding
company of the Company as approved by the Board of Directors of
the Company on May 16, 1988 and May 27, 1988.
ARTICLE XII - AMENDMENT OF PLAN
The Plan may be amended in whole or in part from time to time or
terminated at any time by the Board of Directors of the Company,
provided, however, that no amendment or termination may be made
that adversely affects the rights of any person with respect to
amounts previously deferred under the Plan without his or her
prior written consent. Notice of every such amendment shall be
given in writing to each Participant and Beneficiary of a
deceased Participant.
-76-
<PAGE>
ARTICLE XIII - MISCELLANEOUS
13.1 Neither this Agreement, nor any action of the Employer or
Committee, nor any election to defer compensation
hereunder shall be construed to confer on any person any
legal right to be continued as an employee of the
Employer.
13.2 Except as required by law, no right of the Executive or
Beneficiary to receive payments under this Plan shall be
subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation
or to execution, attachment, levy or similar process or
assignment by operation of law and any attempt, voluntary
or involuntary, to effect any such action shall be null
and void and of no effect.
13.3 The Employer shall have the right to deduct from all
payments any taxes required by law to be withheld with
respect to any payments made under this Plan.
13.4 Masculine pronouns used herein shall refer to men or
women or both, and nouns when stated in the singular
shall include the plural and when stated in the plural
shall include the singular wherever appropriate.
13.5 This Plan shall be construed under the laws of the
Commonwealth of Kentucky.
-77-
<PAGE>
13.6 The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to
assume and agree to perform this Plan in the same manner
and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan
shall be binding upon and inure to the benefit of the
Company and any successor to the Company, including
without limitation any persons acquiring directly or
indirectly all or substantially all of the business
and/or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed to be the "Company"
for the purposes of this Plan), and the heirs, executors
and administrators of each Participant.
IN WITNESS THEREOF, the Company has caused this Plan to be
executed by its duly authorized officers as of the 28th day of
January, 1997.
KENTUCKY UTILITIES COMPANY
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
Attest:/s/George S. Brooks II
Secretary
(SEAL)
-78-
<PAGE>
EXHIBIT A
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KENTUCKY UTILITIES COMPANY
DEFERRAL ELECTION FORM
This election is in accordance with the provisions of the
Executive Optional Deferred Compensation Plan (the Plan) of
Kentucky Utilities Company (the Company) and is made this ______
day of ________________, _____, by ________________________ (the
Executive). By making such election, I understand and agree that
I become a party to said Plan, and agree to be bound by its terms
and conditions. I further understand that this election is
irrevocable.
In accordance with and subject to the provisions of the Plan, I
hereby elect to defer for the Performance Cycle commencing on
January 1, _____ and maturing on December 31, _____ the following
amount of compensation that may be payable to me under the
Company's Annual Performance Incentive Plan for services rendered
during that Performance Cycle:
The lesser of _______% of any incentive payment or $________.
I understand that this election will remain in effect only for
the above indicated Performance Cycle and that a new Deferral
-79-
<PAGE>
Election Form must be completed for each other Performance Cycle
that I wish to participate in the Plan.
I further elect that the value of my Deferred Compensation
Account for the above indicated Performance Cycle be payable to
me on the first day of _____________, ____.
IN WITNESS WHEREOF, I hereunto set my hand as of the date first
above written.
(Witness) (Executive)
Received and accepted on behalf of
the Compensation Committee of the
Board of Directors of Kentucky
Utilities Company.
KENTUCKY UTILITIES COMPANY
By
Dated
-80-
AMENDMENT NO. 2 TO
KENTUCKY UTILITIES COMPANY
DIRECTOR RETIREMENT RETAINER PROGRAM
The Kentucky Utilities Company Director Retirement Retainer
Program (the Plan ) is hereby amended, effective as of May 1, 1992, in the
following respects:
1. By adding a new Section (k) and a new Section (l) to
Article II of the Plan after Section (j) as follows:
(k) Eligibility Service: An individual's
service on either or both of the Board or the Board
of Directors of KU Energy Corporation.
(l) Mandatory Retirement Date: The date on
which the Director would attain age 70; except that,
in respect of a Director on January 1, 1992 who was
age 65 or older on January 1, 1992, Mandatory
Retirement Date shall mean the date on which the
Director would attain age 72.
2. By deleting Section 3.1 of the Plan and inserting in lieu
thereof the following:
3.1 Eligibility. Each Director who has
attained at least age 65 and who thereafter, for
reasons other than death, terminates Service while
in good standing prior to the date on which a Change
in Control occurs shall upon such termination of
Service become an Eligible Director and shall be
entitled to retirement benefits in accordance with
this Article III, provided that such Director at his
or her Termination Date shall have completed at
least five full, consecutive, continuous years,
computed with reference to the date on which the
Director's Eligibility Service commenced and
anniversaries thereof, of Eligibility Service.
-81-
<PAGE>
3. By deleting Section 4.2 and inserting in lieu
thereof the following:
4.2 Amount of Benefit. The amount of benefit
payable to a Director under this Article IV shall be
equal to the present value of an assumed series of
monthly payments, each installment of which would be
equal to one-twelfth of the greater of (a) the
annual retainer in effect for Board members on the
day immediately preceding the date on which the
Change in Control occurs or (b) the annual retainer
in effect for Board members on the day immediately
preceding the Director s Termination Date, payable
commencing on the last day of the month that would
begin next following the Director's Mandatory
Retirement Date, and on the last day of each month
thereafter, over a period of years equal to the
lesser of (i) ten or (ii) the number of full years,
computed with reference to the date on which the
Director's Service commenced and anniversaries
thereof, of consecutive, continuous Service the
Director would have had if he had continued in
Service until his Mandatory Retirement Date.
Present value shall be calculated on the basis of a
discount rate of 6% per annum, compounded annually.
4. By deleting the first two sentences of Article VI of
the Plan and inserting in lieu thereof the following:
As long as an Eligible Director is receiving
or is entitled to receive retirement benefit
payments in accordance with Article III of the Plan,
such Eligible Director will not directly or
indirectly enter into or in any manner take part in
any business or other endeavor, either as an
employee, officer, agent, independent contractor,
owner or otherwise, which in any manner competes or
conflicts with the business of the Company or any of
its subsidiaries or affiliated companies or is
detrimental to the best interests of the Company or
any of its subsidiaries or affiliated companies,
unless the Company gives its prior written consent
thereto; provided, however, that this Article
-82-
<PAGE>
shall not be construed to prevent the Eligible
Director from owning or acquiring publicly traded
securities in any entity. The failure of an
Eligible Director to comply with the provisions of
this Article shall result in the forfeiture of all
further payments which otherwise would become due
and payable under the Plan to or on behalf of the
Eligible Director under Article III of the Plan.
5. By deleting Section 9.1 of the Plan and inserting in
lieu thereof the following:
9.1 Other Agreements. The Plan shall not
affect in any way the rights or obligations of a
Director under any deferred compensation or other
agreement between the Director and the Company or
any of its subsidiaries or affiliated companies.
IN WITNESS WHEREOF, Kentucky Utilities Company has caused this
instrument to be executed in its name by its President and its Corporate Seal
to be hereunto affixed, attested by its Secretary, as of the 19th day of
May , 1992.
KENTUCKY UTILITIES COMPANY
By:/s/John T. Newton
President
[CORPORATE SEAL]
ATTEST:
/s/Michael R. Whitley
Secretary
-83-
AMENDMENT NO. 3 TO
KENTUCKY UTILITIES COMPANY
DIRECTOR RETIREMENT RETAINER PROGRAM
The Kentucky Utilities Company Director Retirement
Retainer Program, as heretofore amended (the "Plan"), is hereby
further amended, effective as of November 1, 1996, in the
following respects:
1. By deleting Section 4.4 of the Plan and inserting
in lieu thereof the following:
"4.4 Change in Control. For purposes of the Plan,
a "Change in Control" shall have occurred if at any
time on or after November 1, 1996, any of the following
events shall occur:
(a) The Company or the Parent (as
defined below) is merged or consolidated
or reorganized into or with another
corporation or other legal person, and
as a result of such merger,
consolidation or reorganization less
than 60% of the combined voting power of
the then-outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Parent
immediately prior to such transaction;
(b) The Company or the Parent
sells or otherwise transfers all or
substantially all of its assets to any
other corporation or other legal entity,
and as a result of such sale or transfer
less than 60% of the combined voting
power of the then-outstanding securities
of such other corporation or entity
immediately after such sale or transfer
is held in the aggregate by the holders
of Voting Stock of the Parent
immediately prior to such sale or
transfer;
(c) There is a report filed on
Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or
item therein), each as promulgated
pursuant to the Securities Exchange Act
-84-
<PAGE>
of 1934, as amended (the "Act"),
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Act) has become
the beneficial owner (as the term
"beneficial owner" is defined under Rule
13d-3 or any successor rule or
regulation promulgated under the Act) of
securities representing 10% or more of
the combined voting power of the Voting
Stock of the Company or the Voting Stock
of the Parent; or
(d) If at any time during any
period of two consecutive years,
individuals who at the beginning of any
such period constitute the directors of
the Company or the Parent cease for any
reason to constitute at least a majority
thereof, unless the election, or the
nomination for election by such
company's stockholders, of each director
of such company first elected during
such period was approved by a vote of at
least two-thirds of the directors of
such company then still in office who
were directors of such company at the
beginning of any such period.
Notwithstanding the foregoing provisions of
paragraph (c) above, unless otherwise determined in a
specific case by majority vote of the Board of
Directors of the Company and the Parent, a "Change in
Control" shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Parent,
(ii) an entity in which the Company or the Parent
directly or indirectly beneficially owns 50% or more of
the voting securities (a "Subsidiary"), or (iii) any
Company-sponsored, Parent-sponsored or Subsidiary-
sponsored employee stock ownership plan or any other
employee benefit plan of the Company, the Parent or
Subsidiary, either files or becomes obligated to file a
report under or in response to Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report or
item therein) under the Act, disclosing beneficial
ownership by it of shares of Voting Stock of the
Company or the Parent, whether in excess of 10% or
otherwise. For purposes of this Section 4.4, "Parent"
shall mean KU Energy Corporation."
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board, President and Chief Executive Officer and its
-85-
<PAGE>
Corporate Seal to be hereunto affixed, attested by its Secretary,
as of the 16th day of December, 1996.
KENTUCKY UTILITIES COMPANY
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:
/s/George S. Brooks II
-86-
EXHIBIT 10.15
Amendment No. 3 To
Kentucky Utilities Company
Supplemental Security Plan
(As Amended and Restated Effective As Of
August 1, 1991)
The Kentucky Utilities Company Supplemental Security
Plan (As Amended and Restated Effective As Of August 1, 1991), as
heretofore amended (the "Plan"), is hereby further amended,
effective as of November 1, 1996, in the following respects:
1. By deleting Section 1.4 of the Plan and inserting
in lieu thereof the following:
"1.4 "Cause" shall have the meaning as set forth
in Section 8.6(iii)."
2. By deleting Section 1.5(a) of the Plan and
inserting in lieu thereof the following:
"(a) The Company or Parent is merged or
consolidated or reorganized into or with another
corporation or other legal person, and as a result of
such merger, consolidation or reorganization less than
60% of the combined voting power of the
then-outstanding securities of such corporation or
person immediately after such transaction is held in
the aggregate by the holders of the then-outstanding
securities entitled to vote generally in the election
of directors (the "Voting Stock") of (i) if the
Reorganization has not occurred, the Company, and
(ii) otherwise, the Parent, immediately prior to such
transaction;".
3. By deleting Section 1.5(b) of the Plan and
inserting in lieu thereof the following:
"(b) The Company or Parent sells or otherwise
transfers all or substantially all of its assets to any
other corporation or other legal entity, and as a
result of such sale or transfer less than 60% of the
combined voting power of the then-outstanding
securities of such other corporation or entity
immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of (i) if the
Reorganization has not occurred, the Company, and
-87-
<PAGE>
(ii) otherwise, the Parent, immediately prior to such
sale or transfer;".
4. By deleting Section 1.6 of the Plan and inserting
in lieu thereof the following:
"1.6 Change-In-Control Period" shall mean in
respect of each and every occurrence of a Change in
Control, the period commencing on the date of the
occurrence of such Change in Control and shall continue
until the expiration of the second anniversary of such
date; provided, however, in the event of a Change in
Control resulting from a filing of a report or proxy
statement described in subparagraph (d) of the
definition of Change in Control, the Change-In-Control
Period shall continue until the later of (A) such
second anniversary date or (B) the earlier of (i) the
date any transaction, occurrence or event described in
such report or proxy statement (a "Transaction") is
consummated or (ii) the date it is determined that such
Transaction will not be consummated. The Board of
Directors of the Company may make the determination
referred to in clause (ii) by resolution adopted in
good faith."
5. By deleting Section 4.2 of the Plan and inserting
in lieu thereof the following:
"4.2 In the event that there is a Change in
Control and thereafter the Member's employment with the
Employer and all Affiliates is terminated for reasons
other than Cause during the Change-In-Control Period
applicable to such Change-In-Control, the Member shall
be entitled to and the Company shall pay or cause to be
paid to the Member in cash the Change-in-Control
Retirement Benefit within thirty (30) days following
such Member's termination of employment. In the event
a Member's employment is terminated during more than
one Change-In-Control Period, however, only one Change-
in-Control Retirement Benefit shall be paid to the
Member, and the amount of such Change-in-Control
Retirement Benefit shall be the greatest amount
determined with respect to the Change-in-Control
Periods in which the Member's termination occurs."
-88-
<PAGE>
6. By deleting Section 4.5 of the Plan and inserting
in lieu thereof the following:
"4.5 In the event there is a Change in Control and
the Member's employment with the Employer and all
Affiliates is terminated for reasons other than Cause
after the end of the Change-in-Control Period
applicable to the Change in Control but not during any
subsequent Change-in-Control Period and neither the
Member nor his Beneficiary is entitled to benefit
payments under Article III or Article V, the Company
shall pay or cause to be paid in cash to the Member or
the Member's Beneficiary in the event of the Member's
death an amount equal to his Lump Sum Accrued Benefit
within thirty (30) days following the Member's
termination of employment."
7. By deleting Section 8.2 of the Plan and inserting
in lieu thereof the following:
"8.2 If, following the occurrence of a Change in
Control, a Member's employment with the Employer and
all Affiliates shall be terminated during the
Change-in-Control Period applicable to the Change in
Control other than pursuant to Section 8.6 hereof, or
if the Member shall terminate his employment pursuant
to the applicable provisions of Section 8.7 hereof, the
Company will continue to provide or cause to be
provided the following benefits and will further pay or
caused to be paid to the Member or the Member's
Beneficiary in the event of the Member's death the
following amounts within five (5) business days after
the Member's Termination Date:
(i) A lump sum cash payment in an amount
equal to the Member's Change-in-Control Severance
Benefit.
(ii) For a period commencing on his
Termination Date and ending on the third
anniversary thereof, the Company shall arrange to
provide the Member with Continued Employee
Benefits (and if and to the extent that such
benefits shall not or cannot be paid or provided
under any policy, plan, program or arrangement of
the Company or its Affiliates, then the Company
shall itself pay or provide or caused to be paid
or provided for the payment to the Member, his
dependents and beneficiaries, such Continued
Employee Benefits). Without otherwise limiting
the purposes or effect of Section 8.8 hereof,
Continued Employee Benefits otherwise receivable
by the Member pursuant to the first sentence of
-89-
<PAGE>
this Section 8.2(ii) shall be reduced to the
extent comparable welfare benefits are actually
received by the Member from another employer
during such period following the Member's
Termination Date, and any such benefits actually
received by the Member shall be reported by the
Member to the Company. For purposes of
determining the period of continuation coverage to
which the Member or any of his dependents is
entitled pursuant to Section 4980B of the Code (or
any successor provision thereto) under any group
health plan maintained by the Company or its
Affiliates, the Member shall be considered to have
remained employed until the third anniversary of
his Termination Date.
In the event a Member's employment is terminated under
the circumstances described above in this Section 8.2
during more than one Change-in-Control Period, only one
Change-in-Control Severance Benefit shall be paid to
the Member hereunder, and the amount of such Change-in-
Control Severance Benefit and Continued Employee
Benefits payable hereunder shall be the greatest
amounts determined with the respect to the Change-in-
Control Periods in which the Member's termination
occurs."
8. By deleting the phrase "Change-in-Control Period"
where it appears in Section 8.6 of the Plan and inserting in lieu
thereof the phrase "Change-in-Control Period applicable to the
Change in Control".
9. By deleting Section 8.6(iii) of the Plan,
inserting the word "or" after the semi-colon at the end of
Section 8.6(ii), and renumbering Section 8.6(iv) of the Plan as
Section 8.6(iii).
10. By deleting the phrase "Change-in-Control Period"
where it appears in Section 8.7 of the Plan and inserting in lieu
thereof the phrase "Change-in-Control Period applicable to the
Change in Control".
-90-
<PAGE>
11. By changing the reference to "Section 8.6(iv)"
where it appears in Section 8.7 of the Plan to read "Section
8.6(iii)".
12. By deleting Section 8.7(vii) of the Plan and
inserting lieu thereof the following:
"(vii) Notwithstanding the provisions of Section 8.7(i)
through (vi) above, any Member who immediately prior to the
Change in Control (other than a Change in Control within the
meaning of Section 1.5(d)) occupied one or more of the
following positions with Kentucky Utilities Company:
(A) Chairman of the Board,
(B) President,
(C) Chief Financial Officer,
(D) if immediately prior to the Change in Control the
positions described in subsections (A), (B) and
(C) above are filled in the aggregate by less than
three persons, Executive Vice President,
(E) Senior Vice President of Kentucky Utilities
Company, or
(F) Corporate Secretary
may terminate his employment with the Employer and its
Affiliates for any reason, including without limitation
other employment, during the 30-day period commencing on the
first anniversary of the date on which the Change in Control
(other than a Change in Control within the meaning of
Section 1.5(d)) occurs."
-91-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed by the Chairman of the Board, President
and Chief Executive Officer, having been duly authorized by the
Board of Directors of the Company on December 16, 1996, effective
as of November 1, 1996.
KENTUCKY UTILITIES COMPANY
By/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
Date of Signature January 6, 1997
-92-
EXHIBIT 10.16
KENTUCKY UTILITIES COMPANY
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective
As Of January 28, 1997)
-93-
<PAGE>
KENTUCKY UTILITIES COMPANY
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective As Of January 1, 1997)
ARTICLE I
Purpose
The Kentucky Utilities Company Director Deferred
Compensation Plan (the "Plan") was established, effective June 1,
1989, to provide eligible directors of Kentucky Utilities Company
with the opportunity to defer some or all of the compensation
which may be payable to them for services to be performed as
members of the Board of Directors of Kentucky Utilities Company.
The terms and conditions of the Plan, as amended and restated
effective as of January 1, 1997, are set forth below.
ARTICLE II
Definitions
The following words and phrases shall have the meanings
set forth below unless a different meaning is clearly required by
the context:
(a) Act: The Securities Exchange Act of
1934, as amended from time to time.
(b) Account: The account maintained
for each Participant showing his or her
interest under the Plan which shall be
divided into Subaccount I and Subaccount II
as provided in Section 4.1.
(c) Accounting Date: Except as
otherwise provided herein, each March 31,
June 30, September 30 and December 31 of each
calendar year. The first Accounting Date
under the Plan was June 30, 1989.
(d) Beneficiary: The person or persons
(natural or otherwise) designated, in
accordance with Section 5.4, to receive the
distribution of a Participant's Account
balance in the event of the Participant's
death.
-94-
<PAGE>
(e) Board: The Board of Directors of
the Company.
(f) Change in Control: The occurrence of
any of the events provided in Section 5.7.
(g) Committee: The Compensation
Committee of the Board.
(h) Company: Kentucky Utilities
Company, a corporation organized and existing
under the laws of the Commonwealth of
Kentucky.
(i) Compensation: Any retainer and
meeting fees payable to the Director in cash
by the Company for services rendered as a
member of the Board or any committee thereof.
(j) Director: Any member of the Board
on or after the Effective Date who is
separately compensated for his or her
services as a member of the Board.
(k) Effective Date: June 1, 1989.
(l) Fair Market Value: The closing
price of the Company's Common Stock as
reported in the listing of the New York Stock
Exchange - Composite Transactions on a
specified date.
(m) Parent: KU Energy Corporation or
any successor thereto.
(n) Participant: A Director
participating in the Plan in accordance with
the provisions of Section 3.2, or a former
Director whose Account balance under the Plan
has not been paid in full.
(o) Plan: The Kentucky Utilities
Company Director Deferred Compensation Plan
set forth in this instrument, as it may be
amended from time to time.
(p) Service: An individual's service
on the Board and on the boards of KU or any
other Subsidiary.
(q) Subsidiary: An entity in which the
Company or the Parent directly or indirectly
beneficially owns 50% or more of the voting
securities.
-95-
<PAGE>
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each member of the Board who was a
Director on the Effective Date was eligible to participate in the
Plan as of the Effective Date. Each other Director shall be
eligible to participate in the Plan as of the first day of the
month next following the date he or she becomes a Director.
3.2 Participation: A Director may elect to
participate in the Plan effective as of the date the Director
first becomes eligible to participate as provided in Section 3.1,
or effective as of the January 1st of any calendar year beginning
after such date, by filing written notice of such election with
the Company prior to the effective date of such election. Such
notice shall be accompanied by (i) an election to defer
Compensation as provided in Section 3.4, (ii) an election with
respect to Account adjustments as provided in Section 4.3, and
(iii) an election as to the method of payment as provided in
Section 5.1. Upon filing such election notice, the Director
shall become a Participant in the Plan effective as of the date
elected as permitted in this Section 3.2.
3.3 Crediting of Compensation: Commencing on the
effective date of a Participant's participation in the Plan and
continuing during the period that Compensation is to be credited
to the Participant's Account under the Plan, the Company shall
defer payment of and credit to the Participant's Account all or
such portion, as elected by the Participant under Section 3.4, of
the Compensation that the Participant would have received for
services rendered by the Participant during such period as a
-96-
<PAGE>
member of the Board but for his participation in the Plan, such
credits to be made as provided in Section 4.2(b).
3.4 Election to Defer: At the time a Director elects
to become a Participant, the Director shall elect to have from
10% to 100%, in specified multiples of 10%, of his or her
Compensation for services rendered subsequent to the date the
Director becomes a Participant deferred under the Plan and
credited to his or her Account as provided in Section 3.3. Such
election shall remain in effect until changed or terminated as
hereinafter provided.
A Participant may change his or her election under this
Section 3.4 effective as of the January 1st of any calendar year
with respect to Compensation for services to be rendered as a
Director on or subsequent to such January 1st, by filing with the
Company written notice of such change prior to the effective date
of such change. Any change may (i) increase or decrease, within
the limits prescribed in the preceding paragraph, the portion of
Compensation to be deferred and credited to the Participant's
Account as provided in Section 3.3, (ii) terminate an election to
defer Compensation under this Section 3.4 or (iii) resume the
deferral of Compensation under the Plan within the limits
prescribed in the preceding paragraph. A change in the portion
of Compensation deferred or the termination of a Participant's
election to defer Compensation shall not entitle the Participant
to receive payment of his or her Account balance, which shall be
payable only as provided in Article V.
-97-
<PAGE>
Any election or change in election under this
Section 3.4 shall be made on a form provided or prescribed by the
Company.
ARTICLE IV
Participants' Accounts
4.1 Individual Accounts: A separate Account shall be
maintained by the Company on its books for each Participant.
Such Account shall be divided into subaccounts to specifically
identify the portion of the Account subject to adjustment under
Section 4.3(a) ("Subaccount I") and the portion of the Account
subject to adjustment under Section 4.3(b) ("Subaccount II"). As
of January 1, 1995, each Participant's Account was allocated to
Subaccount I unless the Participant had elected otherwise as of
such date as then provided in the Plan. Subaccounts I and II
may, in turn, be further subdivided into such subaccounts as the
Company considers desirable for purposes of the administration of
the Plan.
4.2 Accounting Procedures: Each Participant's Account
shall be adjusted as of each Accounting Date occurring on or
after December 1, 1996 as follows and in the following order:
(a) The amount of any transfer to or
from Subaccount I or Subaccount II of the
Participant's Account, pursuant to a change
in election or deemed election under Section
4.3, made as of the first day of the calendar
quarter in which such Accounting Date occurs
shall be added to or subtracted from, as the
case may be, the applicable Subaccounts as of
the first day of such calendar quarter.
(b) Each Participant's Account shall
next be credited with the amount of
Compensation to be credited to his or her
Account as provided in Section 3.3 during the
-98-
<PAGE>
period ending on such Accounting Date that
follows the next preceding Accounting Date.
Credits shall be made as of the last business
day of the respective calendar months in
which such Compensation would have been paid
to the Participant by the Company but for his
or her participation in the Plan and shall be
allocated to Subaccount I or Subaccount II in
accordance with the Participant's election or
deemed election as in effect as of the
respective dates as of which the credits are
made.
(c) Each Participant's Account shall
next be charged as of such Accounting Date
with the amount of any distributions under
the Plan to the Participant or to his or her
Beneficiary effective as of or prior to such
Accounting Date.
(d) Subaccount I of each Participant's
Account shall next be credited with the
amount equivalent to interest, as determined
under Section 4.3(a), to be added to the
Participant's Account as of such Accounting
Date.
(e) Subaccount II of each Participant's
Account shall next be adjusted upwards or
downwards, as the case may be, in accordance
with Section 4.3(b), to reflect the Fair
Market Value of the hypothetical shares of
Parent Common Stock allocated to Subaccount
II of the Participant's Account as of such
Accounting Date.
4.3 Election With Respect to Subaccount Adjustments:
Subaccount I and Subaccount II of a Participant's Account are
subject to adjustment on and after December 1, 1996, as provided
in Section 4.2 as follows:
(a) Subaccount I Adjustments.
Subaccount I of a Participant's Account shall
be adjusted as of an applicable Accounting
Date by the addition of an amount equivalent
to interest. The interest equivalent to be
credited as of an applicable Accounting Date
shall be equal to the interest that would be
earned on the average of the balances in
Subaccount I of the Participant's Account at
the end of each calendar month ending during
the period following the next preceding
-99-
<PAGE>
Accounting Date and ending on the applicable
Accounting Date, at a rate per annum which
equals the average prime rate charged by
banks as reported in the Federal Reserve
Bulletin published on or next prior to the
applicable Accounting Date.
(b) Subaccount II Adjustments:
Subaccount II of a Participant's Account
shall be adjusted as of an applicable
Accounting Date to equal the Fair Market
Value as of such Accounting Date (or, if the
Accounting Date is not a trading date, as of
the trading date next preceding such
Accounting Date) of the number of
hypothetical shares of Parent Common Stock
allocated to Subaccount II of the
Participant's Account as of such Accounting
Date. The number of hypothetical shares of
Parent Common Stock allocated to Subaccount
II of a Participant's Account as of any date
shall be equal to the number of shares of
Parent Common Stock that would be allocated
to the Account as of such date if (i) the
Compensation credited to the Participant's
Account to be allocated to Subaccount II was
invested in the Parent's Common Stock at Fair
Market Value on the trading day that is
coincident with or next preceding the last
day of the calendar month in which such
Compensation would have been paid to the
Participant but for participation in the
Plan, (ii) any balance transferred effective
as of January 1, 1995 from Subaccount I due
to the one-time election permitted under
Section 4.3 of the Plan as then in effect was
invested in the Parent's Common Stock at the
average Fair Market Value on trading days
during the month of December, 1994, (iii) any
other balance transferred from Subaccount I
due to a change in election under this
Section 4.3 was invested in the Parent's
Common Stock at Fair Market Value on the
trading day that is coincident with or next
following the effective date of such change,
(iv) cash dividends on the shares of Parent
Common Stock treated as allocated to
Subaccount II of the Participant's Account
were automatically reinvested in the Parent's
Common Stock at Fair Market Value on the
trading day that is coincident with or next
following the applicable dividend payment
date, and (v) any transfers to Subaccount I
due to a change in election under this
Section 4.3 or any distributions from
-100-
<PAGE>
Subaccount II of the Participant's Account
were made at Fair Market Value on the trading
day that is coincident with or next preceding
the effective date of such change of election
or distribution of the number of hypothetical
shares of Parent Common Stock needed to make
such transfer or distribution, which
hypothetical shares shall be subtracted from
the number of shares treated as allocated to
Subaccount II of the Participant's Account as
of the effective date of the transfer or
distribution.
At the time a Director elects to become a Participant
or as of January 1, 1995, if later, the Director shall elect to
have the Compensation thereafter deferred under Section 3.4 and
credited to the Participant's Account allocated, in specified
multiples of 10%, to Subaccount I or Subaccount II. If a
Director who was a Participant as of December 31, 1994 failed to
make an election hereunder as of January 1, 1995, he was deemed
to have elected to have Compensation deferred on or after January
1, 1995 allocated to Subaccount I. A Participant's election or
deemed election under this Section 4.3 shall remain in effect
until changed as provided in this Section 4.3 from time to time.
A Participant may change his or her election or deemed
election under this Section 4.3 effective, beginning on or after
January 1, 1997, as of the first day of any calendar quarter by
filing with the Company written notice of such change at least 15
days prior to the effective date of such change. Any change
shall direct that either or both of (i) that the balance credited
to Subaccount I or Subaccount II of the Participant's Account as
of the immediately preceding Accounting Date be transferred, in
specified multiples of 10%, to the other Subaccount or (ii)
subsequent Compensation credits under Section 3.3 be allocated,
-101-
<PAGE>
in specified multiples of 10%, to Subaccount I or Subaccount II.
Such change shall be effective as of the first day of the
calendar quarter elected and shall remain in effect until further
changed as provided herein.
Any election or change in election under this Section
4.3 shall be made on a form provided or prescribed by the
Company.
Notwithstanding the foregoing provisions of this
Section 4.3, if a Participant terminates his or her Service and
any portion of the balance credited to his or her Account is to
be paid in accordance with Payment Method II or Payment Method
III as provided in Section 5.1, any balance in Subaccount II of
the Participant's Account shall be transferred by a deemed
election to Subaccount I of the Participant's Account as of the
day after the Accounting Date that is coincident with or next
following the Participant's termination of Service.
ARTICLE V
Distribution of Benefits
5.1 Termination For Reasons Other Than Death: Within
15 days after the Accounting Date coincident with or next
following the date on which the Participant terminates his or her
Service for any reason other than death or a termination to which
Section 5.6 applies, the Company shall pay, or commence to pay,
to the Participant in cash the amount credited to his or her
Account. Payment shall be made in accordance with Payment
Method I, Payment Method II or Payment Method III, below, as
elected by the Director:
-102-
<PAGE>
(a) Payment Method I - By payment in a
lump sum of the amount credited to the
Participant's Account as of the Accounting
Date coincident with or next following the
date on which the Participant terminates his
or her Service.
(b) Payment Method II - By payment in
quarterly installments, the number of which
shall be the lesser of (i) 40 or (ii) the
aggregate number of full calendar quarters
during which compensation was credited to the
Participant's Account under the Plan and to
his or her account under any similar plan of
the Parent or a Subsidiary (but not counting
any such calendar quarter more than once).
The amount of each installment shall be equal
to the quotient obtained by dividing the
balance credited to Participant's Account as
of the Accounting Date coincident with or
next preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
(c) Payment Method III - By payment in
annual installments, the number of which
shall be the lesser of (i) 10 or (ii) the
aggregate number of full calendar years (but
not less than one) during which compensation
was credited to the Participant's Account
under the Plan and to his or her account
under any similar plan of the Parent or a
Subsidiary (but not counting any such
calendar year more than once). The amount of
each installment shall be equal to the
quotient obtained by dividing the balance
credited to Participant's Account as of the
Accounting Date coincident with or next
preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
A method of payment shall be elected by the Director at the time
the Director elects to become a Participant, which method of
payment election shall remain in effect until changed as
hereinafter provided.
A Participant may change his or her elected method of
payment from time to time by filing with the Company written
-103-
<PAGE>
notice of such change, except that no election change shall be
effective under the Plan if it is filed with the Company after
the date which is one year prior to the date on which the
Participant terminates his or her Service.
An election or change in election as to the method of
payment shall be made on a form provided or prescribed by the
Company.
Notwithstanding a Participant's election under, or the
foregoing provisions of, this Section 5.1, if a Change in Control
occurs after a Participant terminates his or her Service but
prior to the complete distribution under the Plan of the balance
credited to his or her Account, the amount credited to the
Participant's Account as of the New York Stock Exchange trading
date next preceding the date on which the Change in Control
occurs (such amount to be determined as if the trading date next
preceding the date on which the Change in Control occurs were an
Accounting Date) increased by the amount of any Compensation
deferred under the Plan by the Participant not previously
credited to his or her Account, shall be paid in cash in a lump
sum to the Participant (or, in the event of the Participant's
death after his termination of Service, to his or her
Beneficiary) within 15 days after the date on which the Change in
Control occurs, such payment to be made effective as of the date
on which the Change in Control occurs.
5.2 Death: Upon the death of a Participant, whether
before or after termination as a member of the Board, prior to
the complete distribution of the balance credited to his or her
Account, any undistributed amount credited to the Participant's
-104-
<PAGE>
Account as of the Accounting Date coincident with or next
following the Participant's date of death shall be paid in cash
in a lump sum to the Participant's Beneficiary within 15 days
after such Accounting Date. If, however, a Change in Control
shall occur either before or after the Participant's death but
prior to the complete distribution of the balance credited to the
Participant's Account, distribution shall be made to the
Beneficiary as provided in the last paragraph of Section 5.1 or
in Section 5.6, whichever is applicable, rather than as provided
in this Section 5.2. The foregoing sentence shall not apply if
the Participant's termination of Service occurs on or after the
third anniversary of the date on which the Change in Control
occurs.
5.3 Hardship Distribution: With the prior written
consent of the Committee, a Participant may withdraw, as of an
Accounting Date prior to termination of Service, from his or her
Account a cash amount not in excess of the balance credited to
the Participant's Account as of such Accounting Date. The
Committee, in its sole discretion, may consent to such withdrawal
but only if the withdrawal is necessary, upon demonstration by or
on behalf of the Participant, because of a substantial financial
hardship of the Participant as a result of accident, illness or
disability. The Committee, in its sole discretion, shall
determine the amount of such a distribution that is needed to
meet the need created by the hardship. Any such distribution
shall be charged first to Subaccount I of the Participant's
Account and then, to the extent Subaccount I is insufficient, to
Subaccount II.
-105-
<PAGE>
5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(a) The last person designated as
Beneficiary by the Participant in a written
notice on a form prescribed by and filed with
the Company;
(b) If there is no designated
Beneficiary or if the person so designated
shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated Beneficiary
and no such spouse is living upon the death
of a Participant, or if all such persons die
prior to the full distribution of the
Participant's Account, then the legal
representative of the last survivor of the
Participant and such persons, or, if the
Company shall not receive notice of the
appointment of any such legal representative
within one year after such death, the
heirs-at-law of such survivor (in the
proportions in which they would inherit his
intestate personal property) shall be the
Beneficiaries to whom the then remaining
balance of the Participant's Account shall be
distributed.
Any Beneficiary designation may be changed from time to time by
like notice similarly delivered. No notice given under this
Section shall be effective unless and until the Company actually
receives such notice and enters it in its records.
5.5 Delay In And Approval Of Distribution:
Notwithstanding anything to the contrary herein, the distribution
of all or any portion of a Participant's Account will be delayed
for a period not to exceed seven months or may be subject to
prior approval by the Committee or the Board to the extent that
the Committee determines that such delay or approval is necessary
or desirable to ensure that any transaction under the Plan will
qualify for an exemption from the liability provisions imposed on
-106-
<PAGE>
the Participant under Section 16(b) of the Act or any rules and
regulations issued thereunder. In the event of any such delay,
the undistributed portion of the Participant's Account shall
continue to be subject to adjustment as provided in Section 4.2
until distribution is made.
5.6 Certain Terminations On or After a Change in
Control: If a Participant terminates his or her Service on or
after the date on which a Change in Control occurs but prior to
the third anniversary of the date on which the Change in Control
occurs, the amount credited to the Participant's Account as of
the date of his or her termination of Service (such amount to be
determined as if the date on which the Participant terminates
Service were an Accounting Date) increased by the amount of any
Compensation deferred under the Plan by the Participant not
previously credited to his or her Account shall be paid in cash
in a lump sum to the Participant (or, in the event of the
Participant's death, to his or her Beneficiary) within 15 days
after the Participant's termination of Service.
5.7 Change in Control: For purposes of the Plan, a "Change
in Control" shall have occurred if at any time on or after
December 1, 1996, any of the following events shall occur:
(a) The Company or the Parent is merged
or consolidated or reorganized into or with
another corporation or other legal person,
and as a result of such merger, consolidation
or reorganization less than 60% of the
combined voting power of the then-outstanding
securities of such corporation or person
immediately after such transaction is held in
the aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors (the
"Voting Stock") of the Parent immediately
prior to such transaction;
-107-
<PAGE>
(b) The Company or the Parent sells or
otherwise transfers all or substantially all
of its assets to any other corporation or
other legal entity, and as a result of such
sale or transfer less than 60% of the
combined voting power of the then-outstanding
securities of such other corporation or
entity immediately after such sale or
transfer is held in the aggregate by the
holders of Voting Stock of the Parent,
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule
13D or Schedule 14D-1 (or any successor
schedule, form or report or item therein),
each as promulgated pursuant to the Act,
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Act) has become the
beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated
under the Act) of securities representing 10%
or more of the combined voting power of the
Voting Stock of the Company or the Voting
Stock of the Parent; or
(d) If at any time during any period of
two consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or the Parent cease
for any reason to constitute at least a
majority thereof, unless the election, or the
nomination for election by such company's
stockholders, of each director of such
company first elected during such period was
approved by a vote of at least two-thirds of
the directors of such company then still in
office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph
(c) above, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company and the
Parent, a "Change in Control" shall not be deemed to have
occurred for purposes of the Plan solely because (i) the Parent,
(ii) a Subsidiary or (iii) any Company-sponsored, Parent-
sponsored or Subsidiary-sponsored employee stock ownership plan
-108-
<PAGE>
or any other employee benefit plan of the Company, the Parent or
Subsidiary, either files or becomes obligated to file a report
under or in response to Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or item therein) under the
Act, disclosing beneficial ownership by it of shares of Voting
Stock of the Company or the Parent, whether in excess of 10% or
otherwise.
ARTICLE VI
Financing of Benefits
The Plan shall be a nonqualified and unfunded plan.
Benefit payments under the Plan shall represent an unsecured
general obligation of the Company and shall be paid by the
Company from its general assets. No special fund or trust shall
be created or held for the financing of benefits under the Plan.
ARTICLE VII
Facility of Payment
Whenever a person entitled to receive any payment under
the Plan is a person under legal disability or a person not
adjudicated incompetent but who, by reason of illness or mental
or physical disability, is in the opinion of the Committee unable
properly to manage his or her affairs, then such payments shall
be paid in such of the following ways as the Committee deems
best: (a) to such person directly; (b) to the legally appointed
guardian or conservator of such person; (c) to some relative or
friend of such person for his or her benefit; (d) for the benefit
of such person in such manner as the Committee considers
advisable. Any payment made in accordance with the provisions of
-109-
<PAGE>
this Article shall be a complete discharge of any liability for
the making of such payment under the Plan, and the distributee's
receipt shall be a sufficient discharge to the Company.
ARTICLE VIII
Administration
The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall have such duties
and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, to construe and
interpret the Plan, decide all questions of eligibility and
determine the amount and time of payment of benefits hereunder.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan. No
Participant who is a member of such Committee may vote on any
question relating specifically to himself or herself.
ARTICLE IX
Miscellaneous
9.1 Other Agreements. The Plan shall not affect in
any way the rights or obligations of a Director under any
deferred compensation or other agreement between the Director and
the Company or the Parent, including, but not limited to, the
KU Energy Corporation Director Retirement Retainer Program or the
Kentucky Utilities Company Director Retirement Retainer Program.
9.2 Successors. The Company shall require any
successor (whether direct or indirect, by purchase, merger,
-110-
<PAGE>
consolidation, reorganization or otherwise) to all or
substantially all of the business and/or assets of the Company
expressly to assume and to agree to perform this Plan in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall
be binding upon and inure to the benefit of the Company and any
successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by sale,
merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Plan), and the heirs, executors and
administrators of each Director.
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
receive payments hereunder, nor shall such payments be subject to
seizure, attachment or garnishment for the payments of any debts,
judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise, all payments and rights hereunder being
expressly declared to be nonassignable and nontransferable.
9.4 Amendment and Termination. The Plan may be
amended from time to time or terminated by the Board at any time,
but no amendment or termination may adversely affect the rights
of any person without his or her prior written consent.
9.5 Applicable Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth of
Kentucky.
-111-
<PAGE>
9.6 Notices. For all purposes of this Plan, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to a
Participant at his or her principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9.7 Severability: Each section, subsection and lesser
section of this Plan constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever
possible, each provision of this Plan shall be interpreted in
such manner as to be effective and valid under applicable law.
In the event that any provision of this Plan shall finally be
determined to be unlawful, such provision shall be deemed severed
from this Plan, but every other provision of this Plan shall
remain in full force and effect, and in substitution for any such
provision held unlawful, there shall be substituted a provision
of similar import reflecting the original intention of the
parties hereto to the extent permissible under law.
9.8 Withholding of Taxes: The Company may withhold
from any amounts payable under this Plan all federal, state, city
and other taxes as shall be legally required.
9.9 Adjustments: In the event of any stock dividend
or split, recapitalization, reclassification, increase or
-112-
<PAGE>
decrease in the number of outstanding shares, merger,
consolidation or exchanges in shares or other similar changes in
the Parent's Common Stock, appropriate adjustments shall be made
in the Parent Common Stock referenced in the Plan, including in
the calculations under Section 4.3(b), to reflect any such
change.
-113-
<PAGE>
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board, President and Chief Executive Officer and its
Corporate Seal to be hereunto affixed, attested by its Secretary,
as of the 28th day of January, 1997.
KENTUCKY UTILITIES COMPANY
By/s/Michael R. Whitley
Chairman of the Board, President
and Chief Executive Officer
[Corporate Seal]
ATTEST:George S. Brooks II
Secretary
-114-
EXHIBIT 10.18
AMENDMENT NO. 1 TO
KU ENERGY CORPORATION
PERFORMANCE SHARE PLAN DOCUMENT
The KU Energy Corporation Performance Share Plan
Document (the "Plan") is hereby amended, effective as of
November 1, 1996, in the following respects:
1. By deleting Section 9.5 of the Plan.
2. By deleting Section 10.1 of the Plan and inserting
in lieu thereof the following:
"10.1 A change in control ("Change in Control") for
purposes of the Plan shall have occurred if at any
time on or after November 1, 1996 any of the
following events shall occur:
(a) The Company or KU (as defined below) is
merged or consolidated or reorganized
into or with another corporation or
other legal person, and as a result of
such merger, consolidation or
reorganization less than 60% of the
combined voting power of the then-
outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or otherwise
transfers all or substantially all of
its assets to any other corporation or
other legal entity, and as a result of
such sale or transfer less 60% of the
combined voting power of the then-
outstanding securities of such other
corporation or entity immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Stock
of the Company immediately prior to such
sale or transfer;
(c) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form or report or item
therein), each as promulgated pursuant
to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"),
-115-
<PAGE>
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the
term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the
Exchange Act) of securities representing
10% or more of the combined voting power
of the Voting Stock of the Company or
the Voting Stock of KU;
(d) The Company or KU files a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or
Schedule 14A (or any successor schedule, form
or report or item therein) that a change in
control of the Company or KU has or may have
occurred or will or may occur in the future
pursuant to any then-existing contract or
transactions; or
(e) If at any time during any period of two
consecutive years, individuals who at
the beginning of any such period
constitute the directors of the Company
or KU cease for any reason to constitute
at least a majority thereof, unless the
election, or the nomination for election
by such company's stockholders, of each
director of such company first elected
during such period was approved by a
vote of at least two-thirds of the
directors of such company then still in
office who were directors of such
company at the beginning of any such
period.
Notwithstanding the foregoing provisions
of paragraph (c) or (d) above, unless
otherwise determined in a specific case
by majority vote of the Board of
Directors of the Company and KU, a
"Change in Control" shall not be deemed
to have occurred for purposes of the
Plan solely because (i) the Company,
(ii) an entity in which the Company or
KU or one or more other Subsidiaries
directly or indirectly beneficially owns
50% or more of the voting securities (a
"Subsidiary"), or (iii) Company-
sponsored, KU-sponsored or Subsidiary-
sponsored employee stock ownership plan
or any other employee benefit plan of
-116-
<PAGE>
the Company, KU or Subsidiary, either
files or becomes obligated to file a
report or a proxy statement under or in
response to Schedule 13D, Schedule
14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or
item therein) under the Exchange Act,
disclosing beneficial ownership by it of
shares of Voting Stock of the Company or
KU, whether in excess of 10% or
otherwise, or because the Company, KU or
a Subsidiary reports that a change in
control of the Company or KU has or may
have occurred or will or may occur in
the future by reason of such beneficial
ownership. For purposes of this
Section 10.1, "KU" shall mean Kentucky
Utilities Company."
3. By deleting Section 10.2 of the Plan and inserting
in lieu thereof the following:
"10.2 In the event of a Change in Control under the
preceding Section 10.1, a Participant whose
employment is terminated, whether voluntarily
or involuntarily, after such Change of
Control will have a right to an immediate
payment in the form of Company Common Stock
for all Performance Cycles in which he is
then currently participating. The number of
shares of Company Common Stock to be paid
shall be determined on the assumption that
the target for each outstanding Performance
Share Cycle has been met and shall be the
number of shares of Company Common Stock
equal to a fraction of the Participant's
total Performance Shares for the applicable
Performance Cycle, the numerator of which
fraction is the whole and partial months in
the applicable Performance Cycle which have
passed as of the date of the Change in
Control and the denominator of which is the
number of months in the applicable
Performance Cycle. In addition, the
restrictions applicable to any Restricted
Stock which the Participant holds as a result
of matured Performance Cycles shall lapse as
of the date of the Change in Control.
Notwithstanding the foregoing, no shares of
Restricted Stock received by a Participant
pursuant to this Plan may be sold for a
period of six months after the receipt of
such shares, except in the case of the
Disability or death of the Participant."
-117-
<PAGE>
4. By deleting the text of Article XI of the Plan and
inserting in lieu thereof the following:
"The Plan became effective for the year
commencing January 1, 1993, and may be
terminated, amended, modified, or
supplemented at any time by the Company.
Notwithstanding the preceding sentence, no
termination, amendment, modification or
supplement may be made on or after the
occurrence of a Change in Control (as defined
in Section 10.1) that adversely affects the
right of any person without his prior written
consent."
5. By adding a new Section 12.6 after Section 12.5 of
the Plan as follows:
"12.6 The Company shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all
or substantially all of the business and/or assets
of the Company expressly to assume and agree to
perform this Plan in the same manner and to the
same extent the Company would be required to
perform if no such succession had taken place.
This Plan shall be binding upon and inure to the
benefit of the Company and any successor to the
Company, including without limitation any persons
acquiring directly or indirectly all or
substantially all of the business and/or assets of
the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed to
"Company" for the purposes of this Plan). This
Plan shall inure to the benefit of and be
enforceable by Participant's personal or legal
representatives, executors, administrators,
successors, heirs, Beneficiaries, distributees
and/or legatees."
-118-
<PAGE>
IN WITNESS WHEREOF, KU Energy Corporation has caused
this instrument to be executed in its name by its Chairman of the
Board, President and Chief Executive Officer and its Corporate
Seal to be hereunto affixed, attested by its Secretary, as of the
16th day of December, 1996.
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:/s/George S. Brooks II
-119-
EXHIBIT 10.21
AMENDMENT NO. 2 TO
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
The KU Energy Corporation Annual Performance Incentive
Plan, as heretofore amended (the "Plan"), is hereby further
amended, effective as of November 1, 1996, in the following
respects:
1. By deleting Section 7.5 of the Plan and inserting
in lieu thereof the following:
"7.5 The Committee may adjust the threshold, target,
and maximum performance goals for each performance
criterion at any time during a Plan Year to
reflect any extraordinarily unusual occurrence
occurring prior to a Change in Control (as defined
in Section 13.1) which is outside the control of
management and/or any Participant, which
occurrence has a significant impact on the
Company."
2. By deleting Section 9.3 of the Plan and inserting
in lieu thereof the following:
"9.3 If the Participant's employment with the Employer
and Affiliates is terminated after the end of the
Plan Year, but prior to receipt of the
corresponding Incentive Award, the Participant, or
the Participant's Beneficiary in the case of the
Participant's death, shall be paid the full
Incentive Award at the time the other
Participants' Incentive Awards are paid, unless
termination occurs prior to the occurrence of a
Change in Control (as defined in Section 13.1) and
is the result of gross negligence or malfeasance
as determined by the Committee in which case no
award will be paid."
3. By deleting Section 9.4 of the Plan and inserting
in lieu thereof the following:
"9.4 Notwithstanding any provision of the Plan,
the Chief Executive Officer of the Company,
in his sole discretion, may limit or
eliminate any Participant's participation in
the Plan, provided such limitation or
elimination occurs both prior to the date the
award would otherwise be paid to the
-120-
<PAGE>
Participant and the date on which a Change in
Control (as defined in Section 13.1) occurs."
4. By deleting the second sentence of Article X of
the Plan and inserting in lieu thereof the following:
"Such election, however, shall not apply to all or
any part of an Incentive Award (i) payable for a
Plan Year in the event of the Participant's death
prior to the time other Participants' Incentive
Awards for that Plan Year are paid or (ii) payable
on or after the occurrence of a Change in Control
(as defined in Section 13.1)."
5. By adding a new sentence at the end of Article XI
of the Plan as follows:
"Notwithstanding the preceding sentence, no
termination, amendment, modification or supplement may
be made on or after the occurrence of a Change in
Control (as defined in Section 13.1) that adversely
affects the right of any person without his prior
written consent."
6. By adding a new Section 12.6 after Section 12.5 of
the Plan as follows:
"12.6 The Company shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all
or substantially all of the business and/or assets
of the Company expressly to assume and agree to
perform this Plan in the same manner and to the
same extent the Company would be required to
perform if no such succession had taken place.
This Plan shall be binding upon and inure to the
benefit of the Company and any successor to the
Company, including without limitation any persons
acquiring directly or indirectly all or
substantially all of the business and/or assets of
the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed to
"Company" for the purposes of this Plan). This
Plan shall inure to the benefit of and be
enforceable by Participant's personal or legal
representatives, executors, administrators,
successors, heirs, Beneficiaries, distributees
and/or legatees."
-121-
<PAGE>
7. By adding a new Article XIII to the Plan after
Article XII as follows:
"ARTICLE XIII - CHANGE IN CONTROL
13.1 A change in control ("Change in Control") for
purposes of the Plan shall have occurred if
at any time on or after November 1, 1996 any
of the following events shall occur:
(a) The Company or KU (as defined below) is
merged or consolidated or reorganized
into or with another corporation or
other legal person, and as a result of
such merger, consolidation or
reorganization less than 60% of the
combined voting power of the then-
outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or otherwise
transfers all or substantially all of
its assets to any other corporation or
other legal entity, and as a result of
such sale or transfer less 60% of the
combined voting power of the then-
outstanding securities of such other
corporation or entity immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Stock
of the Company immediately prior to such
sale or transfer;
(c) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form or report or item
therein), each as promulgated pursuant
to the Securities Exchange Act of 1934,
as amended (the "Exchange Act")
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the
term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the
Exchange Act) of securities representing
10% or more of the combined voting power
-122-
<PAGE>
of the Voting Stock of the Company or
the Voting Stock of KU; or
(d) If at any time during any period of two
consecutive years, individuals who at
the beginning of any such period
constitute the directors of the Company
or KU cease for any reason to constitute
at least a majority thereof, unless the
election, or the nomination for election
by such company's stockholders, of each
director of such company first elected
during such period was approved by a
vote of at least two-thirds of the
directors of such company then still in
office who were directors of such
company at the beginning of any such
period.
Notwithstanding the foregoing provisions
of paragraph (c) above, unless otherwise
determined in a specific case by
majority vote of the Board of Directors
of the Company and KU, a "Change in
Control" shall not be deemed to have
occurred for purposes of the Plan solely
because (i) the Company, (ii) an entity
in which the Company, KU or one or more
other Subsidiaries directly or
indirectly beneficially owns 50% or more
of the voting securities (a
"Subsidiary"), or (iii) any Company-
sponsored, KU-sponsored or Subsidiary-
sponsored employee stock ownership plan
or any other employee benefit plan of
the Company, KU or Subsidiary, either
files or becomes obligated to file a
report under or in response to
Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or
item therein) under the Exchange Act,
disclosing beneficial ownership by it of
shares of Voting Stock of the Company or
KU, whether in excess of 10% or
otherwise. For purposes of this
Section 13.1, "KU" shall mean Kentucky
Utilities Company.
13.2 In the event a Change in Control under the
preceding Section 13.1 occurs during a Plan
Year, then, notwithstanding anything to the
contrary in Article IX or otherwise in the
Plan, no payments of Incentive Awards shall
be made under Article IX for such Plan Year,
but instead, each Participant employed by the
-123-
<PAGE>
Employer or an Affiliate immediately prior to
the date on which the Change in Control
occurs and each Participant who had
terminated employment with the Employer and
Affiliates during the Plan Year by reason of
Retirement, Disability or death prior to the
occurrence of the Change in Control shall
have a right (or, in the case of the
Participant's death, his Beneficiary shall
have the right) to an immediate cash payment
of an Incentive Award based on actual base
salary earned during the Plan Year while a
Participant prior to the occurrence of the
Change in Control or earlier termination and
the assumption that established targets were
met. Such payments shall be made within 15
days after the date on which the Change in
Control occurs."
IN WITNESS WHEREOF, KU Energy Corporation has caused
this instrument to be executed in its name by its Chairman of the
Board, President and Chief Executive Officer and its Corporate
Seal to be hereunto affixed, attested by its Secretary, as of the
16th day of December, 1996.
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:
/s/George S. Brooks II
-124-
EXHIBIT 10.22
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
(As Amended And Restated Effective
As Of January 28, 1997)
-125-
<PAGE>
KU ENERGY CORPORATION
ANNUAL PERFORMANCE INCENTIVE PLAN
(As Amended And Restated Effective As Of January 28, 1997)
ARTICLE I - PLAN OBJECTIVES
The objective of the Plan is to advance the interests of the
Company and its shareholders, by providing annual cash incentive
compensation opportunities that attract, retain and motivate a
select group of management or highly compensated employees:
1.1 By providing compensation opportunities which are
competitive with those of other companies of comparable
size, and
1.2 By motivating key executives to achieve annual business
goals and contribute to team performance by allowing them to
share in the risks and rewards of the business.
The terms and conditions of the Plan, as amended and restated
effective as of January 28, 1997, are set forth below and are
applicable to Incentive Awards awarded for Plan Years beginning
on or after January 1, 1998. The terms and conditions of the
Plan as in effect immediately prior to January 28, 1997 shall
continue to apply to Incentive Awards awarded for Plan Years
beginning prior to January 1, 1998.
-126-
<PAGE>
ARTICLE II - DEFINITIONS
For purposes of the Plan, the following definitions shall
control:
2.1 "Base Salary" -- Annualized base salary paid to a
Participant as of January 1st of each Plan Year or as of
such later date during a Plan Year as of which the Executive
becomes a Participant in the Plan, except that if an
Executive becomes a Participant as of a date other than
January 1st of a Plan Year, such amount shall be prorated in
proportion to the portion of the Plan Year in which the
Executive will be a Participant.
2.2 "Beneficiary" -- Any person or persons designated by a
Participant to receive amounts payable in accordance with
this Plan in the event of the Participant's death. If no
Beneficiary has been designated or if no designated
Beneficiary shall survive the Participant, the Participant's
Beneficiary shall be deemed to be his or her estate.
2.3 "Code" -- Internal Revenue Code of 1986, as amended.
2.4 "Committee" -- The Compensation Committee of the Board of
Directors of the Company, which is comprised solely of two
or more directors that qualify as "outside directors" within
the meaning of Section 162(m) of the Code.
-127-
<PAGE>
2.5 "Company" -- KU Energy Corporation, and successors thereto.
2.6 "Disability" -- A physical or mental condition which
prevents a Participant from engaging in any occupation or
employment for remuneration or profit, except for the
purpose of rehabilitation not incompatible with such
findings. The determination shall be made (i) on medical
evidence by a licensed physician assigned by the Committee,
or (ii) on evidence that the Participant is eligible for
disability benefits under the Social Security Act in effect
at the date of disability. Disability shall exclude
disabilities arising from (a) intentionally self-inflicted
injury or self-induced illness; or (b) a proven unlawful act
or enterprise on the part of the Participant.
2.7 "Executive" -- Any management or highly compensated employee
of the Company or any corporation or other entity which is
then a Subsidiary who is deemed by the Committee to be
eligible for participation in this Plan.
2.8 "Executive Optional Deferred Compensation Plan of KU Energy
Corporation" -- A separate plan, as it may be amended from
time to time, designed to allow Participants in this Plan to
elect to defer Incentive Award payments to a specified
future date.
2.9 "Incentive Award" -- Awards made by the Committee under this
Plan. All awards will be paid in cash.
-128-
<PAGE>
2.10 "Participant" -- An Executive designated by the Committee
to participate in this Plan.
2.11 "Participation Form" -- The form that is prepared annually
for each Participant, which describes the Participant's
performance criteria, goals and award opportunities under
this Plan.
2.12 "Plan" -- The KU Energy Corporation Annual Performance
Incentive Plan set forth in this instrument, as it may, from
time to time, be amended.
2.13 "Plan Year" -- The Company's fiscal year commencing January
1 and ending December 31.
2.14 "Retirement" -- Severance from employment with the Company
and Subsidiaries at or after attaining fifty-five (55) years
of age and with not less than fifteen (15) complete years of
service with the Company and Subsidiaries.
2.15 "Subsidiary" -- Any corporation or other business entity in
an unbroken chain beginning with the Company, if each such
corporation or other entity (other than the last in the
unbroken chain), or if each group of commonly controlled
corporations or other entities, then owns fifty percent
(50%) or more of the total combined voting power in one of
the other corporations or entities in such chain.
-129-
<PAGE>
ARTICLE III - ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee. The Committee
shall have the full and exclusive power to construe and interpret
the Plan, to correct any defect, supply any omission, make any
factual determination or reconcile any inconsistency in such
manner and to such extent as the Committee in its sole and
absolute discretion may determine. The Committee is authorized
to establish and amend rules and regulations necessary for Plan
administration. Decisions of the Committee shall be binding on
all persons claiming rights under the Plan. Recommendations as
to the operation and administration of the Plan, eligible
employees to participate in the Plan, the type and amount of
Incentive Awards and performance criteria may be made by
management to the Committee. The Committee may employ such
counsel (who may be counsel for the Company or any Subsidiary),
consultants and/or agents and may arrange for such services as it
may determine to be necessary or appropriate in the
administration of the Plan. All expenses incurred by the
Committee in administering the Plan shall be paid by the Company.
ARTICLE IV - DESCRIPTION OF THE PLAN
The Plan is a target incentive plan which provides for the
establishment of target, threshold and maximum levels of
Incentive Awards based on performance against specific
predetermined performance targets. Management shall submit to
the Committee recommendations for each Plan Year which shall
-130-
<PAGE>
include: proposed Participants, target, threshold and maximum
award opportunities, performance targets for each performance
criterion, and the weighting of the annual Incentive Award among
the performance criteria for each Participant. However, the
Committee shall determine, in its sole discretion and not later
than the 90th day after the beginning of each Plan Year, in
writing the Participants, target, threshold and maximum award
opportunities, performance criteria, performance target for each
performance criterion, and the weighting of the annual Incentive
Award among the performance criteria for each Participant. From
time to time during a Plan Year, management may also recommend
proposed additional Participants for such Plan Year and the award
opportunities and performance criteria for such individuals.
However, the Committee shall determine, it its sole discretion,
in writing any additional Participants for such Plan Year and the
award opportunities and performance criteria for such
Participants; provided, however, that no additional Participant
may be added after the first three months of the Plan Year. As
soon as practicable after the end of the Plan Year, each
Participant's Incentive Award earned will be determined based on
performance against the preestablished performance targets.
However, such amounts may not be paid to a Participant until the
Committee has certified in writing that the performance targets
and any other material terms have been satisfied.
-131-
<PAGE>
ARTICLE V - PARTICIPANTS
For each Plan Year, Participants will be selected at the times
provided in Article IV by the Committee from among the
Executives, subject to the following provisions of this
Article V.
5.1 Awards under this Plan may be made only to Executives who
are in a position to make significant contributions to the
success of the Company.
5.2 Management shall recommend to the Committee those Executives
to be considered for Plan participation each Plan Year.
However, the Committee, in its sole discretion, shall select
the Participants for each Plan Year.
ARTICLE VI - AWARD LEVELS
6.1 Management shall recommend to the Committee for each Plan
Year the target annual Incentive Award opportunity,
expressed as a percentage of the Participant's Base Salary.
At the time Executives are selected as Participants in the
Plan, however, the Committee shall determine, in its sole
discretion, the target annual Incentive Award opportunity
for each Participant expressed as a percentage of the
Participant's Base Salary.
-132-
<PAGE>
6.2 The achievement of threshold performance earns no award,
maximum performance earns 1.5 times the target award
opportunity. Awards for performance between threshold and
target performance, and target and maximum performance will
be determined by straight-line interpolation. The maximum
amount that may be paid to any Participant under the Plan in
respect of any Plan Year will not exceed $500,000.
ARTICLE VII - PERFORMANCE CRITERIA AND PERFORMANCE GOALS
For each Plan Year, management shall recommend to the Committee
one or more financial or non-financial or other performance
criterion and the threshold, target, and maximum performance
goals for each performance criterion for each Participant.
However, subject to the provisions of this Article VII, the
Committee shall determine, in its sole discretion for each Plan
Year at the times provided in Article IV, the performance
criteria, the threshold, target and maximum performance goals and
the weighting of each performance criterion, for each
Participant.
7.1 The performance criteria applicable to any Participant who
is, or who is determined by the Committee to be likely to
become, a "covered employee" within the meaning of Section
162(m) of the Code (a "Covered Employee"), shall be limited
to growth, improvement in or attainment by the Company or
its Subsidiaries or one or more business or functional units
thereof of certain levels of:
-133-
<PAGE>
(i) return on capital, equity, or operating
costs;
(ii) economic value added;
(iii) margins;
(iv) total shareholder return or market
value;
(v) operating profit or net income;
(vi) cash flow, earnings before interest and
taxes, earnings before interest, taxes
and depreciation, or earnings before
interest, taxes, depreciation and
amortization;
(vii) sales or product volumes;
(viii) costs, expenses or inventory;
(ix) earnings per share;
(x) cost per kilowatt hour;
(xi) safety;
(xii) environmental standards;
(xiii) customer favorability/loyalty;
(xiv) service reliability;
(xv) productivity;
(xvi) market share; or
(xvii) completion of specified tasks or goals.
Such performance criteria may be expressed either on an
absolute basis or relative to other companies or indices
selected by the Committee. This Section 7.1 is intended to
comply with the exception from Section 162(m) of the Code
-134-
<PAGE>
for qualified performance-based compensation, and shall be
construed, applied and administered accordingly.
7.2 The Committee may adjust the threshold, target, and maximum
performance goals for each performance criterion at any time
during a Plan Year to reflect any extraordinarily unusual
occurrence, occurring prior to a Change in Control (as
defined in Section 13.1), which is outside the control of
management and/or any Participant, which occurrence has a
significant impact on the Company; provided, however, that
no such modification shall be made in the case of any
Incentive Award granted to a Participant who is, or is
determined by the Committee to be likely to become, a
Covered Employee if the effect would be to cause the award
to fail to qualify for the performance-based compensation
exception to Section 162(m) of the Code. In addition, at
the time an Incentive Award is granted and performance goals
established, the Committee is authorized to determine the
manner in which the performance goals will be calculated or
measured to take into account certain factors over which
Participants have no or limited control including market
related changes in inventory value, changes in industry
margins, changes to rates or accounting procedures ordered
by regulatory bodies, changes in accounting principles, and
extraordinary charges to income; provided, however, that no
such calculation or measurement shall be made in the case of
any Incentive Award granted to the Participant who is, or is
determined by the Committee to be likely to become, a
-135-
<PAGE>
Covered Employee in such a manner that would cause the award
to fail to qualify for the performance-based compensation
exception to Section 162(m) of the Code.
ARTICLE VIII - COMMUNICATION OF THE PLAN
After performance targets are established as described above,
management shall advise each Participant of the targets and his
or her award opportunities under the Plan. This communication
will take place each Plan Year via an individual employee
Participation Form.
ARTICLE IX - PAYMENT OF AWARDS
Incentive Awards earned for a Plan Year based on performance
against established targets shall be determined and payable in
cash by the Company or Subsidiary employing the Participant as
soon as feasible after the close of the Plan Year as determined
by the Committee, subject to the following provisions of this
Article IX. However, such amounts may not be paid to a
Participant until the Committee has certified in writing that the
performance targets and other material terms have been satisfied.
9.1 In the event of termination of employment with the Company
and Subsidiaries during a Plan Year by reason of Retirement,
Disability or death of the Participant, the Participant, in
the case of Disability or Retirement, or the Participant's
Beneficiary, in the case of the Participant's death, shall
-136-
<PAGE>
earn an Incentive Award based on actual base salary earned
prior to termination during the Plan Year, and actual
performance against established targets. The transfer of
employment among the Company and Subsidiaries during a Plan
Year shall not be deemed a termination of employment for
purposes of the Plan.
9.2 In the event of termination of employment with the Company
and Subsidiaries during a Plan Year for any other reason,
participation in the Plan will be terminated and no
Incentive Award will be payable to the terminated
Participant.
9.3 If the Participant's employment with the Company and
Subsidiaries is terminated after the end of the Plan Year,
but prior to receipt of the corresponding Incentive Award,
the Participant, or the Participant's Beneficiary in the
case of the Participant's death, shall be paid the full
Incentive Award earned, if any, at the time other
Participants' Incentive Awards for such Plan Year are paid
(unless the termination both occurs prior to the occurrence
of a Change in Control (as defined in Section 13.1)
occurring after the Incentive Award was awarded and is the
result of gross negligence or malfeasance as determined by
the Committee, in which case no Incentive Award will be
paid).
-137-
<PAGE>
9.4 Notwithstanding any provision of the Plan, the Committee may
limit or eliminate any Participant's participation in the
Plan and the Participant's Incentive Award for any Plan
Year, provided such limitation or elimination occurs both
prior to (i) the date the Incentive Award would otherwise be
paid to the Participant and (ii) the occurrence of a Change
in Control (as defined in Section 13.1 ) occurring after the
Incentive Award was awarded.
ARTICLE X - DEFERRAL OF INCENTIVE AWARD PAYMENT
Subject to all of the provisions of the Executive Optional
Deferred Compensation Plan of KU Energy Corporation, a
Participant may elect to defer all or part of any Incentive Award
which may be payable to the Participant under this Plan. Such
election, however, shall not apply to all or any part of an
Incentive Award (i) payable for a Plan Year in the event of the
Participant's death prior to the time other Participants'
Incentive Awards for that Plan Year are paid or (ii) payable on
or after the occurrence of a Change in Control (as defined in
Section 13.1) occurring after the Incentive Award was awarded.
ARTICLE XI - EFFECTIVE DATE AND AMENDMENTS
This amended and restated Plan shall be effective as of January
28, 1997, the date of its adoption by the Board of Directors of
the Company, and may be terminated, amended, modified or
supplemented at any time by the Board of Directors of the
Company. Notwithstanding the preceding sentence, no termination,
-138-
<PAGE>
amendment, modification or supplement (i) may be made that
adversely affects the rights of any person, without his or her
prior written consent, under any Incentive Award theretofore
granted or (ii) shall be effective unless approved by the
affirmative vote of the holders of a majority of securities of
the Company present, or represented, and entitled to vote at a
meeting of shareholders of the Company duly held in accordance
with the laws of the Commonwealth of Kentucky within twelve (12)
months of the date of adoption of such termination, amendment,
modification or supplement, where such termination, amendment,
modification or supplement will make a change as may require
shareholder approval in order for awards granted under the Plan
to qualify for an exception from Section 162(m) of the Code.
Notwithstanding anything herein or in any award agreement to the
contrary, all Incentive Awards awarded under this amended and
restated Plan shall be void unless this amended and restated Plan
is approved by the affirmative vote of holders of a majority of
the securities of the Company present, or represented, and
entitled to vote at a meeting of shareholders duly held in
accordance with the laws of the Commonwealth of Kentucky within
twelve months after January 28, 1997.
ARTICLE XII - MISCELLANEOUS PROVISIONS
12.1 By acceptance of any Incentive Award under the Plan, each
Participant agrees that benefit calculations under all other
plans of the Company and its Subsidiaries will exclude,
-139-
<PAGE>
unless otherwise expressly provided in any such plan, the
Incentive Awards under the Plan.
12.2 The designation as a Participant in the Plan and the receipt
of an Incentive Award under the Plan shall not give the
Participant any right to continued employment or the right
to receive an Incentive Award under the Plan in a subsequent
year.
12.3 Except as required by law, no right of the Participant or
designated Beneficiary to receive payments under this Plan
shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy or similar
process or assignment by operation of law and any attempt,
voluntary or involuntary, to effect any such action shall be
null and void and of no effect.
12.4 Any words herein used in the masculine shall be read and
construed in the feminine where appropriate. Words in the
singular shall be read and construed as though used in the
plural in all cases where the context so requires.
12.5 This Plan shall be construed under the laws of the
Commonwealth of Kentucky.
12.6 The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization
-140-
<PAGE>
or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume and agree
to perform this Plan in the same manner and to the same
extent the Company would be required to perform if no such
succession had taken place. This Plan shall be binding upon
and inure to the benefit of the Company and any successor to
the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of
the business and/or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed to be the
"Company" for the purposes of this Plan), and the heirs,
executors and administrators of each Participant.
12.7 The Company shall deduct or cause to be deducted from all
payments under the Plan any federal, state, or local taxes
required by law to be withheld with respect to such
payments.
ARTICLE XIII - CHANGE IN CONTROL
13.1 A change in control ("Change in Control") for purposes of
the Plan shall have occurred if at any time on or after
November 1, 1996 any of the following events shall occur:
(a) The Company or KU (as defined below) is merged or
consolidated or reorganized into or with another
corporation or other legal person and, as a result of
-141-
<PAGE>
such merger, consolidation or reorganization, less than
60% of the combined voting power of the then-
outstanding securities of such corporation or person
immediately after such transaction is held in the
aggregate by the holders of the then-outstanding
securities entitled to vote generally in the election
of directors (the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or otherwise transfers all
or substantially all of its assets to any other
corporation or other legal entity and, as a result
of such sale or transfer, less 60% of the combined
voting power of the then-outstanding securities of
such other corporation or entity immediately after
such sale or transfer is held in the aggregate by
the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report or item therein), each as promulgated
pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under
-142-
<PAGE>
Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities
representing 10% or more of the combined voting
power of the Voting Stock of the Company or the
Voting Stock of KU; or
(d) If at any time during any period of two
consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or KU cease for any
reason to constitute at least a majority thereof,
unless the election, or the nomination for
election by such company's stockholders, of each
director of such company first elected during such
period was approved by a vote of at least two-
thirds of the directors of such company then still
in office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of
paragraph (c) above, unless otherwise determined in a
specific case by majority vote of the Board of
Directors of the Company and KU, a "Change in Control"
shall not be deemed to have occurred for purposes of
the Plan solely because (i) the Company, (ii) a
Subsidiary, or (iii) any Company-sponsored, KU-
sponsored or Subsidiary-sponsored employee stock
ownership plan or any other employee benefit plan of
-143-
<PAGE>
the Company, KU or Subsidiary, either files or becomes
obligated to file a report under or in response to
Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report or item therein) under the
Exchange Act, disclosing beneficial ownership by it of
shares of Voting Stock of the Company or KU, whether in
excess of 10% or otherwise. For purposes of this
Section 13.1, "KU" shall mean Kentucky Utilities
Company.
13.2 In the event a Change in Control under the preceding
Section 13.1 occurs during a Plan Year, then,
notwithstanding anything to the contrary in Article IX or
otherwise in the Plan, no payments of Incentive Awards shall
be made under Article IX for such Plan Year, but instead,
each Participant employed by the Company or a Subsidiary
immediately prior to the date on which the Change in Control
occurs and each Participant who had terminated employment
with the Company and Subsidiaries during the Plan Year by
reason of Retirement, Disability or death prior to the
occurrence of the Change in Control shall have a right (or,
in the case of the Participant's death, his or her
Beneficiary shall have the right) to an immediate cash
payment of an Incentive Award based on actual base salary
earned during the Plan Year while a Participant prior to the
occurrence of the Change in Control or earlier termination
and on the assumption that established targets were met.
-144-
<PAGE>
Such payments shall be made within 15 days after the date on
which the Change in Control occurs.
-145-
<PAGE>
IN WITNESS THEREOF, the Company has caused this Plan to
be executed by its duly authorized officers as of the 28th day of
January, 1997.
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
Attest:/s/George S. Brooks II
Secretary
(SEAL)
-146-
EXHIBIT 10.23
EXECUTIVE OPTIONAL DEFERRED
COMPENSATION PLAN
OF
KU ENERGY CORPORATION
(As Amended and Restated Effective
As Of January 1, 1997)
-147-
<PAGE>
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KU ENERGY CORPORATION
(As Amended And Restated Effective As Of January 1, 1997)
ARTICLE I - PLAN
This Plan is an unfunded Deferred Compensation arrangement for a
select group of management or highly compensated employees who
are rendering service to an Employer.
ARTICLE II - DEFINITIONS
For purposes of the Plan, the following definitions shall
control:
2.1 "Annual Performance Incentive Plan" -- The annual
incentive plan(s) sponsored by the Company as amended
from time to time.
2.2 "Beneficiary" -- Any person or persons designated by the
Executive to receive amounts payable in accordance with
this Plan in the event of the Executive's death. If no
Beneficiary has been designated or if no designated
Beneficiary shall survive the Executive, the Executive's
Beneficiary shall be deemed to be his or her estate.
2.3 "Committee" -- The Compensation Committee of the Board of
Directors of the Company.
-148-
<PAGE>
2.4 "Company" -- KU Energy Corporation, and successors
thereto.
2.5 "Death" -- Death from any cause.
2.6 "Deferred Compensation" -- The portion of a Participant's
annual incentive award (if any) which may be paid to the
Participant under the Company's Annual Performance
Incentive Plan(s) that has been deferred to this Plan.
2.7 "Deferred Compensation Account(s) " or "Account(s) " --
The accounts that may be established each year by the
Employer as a book reserve for each of its Participants
to which shall be credited the sum of the Participant's
Deferred Compensation for that year plus any earnings or
losses credited thereafter in accordance with Article VI.
2.8 "Deferral Election Form" -- The form made available
annually by the Committee to an Executive which, when
properly executed by the Executive, effects his or her
participation in the Plan for the applicable Performance
Cycle. A copy of the Deferral Election Form is attached
hereto as Exhibit A and is made a part hereof.
2.9 "Disability" -- A physical or mental condition which
prevents a Participant from engaging in any occupation or
employment for remuneration or profit, except for the
purpose of rehabilitation not incompatible with such
-149-
<PAGE>
findings. The determination shall be made (i) on medical
evidence by a licensed physician assigned by the
Committee, or (ii) on evidence that the Participant is
eligible for disability benefits under the Social
Security Act in effect at the date of disability.
Disability shall exclude disabilities arising from
(a) intentionally self-inflicted injury or self-induced
illness; or (b) a proven unlawful act or enterprise on
the part of the Participant.
2.10 "Employer" -- The Company, KU Capital Corporation,
commencing with Performance Cycles beginning on or after
January 1, 1998, Kentucky Utilities Company, and any
other Subsidiary to which the Plan is extended by the
Board of Directors of the Company and which adopts the
Plan.
2.11 "Executive" -- Any management or highly compensated
employee of an Employer who is deemed by the Committee to
be eligible for participation in this Plan.
2.12 "Fair Market Value" -- The closing price of the Company's
Common Stock as reported in the listing of the New York
Stock Exchange - Composite Transactions on a specified
date.
2.13 "Participant" -- Any employee designated as an Executive
who elects to participate in the Plan according to
-150-
<PAGE>
Article IV or a person who was such at the time of his or
her Retirement, Death, Disability or Termination of
Service and who retains, or whose Beneficiary retains, a
benefit under the Plan which has not been forfeited or
distributed.
2.14 "Performance Cycle" -- The period of time during which
the value of an award under the Company's Annual
Performance Incentive Plan is determined.
2.15 "Plan" -- The Executive Optional Deferred Compensation
Plan of KU Energy Corporation set forth in this
instrument, as it may, from time to time, be amended.
2.16 "Return on Capital" -- The result of dividing the
Company's net income before interest charges by the
Company's total capitalization as both are reported on
the Company's financial statements.
2.17 "Subsidiary" -- Any corporation or other business entity
in an unbroken chain beginning with the Company, if each
such corporation or other entity (other than the last in
the unbroken chain), or if each group of commonly
controlled corporations or other entities, then owns
fifty percent (50%) or more of the total combined voting
power in one of the other corporations or entities in
such chain.
-151-
<PAGE>
2.18 "Termination of Service" -- The termination for any
reason of a Participant's employment as a regular
employee of the Employers and the members of any
controlled group of corporations (as defined in Section
414(b) of the Internal Revenue Code (the 'Code')) of
which an Employer is a member, the members of any group
of trades or businesses which are under common control
(as defined in Section 414(c) of the Code) of which an
Employer is a member, the members of any affiliated
service group (as defined in Section 414(m) of the
Code) of which an Employer is a member, and all other
organizations deemed to be affiliated with an Employer
under Section 414(o) of the Code.
ARTICLE III - ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee. The Committee
shall have the full and exclusive power to construe and interpret
the Plan, to correct any defect, supply any omission, make any
factual determination or reconcile any inconsistency in such
manner and to such extent as the Committee in its sole and
absolute discretion may determine. The Committee is authorized
to establish and amend rules and regulations necessary for Plan
administration. Decisions of the Committee shall be binding on
all persons claiming rights under the Plan. The Committee may
employ such counsel (who may be counsel for any Employer),
consultants and/or agents and may arrange for such services as it
-152-
<PAGE>
may determine to be necessary or appropriate in the
administration of the Plan. All expenses incurred by the
Committee in administering the Plan shall be paid by the
Employers.
ARTICLE IV- PARTICIPANTS
4.1 Any Executive may elect to have all or any portion of his
or her award under the Company's Annual Performance
Incentive Plan deferred and credited with earnings or
losses in accordance with the terms and conditions of
this Plan.
4.2 An Executive desiring to exercise such election under
Paragraph 4.1 shall notify the Committee each time he or
she wishes to exercise a deferral election. Such notice
must be in writing, on a Deferral Election Form provided
by the Committee, and delivered to the Committee not
later than the December 31st preceding the start of a new
Performance Cycle. If an Executive becomes a participant
in the Company's Annual Performance Incentive Plan for a
Performance Cycle as of a date other than January 1st,
that Executive may deliver such notice to the Committee
within 30 days of the date as of which that Executive
becomes a participant in the Annual Performance Incentive
Plan. Once delivered to the Committee, a deferral
-153-
<PAGE>
election as made on a Deferral Election Form shall be
irrevocable.
4.3 The amount of a Participant's Deferred Compensation shall
be credited to his or her Deferred Compensation Account
at the time such amount would have otherwise been paid to
the Participant under the Company's Annual Performance
Incentive Plan but for his or her deferral election under
the Plan.
4.4 No Participant or the Participant's Beneficiary shall
acquire any property interest in his or her Deferred
Compensation Account or any other assets of the Employer,
their rights being limited to receiving from the Employer
deferred payments as set forth in this Plan and these
rights are conditioned upon continued compliance with the
terms and conditions of this Plan. To the extent that
any Participant or Beneficiary acquires a right to
receive benefits under this Plan, such right shall be no
greater than the right of any unsecured general creditor
of the Employer.
ARTICLE V - CONTINUED PARTICIPATION IN THE PLAN
A Participant shall not actively participate in the Plan for any
Performance Cycle for which a Deferral Election Form has not been
timely executed and filed as provided by Paragraph 4.2 herein.
-154-
<PAGE>
In this event, such a Participant's Deferred Compensation
Account(s) shall continue to be subject to the provisions of the
Plan and all previously submitted Deferral Election Forms. For
subsequent Performance Cycles, an Executive may again actively
participate hereunder by submitting the appropriate Deferral
Election Form in accordance with the provisions of Article IV
hereunder.
ARTICLE VI - CREDITING OF EARNINGS AND LOSSES
As of the last day of each calendar quarter each Participant's
Deferred Compensation Account(s) will be credited with earnings
or losses in addition to any amounts credited to such Account(s)
under Article IV of this Plan.
Earnings on each Deferred Compensation Account established for a
Participant for a Performance Cycle beginning prior to January 1,
1998 shall be equal to the interest that would have been earned
during such calendar quarter on the average of the balances of
the Participant's Account at the end of each calendar month
during such calendar quarter at a rate per annum equal to the
greater of (1) the Company's Return on Capital for the
twelve-month period that ends coincident with that quarter or
(2) the 13 week Treasury bill rate as reported in the Wall Street
Journal on the first business day coinciding with or next
following the end of that calendar quarter. However, effective
as of the first day of any calendar quarter beginning on or after
-155-
<PAGE>
April 1, 1997, a Participant may elect, by filing with the
Committee written notice (on a form provided by the Committee) at
least 15 days prior to the effective date thereof, to have the
balance in any Deferred Compensation Accounts established for the
Participant for a Performance Cycle beginning prior to January 1,
1998 be transferred or to have any subsequent Deferred
Compensation credits for such a Performance Cycle be allocated,
as the case may be, in specified multiples of 10%, to a
Subaccount II for adjustment in accordance with Paragraph 6.2
below rather than be credited with earnings in accordance with
the preceding sentence. Once such an election has been made for
a Deferred Compensation Account established for a Performance
Cycle, it may not be changed.
Earnings or losses on each Deferred Compensation Account
established for a Participant for a Performance Cycle beginning
on or after January 1, 1998 shall be determined by adjusting the
Account in accordance with Paragraph 6.1 or Paragraph 6.2 below.
A Participant shall elect on his or her Deferral Election Form
for a Performance Cycle to have the Participant's Deferred
Compensation for the Performance Cycle allocated to Subaccount I
for adjustment in accordance with Paragraph 6.1 or to
Subaccount II for adjustment in accordance with Paragraph 6.2.
Such election shall be made in specified multiples of 10% and
once made may not be changed with respect to Deferred
Compensation for a Performance Cycle.
-156-
<PAGE>
6.1 Subaccount I of a Participant's Account shall be adjusted
each calendar quarter by earnings equal to the interest
that would be earned during such calendar quarter on the
average of the balances in Subaccount I of the
Participant's Account at the end of each calendar month
during the calendar quarter, at a rate per annum which
equals the average prime rate charged by banks as
reported in the Federal Reserve Bulletin published on or
next prior to the last day of such calendar quarter.
6.2 Subaccount II of a Participant's Account shall be
adjusted each calendar quarter to equal the Fair Market
Value as of the last day of such calendar quarter (or, if
it is not a trading date, as of the trading date next
preceding such date) of the number of hypothetical shares
of Company Common Stock allocated to Subaccount II of the
Participant's Account as of such date. The number of
hypothetical shares of Company Common Stock allocated to
Subaccount II of a Participant's Account as of any date
shall be equal to the number of shares of Company Common
Stock that would be allocated to the Account as of such
date if (i) the Deferred Compensation credited to the
Participant's Account to be allocated, or the Account
balance to be transferred, to Subaccount II was invested
in the Company's Common Stock at Fair Market Value on the
trading day that is coincident with or next preceding the
date on which such Deferred Compensation is credited or
transferred, as the case may be, to his or her Account,
-157-
<PAGE>
(ii) cash dividends on the shares of Company Common Stock
treated as allocated to Subaccount II of the
Participant's Account were automatically reinvested in
the Company's Common Stock at Fair Market Value on the
trading day that is coincident with or next following the
applicable dividend payment date, and (iii) any
distributions from Subaccount II of the Participant's
Account were made at Fair Market Value on the trading day
that is coincident with or next preceding the effective
date of such distribution of the number of hypothetical
shares of Company Common Stock needed to make such
distribution, which hypothetical shares shall be
subtracted from the number of shares treated as allocated
to Subaccount II of the Participant's Account as of the
effective date of the distribution.
ARTICLE VII - DISTRIBUTION OF AMOUNTS DEFERRED UNDER THE PLAN
All payments from the Plan will be made in cash by the Employer.
The Participant will receive payments from the Plan in accordance
with the Deferral Election Form(s) on file. Notwithstanding the
preceding sentence, the remaining balance of a Participant's
Deferred Compensation Account(s) will be paid in a lump sum as
soon as practical after a Participant's Termination of Service or
if a change of control occurs as described in Article XI.
-158-
<PAGE>
ARTICLE VIII - DEATH
8.1 At the time that an Executive becomes a Participant, the
Executive shall designate in writing a Beneficiary to
receive any payments to which the Executive would have
been entitled under the terms of this Plan. The
Beneficiary referred to in this paragraph may be
designated or changed by the Executive (without the
consent of any prior Beneficiary) on a form provided by
the Committee and delivered to the Committee before his
or her Death. If no such Beneficiary shall have been
designated, or if no designated Beneficiary shall survive
the Executive, payments shall be payable to the
Executive's estate.
8.2 If the Executive's employment is terminated because of
Death or if the Executive should die after his or her
Termination of Service but before his or her Deferred
Compensation Account balance has been paid, then the
Employer shall make payments of the Executive's remaining
balance in his or her Deferred Compensation Account to
his or her Beneficiary in the same manner and to the
extent as provided in Article VII.
8.3 If after the Executive's Death, all of the Executive's
designated Beneficiary(ies) should die before all
payments are made by the Employer, then the value of the
remaining payments shall be paid as promptly as possible
-159-
<PAGE>
in one lump sum to the estate of the last to die of such
designated Beneficiary(ies).
ARTICLE IX - DISABILITY
If the Executive's employment is terminated because of
Disability, then the Employer shall make payments to the
Executive in the same manner and to the same extent as provided
in Article VII.
ARTICLE X - INCAPACITY
If the Committee shall find that any person to whom any payment
is payable under this Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefore shall have been made
by a duly appointed guardian, committee or legal
representative) may be paid to the spouse, a child, a parent, a
brother or a sister or to any person determined by the Committee
in such a manner as the Committee shall determine. For all
determinations made by the Committee under this Article, the
Committee shall have full acquittance. Any such payment shall be
a complete discharge of the liabilities of the Employer under
this agreement.
-160-
<PAGE>
ARTICLE XI - CHANGE IN CONTROL
A "change in control" for purposes of the Plan shall have
occurred if at any time any of the following events shall occur:
(a) The Company or KU (as defined below) is merged or
consolidated or reorganized into or with another
corporation or other legal person and, as a result
of such merger, consolidation, or reorganization,
less than a majority of the combined voting power
of the then-outstanding securities of such
corporation or person immediately after such
transaction is held in the aggregate by the
holders of the then-outstanding securities
entitled to vote generally in the election of
directors (the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or otherwise transfers all
or substantially all of its assets to any other
corporation or other legal entity and, as a result
of such sale or transfer, less than a majority of
the combined voting power of the then-outstanding
securities of such other corporation or entity
immediately after such sale or transfer is held in
the aggregate by the holders of Voting Stock of
the Company immediately prior to such sale or
transfer;
-161-
<PAGE>
(c) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report or item therein), each as promulgated
pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities
representing 10% or more of the combined voting
power of the Voting Stock of the Company or the
Voting Stock of KU;
(d) The Company or KU files a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or schedule 14A (or any
successor schedule, form or report or item
therein) that a change in control of the Company
or KU has or may have occurred or will or may
occur in the future pursuant to any then-existing
contract or transaction; or
(e) If at any time during any period of two
consecutive years, individuals who at the
beginning of any such period constitute the
-162-
<PAGE>
directors of the Company or KU cease for any
reason to constitute at least a majority thereof,
unless the election, or the nomination for
election by such company's stockholders, of each
director of such company first elected during such
period was approved by a vote of at least
two-thirds of the directors of such company then
still in office who were directors of such company
at the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph (c) or
(d) above, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company and KU, a
"change in control" shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Company, (ii) a
Subsidiary, or (iii) any Company-sponsored, KU-sponsored, or
Subsidiary-sponsored employee stock ownership plan or any other
employee benefit plan of the Company, KU or Subsidiary, either
files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial ownership
by it of shares of Voting Stock of the Company or KU, whether in
excess of 10% or otherwise, or because the Company, KU or a
Subsidiary reports that a change in control of the Company or KU
has or may have occurred or will or may occur in the future by
reason of such beneficial ownership. Notwithstanding the
foregoing provisions of this Article XI, a "change in control"
-163-
<PAGE>
shall not be deemed to have occurred by reason of the
Reorganization.
For purposes of this Article XI:
"KU" shall mean Kentucky Utilities Company.
"Reorganization" shall mean the corporate reorganization
whereby the Company became the holding company of KU as approved
by the Board of Directors of KU on May 16, 1988 and May 27, 1988.
ARTICLE XII - AMENDMENT OF PLAN
The Plan may be amended in whole or in part from time to time or
terminated at any time by the Board of Directors of the Company,
provided, however, that no amendment or termination may be made
that adversely affects the rights of any person with respect to
amounts previously deferred under the Plan without his or her
prior written consent. Notice of every such amendment shall be
given in writing to each Participant and Beneficiary of a
deceased Participant.
ARTICLE XIII - MISCELLANEOUS
13.1 Neither this Agreement, nor any action of the Employer or
Committee, nor any election to defer compensation
hereunder shall be construed to confer on any person any
-164-
<PAGE>
legal right to be continued as an employee of the
Employer.
13.2 Except as required by law, no right of the Executive or
Beneficiary to receive payments under this Plan shall be
subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation
or to execution, attachment, levy or similar process or
assignment by operation of law and any attempt, voluntary
or involuntary, to effect any such action shall be null
and void and of no effect.
13.3 The Employer shall have the right to deduct from all
payments any taxes required by law to be withheld with
respect to any payments made under this Plan.
13.4 Masculine pronouns used herein shall refer to men or
women or both, and nouns when stated in the singular
shall include the plural and when stated in the plural
shall include the singular wherever appropriate.
13.5 This Plan shall be construed under the laws of the
Commonwealth of Kentucky.
13.6 The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to
-165-
<PAGE>
assume and agree to perform this Plan in the same manner
and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan
shall be binding upon and inure to the benefit of the
Company and any successor to the Company, including
without limitation any persons acquiring directly or
indirectly all or substantially all of the business
and/or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed to be the "Company"
for the purposes of this Plan), and the heirs, executors
and administrators of each Participant.
IN WITNESS THEREOF, the Company has caused this Plan to be
executed by its duly authorized officers as of the 28th day of
January, 1997.
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
Attest:/s/George S. Brooks II
Secretary
(SEAL)
-166-
<PAGE>
EXHIBIT A
EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN
OF
KU ENERGY CORPORATION
DEFERRAL ELECTION FORM
This election is in accordance with the provisions of the
Executive Optional Deferred Compensation Plan (the Plan) of KU
Energy Corporation (the Company) and is made this ______ day of
________________, _____, by ________________________ (the
Executive). By making such election, I understand and agree that
I become a party to said Plan, and agree to be bound by its terms
and conditions. I further understand that this election is
irrevocable.
In accordance with and subject to the provisions of the Plan, I
hereby elect to defer for the Performance Cycle commencing on
January 1, _____ and maturing on December 31, _____ the following
amount of compensation that may be payable to me under the
Company's Annual Performance Incentive Plan for services rendered
during that Performance Cycle:
The lesser of _______% of any incentive payment or $________.
In accordance with and subject to the provisions of the Plan, I
hereby also elect to have my Deferred Compensation for the
above-indicated Performance Cycle allocated to the following
-167-
<PAGE>
subaccounts for adjustment (indicate from 0% to 100% -- in 10%
increments -- in front of each item; total must equal 100%):
______ Subaccount I. Adjustment based on prime rate
of interest.
______ Subaccount II. Adjustment made by making a
hypothetical investment in Company Common
Stock with the assumption of automatic
dividend reinvestment.
I understand that this election will remain in effect only for
the above indicated Performance Cycle and that a new Deferral
Election Form must be completed for each other Performance Cycle
that I wish to participate in the Plan.
I further elect that the value of my Deferred Compensation
Account for the above indicated Performance Cycle be payable to
me on the first day of _____________, ____.
-168-
<PAGE>
IN WITNESS WHEREOF, I hereunto set my hand as of the date first
above written.
(Witness) (Executive)
Received and accepted on behalf of
the Compensation Committee of the
Board of Directors of KU Energy
Corporation.
KU ENERGY CORPORATION
By
Dated
-169-
EXHIBIT 10.25
AMENDMENT NO. 1 TO
KU ENERGY CORPORATION
DIRECTOR RETIREMENT RETAINER PROGRAM
The KU Energy Corporation Director Retirement Retainer
Program (the "Plan") is hereby amended, effective as of
November 1, 1996, in the following respects:
1. By deleting Section 4.4 of the Plan and inserting
in lieu thereof the following:
"4.4 Change in Control. For purposes of the Plan,
a "Change in Control" shall have occurred if at any
time on or after November 1, 1996, any of the following
events shall occur:
(a) The Company or KU is merged or
consolidated or reorganized into or with
another corporation or other legal
person, and as a result of such merger,
consolidation or reorganization less
than 60% of the combined voting power of
the then-outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
generally in the election of directors
(the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or
otherwise transfers all or substantially
all of its assets to any other
corporation or other legal entity, and
as a result of such sale or transfer
less than 60% of the combined voting
power of the then-outstanding securities
of such other corporation or entity
immediately after such sale or transfer
is held in the aggregate by the holders
of Voting Stock of the Company
immediately prior to such sale or
transfer;
(c) There is a report filed on
Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or
item therein), each as promulgated
pursuant to the Securities Exchange Act
of 1934, as amended (the "Act"),
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
-170-
<PAGE>
Section 14(d)(2) of the Act) has become
the beneficial owner (as the term
"beneficial owner" is defined under Rule
13d-3 or any successor rule or
regulation promulgated under the Act) of
securities representing 10% or more of
the combined voting power of the Voting
Stock of the Company or the Voting Stock
of KU; or
(d) If at any time during any
period of two consecutive years,
individuals who at the beginning of any
such period constitute the directors of
the Company or KU cease for any reason
to constitute at least a majority
thereof, unless the election, or the
nomination for election by such
company's stockholders, of each director
of such company first elected during
such period was approved by a vote of at
least two-thirds of the directors of
such company then still in office who
were directors of such company at the
beginning of any such period.
Notwithstanding the foregoing provisions of
paragraph (c) above, unless otherwise determined in a
specific case by majority vote of the Board of
Directors of the Company and KU, a "Change in Control"
shall not be deemed to have occurred for purposes of
the Plan solely because (i) the Company, (ii) a
Subsidiary or (iii) any Company-sponsored, KU-sponsored
or Subsidiary-sponsored employee stock ownership plan
or any other employee benefit plan of the Company, KU
or Subsidiary, either files or becomes obligated to
file a report under or in response to Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report or item therein) under the Act, disclosing
beneficial ownership by it of shares of Voting Stock of
the Company or KU, whether in excess of 10% or
otherwise."
IN WITNESS WHEREOF, KU Energy Corporation has caused
this instrument to be executed in its name by its Chairman of the
Board, President and Chief Executive Officer and its Corporate
Seal to be hereunto affixed, attested by its Secretary, as of the
16th day of December, 1996.
-171-
<PAGE>
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST:George S. Brooks II
-172-
EXHIBIT 10.26
KU ENERGY CORPORATION
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective
As Of January 1, 1997)
-173-
<PAGE>
KU ENERGY CORPORATION
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective As Of January 1, 1997)
ARTICLE I
Purpose
The KU Energy Corporation Director Deferred
Compensation Plan (the "Plan") was established, effective May 1,
1992, to provide eligible directors of KU Energy Corporation with
the opportunity to defer some or all of the compensation which
may be payable to them for services to be performed as members of
the Board of Directors of KU Energy Corporation. The terms and
conditions of the Plan, as amended and restated effective as of
January 1, 1997, are set forth below.
ARTICLE II
Definitions
The following words and phrases shall have the meanings
set forth below unless a different meaning is clearly required by
the context:
(a) Act: The Securities Exchange Act of
1934, as amended from time to time.
(b) Account: The account maintained
for each Participant showing his or her
interest under the Plan which shall be
divided into Subaccount I and Subaccount II
as provided in Section 4.1.
(c) Accounting Date: Except as
otherwise provided herein, each March 31,
June 30, September 30 and December 31 of each
calendar year. The first Accounting Date
under the Plan was June 30, 1992.
(d) Beneficiary: The person or persons
(natural or otherwise) designated, in
-174-
<PAGE>
accordance with Section 5.4, to receive the
distribution of a Participant's Account
balance in the event of the Participant's
death.
(e) Board: The Board of Directors of
the Company.
(f) Change in Control: The occurrence of
any of the events provided in Section 5.7.
(g) Committee: The Compensation
Committee of the Board.
(h) Company: KU Energy Corporation, a
corporation organized and existing under the
laws of the Commonwealth of Kentucky.
(i) Compensation: Any retainer and
meeting fees payable to the Director in cash
by the Company for services rendered as a
member of the Board or any committee thereof.
(j) Director: Any member of the Board
on or after the Effective Date who is
separately compensated for his or her
services as a member of the Board.
(k) Effective Date: May 1, 1992.
(l) Fair Market Value: The closing
price of the Company's Common Stock as
reported in the listing of the New York Stock
Exchange - Composite Transactions on a
specified date.
(m) KU: Kentucky Utilities Company.
(n) Participant: A Director
participating in the Plan in accordance with
the provisions of Section 3.2, or a former
Director whose Account balance under the Plan
has not been paid in full.
(o) Plan: The KU Energy Corporation
Director Deferred Compensation Plan set forth
in this instrument, as it may be amended from
time to time.
(p) Service: An individual's service
on the Board and on the boards of KU or any
other Subsidiary.
-175-
<PAGE>
(q) Subsidiary: An entity in which the
Company, KU or one or more other Subsidiaries
directly or indirectly beneficially owns 50%
or more of the voting securities.
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each member of the Board who was a
Director on the Effective Date was eligible to participate in the
Plan as of the Effective Date. Each other Director shall be
eligible to participate in the Plan as of the first day of the
month next following the date he or she becomes a Director.
3.2 Participation: A Director may elect to
participate in the Plan effective as of the date the Director
first becomes eligible to participate as provided in Section 3.1,
or effective as of the January 1st of any calendar year beginning
after such date, by filing written notice of such election with
the Company prior to the effective date of such election. Such
notice shall be accompanied by (i) an election to defer
Compensation as provided in Section 3.4, (ii) an election with
respect to Account adjustments as provided in Section 4.3, and
(iii) an election as to the method of payment as provided in
Section 5.1. Upon filing such election notice, the Director
shall become a Participant in the Plan effective as of the date
elected as permitted in this Section 3.2.
3.3 Crediting of Compensation: Commencing on the
effective date of a Participant's participation in the Plan and
continuing during the period that Compensation is to be credited
to the Participant's Account under the Plan, the Company shall
defer payment of and credit to the Participant's Account all or
-176-
<PAGE>
such portion, as elected by the Participant under Section 3.4, of
the Compensation that the Participant would have received for
services rendered by the Participant during such period as a
member of the Board but for his participation in the Plan, such
credits to be made as provided in Section 4.2(b).
3.4 Election to Defer: At the time a Director elects
to become a Participant, the Director shall elect to have from
10% to 100%, in specified multiples of 10%, of his or her
Compensation for services rendered subsequent to the date the
Director becomes a Participant deferred under the Plan and
credited to his or her Account as provided in Section 3.3. Such
election shall remain in effect until changed or terminated as
hereinafter provided.
A Participant may change his or her election under this
Section 3.4 effective as of the January 1st of any calendar year
with respect to Compensation for services to be rendered as a
Director on or subsequent to such January 1st, by filing with the
Company written notice of such change prior to the effective date
of such change. Any change may (i) increase or decrease, within
the limits prescribed in the preceding paragraph, the portion of
Compensation to be deferred and credited to the Participant's
Account as provided in Section 3.3, (ii) terminate an election to
defer Compensation under this Section 3.4 or (iii) resume the
deferral of Compensation under the Plan within the limits
prescribed in the preceding paragraph. A change in the portion
of Compensation deferred or the termination of a Participant's
election to defer Compensation shall not entitle the Participant
-177-
<PAGE>
to receive payment of his or her Account balance, which shall be
payable only as provided in Article V.
Any election or change in election under this
Section 3.4 shall be made on a form provided or prescribed by the
Company.
ARTICLE IV
Participants' Accounts
4.1 Individual Accounts: A separate Account shall be
maintained by the Company on its books for each Participant.
Such Account shall be divided into subaccounts to specifically
identify the portion of the Account subject to adjustment under
Section 4.3(a) ("Subaccount I") and the portion of the Account
subject to adjustment under Section 4.3(b) ("Subaccount II"). As
of January 1, 1995, each Participant's Account was allocated to
Subaccount I unless the Participant had elected otherwise as of
such date as then provided in the Plan. Subaccounts I and II
may, in turn, be further subdivided into such subaccounts as the
Company considers desirable for purposes of the administration of
the Plan.
4.2 Accounting Procedures: Each Participant's Account
shall be adjusted as of each Accounting Date occurring on or
after December 1, 1996 as follows and in the following order:
(a) The amount of any transfer to or
from Subaccount I or Subaccount II of the
Participant's Account, pursuant to a change
in election or deemed election under Section
4.3, made as of the first day of the calendar
quarter in which such Accounting Date occurs
shall be added to or subtracted from, as the
case may be, the applicable Subaccounts as of
the first day of such calendar quarter.
-178-
<PAGE>
(b) Each Participant's Account shall
next be credited with the amount of
Compensation to be credited to his or her
Account as provided in Section 3.3 during the
period ending on such Accounting Date that
follows the next preceding Accounting Date.
Credits shall be made as of the last business
day of the respective calendar months in
which such Compensation would have been paid
to the Participant by the Company but for his
or her participation in the Plan and shall be
allocated to Subaccount I or Subaccount II in
accordance with the Participant's election or
deemed election as in effect as of the
respective dates as of which the credits are
made.
(c) Each Participant's Account shall
next be charged as of such Accounting Date
with the amount of any distributions under
the Plan to the Participant or to his or her
Beneficiary effective as of or prior to such
Accounting Date.
(d) Subaccount I of each Participant's
Account shall next be credited with the
amount equivalent to interest, as determined
under Section 4.3(a), to be added to the
Participant's Account as of such Accounting
Date.
(e) Subaccount II of each Participant's
Account shall next be adjusted upwards or
downwards, as the case may be, in accordance
with Section 4.3(b), to reflect the Fair
Market Value of the hypothetical shares of
Company Common Stock allocated to Subaccount
II of the Participant's Account as of such
Accounting Date.
4.3 Election With Respect to Subaccount Adjustments:
Subaccount I and Subaccount II of a Participant's Account are
subject to adjustment on and after December 1, 1996, as provided
in Section 4.2 as follows:
(a) Subaccount I Adjustments.
Subaccount I of a Participant's Account shall
be adjusted as of an applicable Accounting
Date by the addition of an amount equivalent
to interest. The interest equivalent to be
credited as of an applicable Accounting Date
shall be equal to the interest that would be
-179-
<PAGE>
earned on the average of the balances in
Subaccount I of the Participant's Account at
the end of each calendar month ending during
the period following the next preceding
Accounting Date and ending on the applicable
Accounting Date, at a rate per annum which
equals the average prime rate charged by
banks as reported in the Federal Reserve
Bulletin published on or next prior to the
applicable Accounting Date.
(b) Subaccount II Adjustments:
Subaccount II of a Participant's Account
shall be adjusted as of an applicable
Accounting Date to equal the Fair Market
Value as of such Accounting Date (or, if the
Accounting Date is not a trading date, as of
the trading date next preceding such
Accounting Date) of the number of
hypothetical shares of Company Common Stock
allocated to Subaccount II of the
Participant's Account as of such Accounting
Date. The number of hypothetical shares of
Company Common Stock allocated to Subaccount
II of a Participant's Account as of any date
shall be equal to the number of shares of
Company Common Stock that would be allocated
to the Account as of such date if (i) the
Compensation credited to the Participant's
Account to be allocated to Subaccount II was
invested in the Company's Common Stock at
Fair Market Value on the trading day that is
coincident with or next preceding the last
day of the calendar month in which such
Compensation would have been paid to the
Participant but for participation in the
Plan, (ii) any balance transferred effective
as of January 1, 1995 from Subaccount I due
to the one-time election permitted under
Section 4.3 of the Plan as then in effect was
invested in the Company's Common Stock at the
average Fair Market Value on trading days
during the month of December, 1994, (iii) any
other balance transferred from Subaccount I
due to a change in election under this
Section 4.3 was invested in the Company's
Common Stock at Fair Market Value on the
trading day that is coincident with or next
following the effective date of such change,
(iv) cash dividends on the shares of Company
Common Stock treated as allocated to
Subaccount II of the Participant's Account
were automatically reinvested in the
Company's Common Stock at Fair Market Value
on the trading day that is coincident with or
-180-
<PAGE>
next following the applicable dividend
payment date, and (v) any transfers to
Subaccount I due to a change in election
under this Section 4.3 or any distributions
from Subaccount II of the Participant's
Account were made at Fair Market Value on the
trading day that is coincident with or next
preceding the effective date of such change
of election or distribution of the number of
hypothetical shares of Company Common Stock
needed to make such transfer or distribution,
which hypothetical shares shall be subtracted
from the number of shares treated as
allocated to Subaccount II of the
Participant's Account as of the effective
date of the transfer or distribution.
At the time a Director elects to become a Participant
or as of January 1, 1995, if later, the Director shall elect to
have the Compensation thereafter deferred under Section 3.4 and
credited to the Participant's Account allocated, in specified
multiples of 10%, to Subaccount I or Subaccount II. If a
Director who was a Participant as of December 31, 1994 failed to
make an election hereunder as of January 1, 1995, he was deemed
to have elected to have Compensation deferred on or after January
1, 1995 allocated to Subaccount I. A Participant's election or
deemed election under this Section 4.3 shall remain in effect
until changed as provided in this Section 4.3 from time to time.
A Participant may change his or her election or deemed
election under this Section 4.3 effective, beginning on or after
January 1, 1997, as of the first day of any calendar quarter by
filing with the Company written notice of such change at least 15
days prior to the effective date of such change. Any change
shall direct that either or both of (i) that the balance credited
to Subaccount I or Subaccount II of the Participant's Account as
of the immediately preceding Accounting Date be transferred, in
-181-
<PAGE>
specified multiples of 10%, to the other Subaccount or (ii)
subsequent Compensation credits under Section 3.3 be allocated,
in specified multiples of 10%, to Subaccount I or Subaccount II.
Such change shall be effective as of the first day of the
calendar quarter elected and shall remain in effect until further
changed as provided herein.
Any election or change in election under this Section
4.3 shall be made on a form provided or prescribed by the
Company.
Notwithstanding the foregoing provisions of this
Section 4.3, if a Participant terminates his or her Service and
any portion of the balance credited to his or her Account is to
be paid in accordance with Payment Method II or Payment Method
III as provided in Section 5.1, any balance in Subaccount II of
the Participant's Account shall be transferred by a deemed
election to Subaccount I of the Participant's Account as of the
day after the Accounting Date that is coincident with or next
following the Participant's termination of Service.
ARTICLE V
Distribution of Benefits
5.1 Termination For Reasons Other Than Death: Within
15 days after the Accounting Date coincident with or next
following the date on which the Participant terminates his or her
Service for any reason other than death or a termination to which
Section 5.6 applies, the Company shall pay, or commence to pay,
to the Participant in cash the amount credited to his or her
Account. Payment shall be made in accordance with Payment
-182-
<PAGE>
Method I, Payment Method II or Payment Method III, below, as
elected by the Director:
(a) Payment Method I - By payment in a
lump sum of the amount credited to the
Participant's Account as of the Accounting
Date coincident with or next following the
date on which the Participant terminates his
or her Service.
(b) Payment Method II - By payment in
quarterly installments, the number of which
shall be the lesser of (i) 40 or (ii) the
aggregate number of full calendar quarters
during which compensation was credited to the
Participant's Account under the Plan and to
his or her account under any similar plan of
KU or other Subsidiary (but not counting any
such calendar quarter more than once). The
amount of each installment shall be equal to
the quotient obtained by dividing the balance
credited to Participant's Account as of the
Accounting Date coincident with or next
preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
(c) Payment Method III - By payment in
annual installments, the number of which
shall be the lesser of (i) 10 or (ii) the
aggregate number of full calendar years (but
not less than one) during which compensation
was credited to the Participant's Account
under the Plan and to his or her account
under any similar plan of KU or other
Subsidiary (but not counting any such
calendar year more than once). The amount of
each installment shall be equal to the
quotient obtained by dividing the balance
credited to Participant's Account as of the
Accounting Date coincident with or next
preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
A method of payment shall be elected by the Director at the time
the Director elects to become a Participant, which method of
payment election shall remain in effect until changed as
hereinafter provided.
-183-
<PAGE>
A Participant may change his or her elected method of
payment from time to time by filing with the Company written
notice of such change, except that no election change shall be
effective under the Plan if it is filed with the Company after
the date which is one year prior to the date on which the
Participant terminates his or her Service.
An election or change in election as to the method of
payment shall be made on a form provided or prescribed by the
Company.
Notwithstanding a Participant's election under, or the
foregoing provisions of, this Section 5.1, if a Change in Control
occurs after a Participant terminates his or her Service but
prior to the complete distribution under the Plan of the balance
credited to his or her Account, the amount credited to the
Participant's Account as of the New York Stock Exchange trading
date next preceding the date on which the Change in Control
occurs (such amount to be determined as if the trading date next
preceding the date on which the Change in Control occurs were an
Accounting Date) increased by the amount of any Compensation
deferred under the Plan by the Participant not previously
credited to his or her Account, shall be paid in cash in a lump
sum to the Participant (or, in the event of the Participant's
death after his termination of Service, to his or her
Beneficiary) within 15 days after the date on which the Change in
Control occurs, such payment to be made effective as of the date
on which the Change in Control occurs.
5.2 Death: Upon the death of a Participant, whether
before or after termination as a member of the Board, prior to
-184-
<PAGE>
the complete distribution of the balance credited to his or her
Account, any undistributed amount credited to the Participant's
Account as of the Accounting Date coincident with or next
following the Participant's date of death shall be paid in cash
in a lump sum to the Participant's Beneficiary within 15 days
after such Accounting Date. If, however, a Change in Control
shall occur either before or after the Participant's death but
prior to the complete distribution of the balance credited to the
Participant's Account, distribution shall be made to the
Beneficiary as provided in the last paragraph of Section 5.1 or
in Section 5.6, whichever is applicable, rather than as provided
in this Section 5.2. The foregoing sentence shall not apply if
the Participant's termination of Service occurs on or after the
third anniversary of the date on which the Change in Control
occurs.
5.3 Hardship Distribution: With the prior written
consent of the Committee, a Participant may withdraw, as of an
Accounting Date prior to termination of Service, from his or her
Account a cash amount not in excess of the balance credited to
the Participant's Account as of such Accounting Date. The
Committee, in its sole discretion, may consent to such withdrawal
but only if the withdrawal is necessary, upon demonstration by or
on behalf of the Participant, because of a substantial financial
hardship of the Participant as a result of accident, illness or
disability. The Committee, in its sole discretion, shall
determine the amount of such a distribution that is needed to
meet the need created by the hardship. Any such distribution
shall be charged first to Subaccount I of the Participant's
-185-
<PAGE>
Account and then, to the extent Subaccount I is insufficient, to
Subaccount II.
5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(a) The last person designated as
Beneficiary by the Participant in a written
notice on a form prescribed by and filed with
the Company;
(b) If there is no designated
Beneficiary or if the person so designated
shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated Beneficiary
and no such spouse is living upon the death
of a Participant, or if all such persons die
prior to the full distribution of the
Participant's Account, then the legal
representative of the last survivor of the
Participant and such persons, or, if the
Company shall not receive notice of the
appointment of any such legal representative
within one year after such death, the
heirs-at-law of such survivor (in the
proportions in which they would inherit his
intestate personal property) shall be the
Beneficiaries to whom the then remaining
balance of the Participant's Account shall be
distributed.
Any Beneficiary designation may be changed from time to time by
like notice similarly delivered. No notice given under this
Section shall be effective unless and until the Company actually
receives such notice and enters it in its records.
5.5 Delay In And Approval Of Distribution:
Notwithstanding anything to the contrary herein, the distribution
of all or any portion of a Participant's Account will be delayed
for a period not to exceed seven months or may be subject to
prior approval by the Committee or the Board to the extent that
the Committee determines that such delay or approval is necessary
-186-
<PAGE>
or desirable to ensure that any transaction under the Plan will
qualify for an exemption from the liability provisions imposed on
the Participant under Section 16(b) of the Act or any rules and
regulations issued thereunder. In the event of any such delay,
the undistributed portion of the Participant's Account shall
continue to be subject to adjustment as provided in Section 4.2
until distribution is made.
5.6 Certain Terminations On or After a Change in
Control: If a Participant terminates his or her Service on or
after the date on which a Change in Control occurs but prior to
the third anniversary of the date on which the Change in Control
occurs, the amount credited to the Participant's Account as of
the date of his or her termination of Service (such amount to be
determined as if the date on which the Participant terminates
Service were an Accounting Date) increased by the amount of any
Compensation deferred under the Plan by the Participant not
previously credited to his or her Account shall be paid in cash
in a lump sum to the Participant (or, in the event of the
Participant's death, to his or her Beneficiary) within 15 days
after the Participant's termination of Service.
5.7 Change in Control: For purposes of the Plan, a "Change
in Control" shall have occurred if at any time on or after
December 1, 1996, any of the following events shall occur:
(a) The Company or KU is merged or
consolidated or reorganized into or with
another corporation or other legal person,
and as a result of such merger, consolidation
or reorganization less than 60% of the
combined voting power of the then-outstanding
securities of such corporation or person
immediately after such transaction is held in
the aggregate by the holders of the then-
-187-
<PAGE>
outstanding securities entitled to vote
generally in the election of directors (the
"Voting Stock") of the Company immediately
prior to such transaction;
(b) The Company or KU sells or
otherwise transfers all or substantially all
of its assets to any other corporation or
other legal entity, and as a result of such
sale or transfer less than 60% of the
combined voting power of the then-outstanding
securities of such other corporation or
entity immediately after such sale or
transfer is held in the aggregate by the
holders of Voting Stock of the Company,
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule
13D or Schedule 14D-1 (or any successor
schedule, form or report or item therein),
each as promulgated pursuant to the Act,
disclosing that any person (as the term
"person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Act) has become the
beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated
under the Act) of securities representing 10%
or more of the combined voting power of the
Voting Stock of the Company or the Voting
Stock of KU; or
(d) If at any time during any period of
two consecutive years, individuals who at the
beginning of any such period constitute the
directors of the Company or KU cease for any
reason to constitute at least a majority
thereof, unless the election, or the
nomination for election by such company's
stockholders, of each director of such
company first elected during such period was
approved by a vote of at least two-thirds of
the directors of such company then still in
office who were directors of such company at
the beginning of any such period.
Notwithstanding the foregoing provisions of paragraph
(c) above, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company and KU, a
"Change in Control" shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Company, (ii) a
-188-
<PAGE>
Subsidiary or (iii) any Company-sponsored, KU-sponsored or
Subsidiary-sponsored employee stock ownership plan or any other
employee benefit plan of the Company, KU or Subsidiary, either
files or becomes obligated to file a report under or in response
to Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report or item therein) under the Act, disclosing
beneficial ownership by it of shares of Voting Stock of the
Company or KU, whether in excess of 10% or otherwise.
ARTICLE VI
Financing of Benefits
The Plan shall be a nonqualified and unfunded plan.
Benefit payments under the Plan shall represent an unsecured
general obligation of the Company and shall be paid by the
Company from its general assets. No special fund or trust shall
be created or held for the financing of benefits under the Plan.
ARTICLE VII
Facility of Payment
Whenever a person entitled to receive any payment under
the Plan is a person under legal disability or a person not
adjudicated incompetent but who, by reason of illness or mental
or physical disability, is in the opinion of the Committee unable
properly to manage his or her affairs, then such payments shall
be paid in such of the following ways as the Committee deems
best: (a) to such person directly; (b) to the legally appointed
guardian or conservator of such person; (c) to some relative or
friend of such person for his or her benefit; (d) for the benefit
of such person in such manner as the Committee considers
-189-
<PAGE>
advisable. Any payment made in accordance with the provisions of
this Article shall be a complete discharge of any liability for
the making of such payment under the Plan, and the distributee's
receipt shall be a sufficient discharge to the Company.
ARTICLE VIII
Administration
The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall have such duties
and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, to construe and
interpret the Plan, decide all questions of eligibility and
determine the amount and time of payment of benefits hereunder.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan. No
Participant who is a member of such Committee may vote on any
question relating specifically to himself or herself.
ARTICLE IX
Miscellaneous
9.1 Other Agreements. The Plan shall not affect in
any way the rights or obligations of a Director under any
deferred compensation or other agreement between the Director and
the Company or KU, including, but not limited to, the KU Energy
Corporation Director Retirement Retainer Program or the Kentucky
Utilities Company Director Retirement Retainer Program.
-190-
<PAGE>
9.2 Successors. The Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or
substantially all of the business and/or assets of the Company
expressly to assume and to agree to perform this Plan in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall
be binding upon and inure to the benefit of the Company and any
successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by sale,
merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Plan), and the heirs, executors and
administrators of each Director.
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
receive payments hereunder, nor shall such payments be subject to
seizure, attachment or garnishment for the payments of any debts,
judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise, all payments and rights hereunder being
expressly declared to be nonassignable and nontransferable.
9.4 Amendment and Termination. The Plan may be
amended from time to time or terminated by the Board at any time,
but no amendment or termination may adversely affect the rights
of any person without his or her prior written consent.
-191-
<PAGE>
9.5 Applicable Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth of
Kentucky.
9.6 Notices. For all purposes of this Plan, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to a
Participant at his or her principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9.7 Severability: Each section, subsection and lesser
section of this Plan constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever
possible, each provision of this Plan shall be interpreted in
such manner as to be effective and valid under applicable law.
In the event that any provision of this Plan shall finally be
determined to be unlawful, such provision shall be deemed severed
from this Plan, but every other provision of this Plan shall
remain in full force and effect, and in substitution for any such
provision held unlawful, there shall be substituted a provision
of similar import reflecting the original intention of the
parties hereto to the extent permissible under law.
-192-
<PAGE>
9.8 Withholding of Taxes: The Company may withhold
from any amounts payable under this Plan all federal, state, city
and other taxes as shall be legally required.
9.9 Adjustments: In the event of any stock dividend
or split, recapitalization, reclassification, increase or
decrease in the number of outstanding shares, merger,
consolidation or exchanges in shares or other similar changes in
the Company's Common Stock, appropriate adjustments shall be made
in the Company Common Stock referenced in the Plan, including in
the calculations under Section 4.3(b), to reflect any such
change.
-193-
<PAGE>
IN WITNESS WHEREOF, KU Energy Corporation has caused
this instrument to be executed in its name by its Chairman of the
Board, President and Chief Executive Officer and its Corporate
Seal to be hereunto affixed, attested by its Secretary, as of the
28th day of January, 1997.
KU ENERGY CORPORATION
By/s/Michael R. Whitley
Chairman of the Board, President
and Chief Executive Officer
[Corporate Seal]
ATTEST:
/s/George S. Brooks II
Secretary
-194-
EXHIBIT 10.27
KU ENERGY CORPORATION
LONG TERM INCENTIVE PLAN
-195-
<PAGE>
KU ENERGY CORPORATION
LONG TERM INCENTIVE PLAN
1. Purposes; Definitions . . . . . . . . . . . . . . . . . 1
2. Administration. . . . . . . . . . . . . . . . . . . . . 4
2.1 Compensation Committee . . . . . . . . . . . . . . 4
2.2 Duties and Powers of Committee . . . . . . . . . . 4
2.3 Majority Rule . . . . . . . . . . . . . . . . . . 5
2.4 Compensation; Professional Assistance; Good Faith
Actions . . . . . . . . . . . . . . . . . . . . . 5
3. Shares Subject to the Plan . . . . . . . . . . . . . . . 6
3.1 Shares Subject to the Plan . . . . . . . . . . . . 6
3.2 Limitations . . . . . . . . . . . . . . . . . . . 6
3.3 Changes in Company's Shares . . . . . . . . . . . 7
4. Eligibility . . . . . . . . . . . . . . . . . . . . . . 8
5. Stock Options . . . . . . . . . . . . . . . . . . . . . 8
5.1 Grant . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Terms . . . . . . . . . . . . . . . . . . . . . . 9
(a) Price . . . . . . . . . . . . . . . . . . . . 9
(b) Term . . . . . . . . . . . . . . . . . . . . . 9
(c) Vesting . . . . . . . . . . . . . . . . . . . 9
5.3 Method of Exercise . . . . . . . . . . . . . . . . 10
5.4 Reload Options . . . . . . . . . . . . . . . . . . 11
6. Stock Appreciation Rights . . . . . . . . . . . . . . . 11
6.1 Grant . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Terms . . . . . . . . . . . . . . . . . . . . . . 12
(a) Price/Amount Paid on Exercise . . . . . . . . 12
(b) Term . . . . . . . . . . . . . . . . . . . . . 13
(c) Vesting . . . . . . . . . . . . . . . . . . . 13
6.3 Method of Exercise . . . . . . . . . . . . . . . . 13
6.4 Effects of Exercise . . . . . . . . . . . . . . . 14
7. Restricted Shares . . . . . . . . . . . . . . . . . . . 14
7.1 Grants . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Terms . . . . . . . . . . . . . . . . . . . . . . 15
(a) Price . . . . . . . . . . . . . . . . . . . . 15
(b) Restrictions and Conditions . . . . . . . . . 15
8. Performance Awards . . . . . . . . . . . . . . . . . . . 17
9. Performance Criteria . . . . . . . . . . . . . . . . . . 17
10. Change in Control . . . . . . . . . . . . . . . . . . . 20
10.1 Definition . . . . . . . . . . . . . . . . . . . . 20
10.2 Share Based Awards . . . . . . . . . . . . . . . . 24
10.3 Performance Awards . . . . . . . . . . . . . . . . 24
-196-
<PAGE>
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 24
11.1 Effective Date . . . . . . . . . . . . . . . . . . 25
11.2 Amendment, Suspension or Termination of the Plan . 25
11.3 Amendment of Award . . . . . . . . . . . . . . . . 26
11.4 Transferability . . . . . . . . . . . . . . . . . 26
11.5 No Rights as Shareholder . . . . . . . . . . . . . 27
11.6 Effect of Plan Upon Other Compensation and
Incentive Plans . . . . . . . . . . . . . . . . . 27
11.7 Regulations and Other Approvals; Governing Law . . 27
11.8 Governing Law . . . . . . . . . . . . . . . . . . 29
11.9 Withholding of Taxes . . . . . . . . . . . . . . . 29
11.10 No Right to Continued Employment . . . . . . . . . 30
11.11 Titles; Construction . . . . . . . . . . . . . . . 30
11.12 Successors . . . . . . . . . . . . . . . . . . . . 30
-197-
<PAGE>
KU ENERGY CORPORATION
LONG TERM INCENTIVE PLAN
1. Purposes; Definitions.
The purposes of the Plan are to further the growth,
development and financial success of the Company by providing
incentives to those officers and other key employees who have the
capacity for contributing in substantial measure toward the
growth and profitability of the Company and to assist the Company
in attracting and retaining employees with the ability to make
such contributions. To accomplish such purposes, the Plan
provides that the Company may grant Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted
Shares and Performance Awards.
Whenever the following terms are used in the Plan, they
shall have the meaning specified below unless the context clearly
indicates to the contrary.
"Board" shall mean the Board of Directors of the
Company.
"Change in Control" shall have the meaning set forth in
Section 10.1.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean the Compensation Committee of
the Board, appointed as provided in Section 2.1
"Company" shall mean KU Energy Corporation, a Kentucky
corporation, and any successor corporation.
-198-
<PAGE>
"Effective Date" shall have the meaning set forth in
Section 11.1.
"Employee" shall mean any employee (including any
officer whether or not a director) of the Company, or of any
corporation or other business entity which is then a Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Fair Market Value" of a Share as of a given date shall
mean (a) the closing sale price per Share as reported in this
listing of the New York Stock Exchange-Composite Transactions on
such date, or if there are no sales on such date, on the next
preceding trading day during which a sale occurred, or (b) if
clause (a) does not apply, the fair market value of the Share as
determined by the Committee from time to time in good faith.
"Incentive Stock Option" shall mean an Option intended
to be and designated as an "incentive stock option" within the
meaning of Section 422 of the Code.
"Nonqualified Stock Option" shall mean an Option that
is not an Incentive Stock Option.
"Option" shall mean an option to purchase Shares
(including Restricted Shares, if the Committee so determines)
granted pursuant to Section 5.1.
"Option Agreement" shall mean the written agreement
pursuant to which an Option is awarded.
"Optionee" shall mean an Employee to whom an Option has
been granted pursuant to the Plan.
"Participant" shall mean an Employee to whom an award
is granted pursuant to the Plan.
-199-
<PAGE>
"Performance Award" shall mean an award granted
pursuant to Section 8.
"Performance Criteria" shall have the meaning set forth
in Section 9.
"Plan" shall mean this KU Energy Corporation Long Term
Incentive Plan set forth in this instrument, as it may, from time
to time, be amended.
"Restricted Shares" shall mean Shares which are awarded
to a Participant that are subject to the restrictions described
in Section 7.
"Rule 16b-3" shall mean Rule 16b-3 adopted by the
Securities and Exchange Commission under the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Share" shall mean a share of the Company's Common
Stock.
"Stock Appreciation Right" shall mean a right granted
pursuant to Section 6.1.
"Subsidiary" shall mean any corporation or other
business entity in an unbroken chain beginning with the Company,
if each such corporation or other entity (other than the last in
the unbroken chain), or if each group of commonly controlled
corporations or other entities, then owns fifty percent (50%) or
more of the total combined voting power in one of the other
corporations or other entities in such chain.
-200-
<PAGE>
2. Administration.
2.1 Compensation Committee
The Plan shall be administered by the Committee, which
shall consist of two or more individuals appointed by the Board
and holding office at the pleasure of the Board. All Committee
members shall be members of the Board, and must be "non-employee
directors," as such term is described in Rule 16b-3, if and as
such Rule is in effect, and "outside directors" within the
meaning of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment.
Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee shall be filled
by the Board.
2.2 Duties and Powers of Committee
It shall be the duty of the Committee to conduct the
general administration of the Plan in accordance with its terms
and provisions. The Committee shall have the full and exclusive
power to construe and interpret the Plan, to correct any defect,
supply any omission, make any factual determination or reconcile
any inconsistency in such manner and to such extent as the
Committee in its sole and absolute discretion may determine, and
to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to
construe, interpret, amend or revoke any such rules. All actions
taken and all constructions, interpretations and determinations
made by the Committee shall be binding upon all affected persons.
In addition to the authority otherwise prescribed in the Plan,
the Committee shall have the authority in its sole discretion to
-201-
<PAGE>
prescribe such limitations, restrictions, and conditions upon,
provisions for vesting and acceleration of, provisions
prescribing the nature and amount of legal consideration to be
received upon the grant or exercise of, any award made under the
Plan and all other terms and conditions of any such award as the
Committee deems appropriate, provided that none of the foregoing
conflicts with any of the express terms or limitations of the
Plan and that the foregoing are set forth in the instrument
granting any such award or in the rules referred to elsewhere in
this Section 2.2.
2.3 Majority Rule
The Committee shall act by a majority of its members in
office. The Committee may act either by vote at a telephonic or
other meeting or by a memorandum or other written instrument
signed by a majority of the Committee.
2.4 Compensation; Professional Assistance; Good Faith
Actions
Members of the Committee shall receive such
compensation for their services as members as may be determined
by the Board. All expenses and liabilities incurred by members
of the Committee in connection with the administration of the
Plan shall be borne by the Company. The Committee may employ
attorneys, consultants, accountants, appraisers, or other
persons. The Committee, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall
be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the
-202-
<PAGE>
awards hereunder, and all members of the Committee shall be fully
protected by the Company in respect to any such action,
determination or interpretation.
3. Shares Subject to the Plan.
3.1 Shares Subject to the Plan
Subject to adjustment pursuant to Section 3.3, the
number of Shares that may be the subject of or related to awards
under this Plan is 1,000,000. Such shares may be treasury
shares, shares of original issue, shares purchased in the open
market or a combination of the foregoing. In the event that
(a) any Participant delivers Shares (i) to pay the exercise price
of an Option or any other award granted hereunder, or (ii) in
satisfaction of any tax withholding requirement, or (b) any other
payment made or benefit realized under the Plan is satisfied by
the transfer or relinquishment of Shares, the number of Shares
available for awards under the Plan shall be increased by the
number of Shares so surrendered, paid or relinquished.
3.2 Limitations
Subject to adjustment pursuant to Section 3.3:
(i) The maximum number of Shares that may be the
subject of Options and Stock Appreciation Rights under the
Plan to any Participant shall not, in the aggregate, exceed
20,000 per year;
(ii) The maximum number of Restricted Shares
subject to Performance Criteria under Section 9.2 that are
granted under the Plan to any Participant shall not exceed
20,000 Shares per year;
-203-
<PAGE>
(iii) No Participant shall be granted Performance
Awards under the Plan (a) in the case of Performance Awards
designated as performance shares, in the aggregate, in
excess of 20,000 performance shares per year, and (b) in the
case of Performance Awards designated as performance units,
in the aggregate, in excess of $750,000 per year; and
(iv) The aggregate number of Shares actually
issued or transferred by the Company upon the exercise of
Incentive Stock Options shall not exceed the total number of
Shares specified in Section 3.1.
3.3 Changes in Company's Shares
In the event of any stock dividend, extraordinary cash
dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Shares at a price
substantially below fair market value, or other similar corporate
event that affects the Shares or other awards granted or made
available for issuance under the Plan such that an adjustment is
required in order to preserve the benefits or potential benefits
intended to be made available under this Plan, then the Committee
shall in such manner as the Committee may deem equitable, adjust
any or all of (a) the number and kind of shares which thereafter
may be awarded or optioned and sold or made the subject of other
awards granted under the Plan in the aggregate or to any
Participant, (b) the number and kind of shares subject to
outstanding Options and other awards, and (c) the grant, exercise
or conversion price with respect to any of the foregoing and/or,
if deemed appropriate, make provision for a cash payment to a
-204-
<PAGE>
Participant or a person who has an outstanding Option or other
award; provided, however, that the number of Shares subject to
any Option or other award shall always be a whole number.
4. Eligibility.
Any Employee who is an officer or who is designated by
the Committee as a key Employee shall be eligible to receive
awards under this Plan. In general, an Employee may be
designated as a key Employee if such Employee is responsible for
or contributes to the management, growth, and/or profitability of
the business of the Company and/or a Subsidiary.
5. Stock Options.
5.1 Grant
Subject to the provisions of the Plan, the Committee
shall have the sole and complete authority to determine the
eligible Employees to whom Options shall be granted, the number
of Shares to be covered by each Option, the exercise price
therefor and the terms and conditions applicable to the exercise
of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options, or both. In
the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with Section 422 of
the Code and any rules or regulations promulgated thereunder.
5.2 Terms
Options shall be granted only pursuant to a written
Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such
-205-
<PAGE>
terms and conditions as the Committee shall determine, consistent
with the Plan, including the following:
(a) Price. The exercise price for the Shares subject
to an Option, or the manner in which such exercise price is to be
determined, shall be determined by the Committee, provided that,
the exercise price per Share shall not be less than 100% of the
Fair Market Value of a Share as of the date the Option is
granted.
(b) Term. Options shall be for such term as the
Committee shall determine, provided that no Option shall be
exercisable after the expiration of ten years from the date it is
granted.
(c) Vesting. Options shall be exercisable in such
installments (which need not be equal) and at such times as may
be designated by the Committee and set forth in the Option
Agreement. To the extent not exercised, installments shall
accumulate and may be exercised, in whole or in part, at any time
after becoming exercisable, but not later than the date the
Option expires. The Committee may accelerate the exercisability
of any Option or portion thereof at any time. Notwithstanding
the foregoing, the Committee may, in its sole discretion, provide
in the Option Agreement that all or a part of the Shares received
by an Optionee upon the exercise of a Nonqualified Stock Option
shall be Restricted Shares subject to any or all of the
restrictions or conditions prescribed pursuant to Section 7.2(b).
5.3 Method of Exercise
The exercise of an Option shall be made only by a
written notice delivered in person or by first class mail to the
-206-
<PAGE>
Secretary of the Company at the Company's principal executive
office, specifying the number of Shares to be purchased and
accompanied by full payment therefor and otherwise in accordance
with the Option Agreement pursuant to which the Option was
granted. The purchase price for any Shares purchased pursuant to
the exercise of an Option shall be paid in full upon such
exercise in cash, by check or, at the discretion of the Committee
and upon such terms and conditions as the Committee shall
approve, by transferring Shares to the Company that have been
owned by the Optionee for at least six months prior to such
transfer, by having Shares withheld or exercising pursuant to a
"cashless exercise" procedure, or any combination thereof. Any
Shares transferred to the Company as payment of the purchase
price under an Option shall be valued at their Fair Market Value
on the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Option Agreement
evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such
Option Agreement to the Optionee. Not less than one hundred
(100) Shares may be purchased at any time upon the exercise of an
Option unless the number of Shares so purchased constitutes the
total number of Shares then purchasable under the Option or the
Committee determines otherwise, in its sole discretion.
5.4 Reload Options
The Committee may provide for the grant to any Optionee
of additional Options ("Reload Options") upon the exercise of
Options, including Reload Options, through the delivery of
Shares; provided, however, that (i) Reload Options may be granted
-207-
<PAGE>
only with respect to the same number of Shares as were
surrendered to exercise the Options, (ii) the exercise price per
Share of the Reload Options shall be not less than 100% of the
Fair Market Value of a Share as of the date the Reload Options
are granted, and (iii) the Reload Options shall not be
exercisable after the expiration of the term of the Options, the
exercise of which resulted in the grant of the Reload Options.
6. Stock Appreciation Rights.
6.1 Grant
Subject to the provisions of the Plan, the Committee
shall have the sole and complete authority to determine the
eligible Employees to whom Stock Appreciation Rights shall be
granted, the number of Shares to be covered, and the terms and
conditions applicable to the exercise of such rights. Stock
Appreciation Rights may be granted in tandem with an Option, in
addition to an Option, or freestanding and unrelated to an
Option. In the case of a Nonqualified Stock Option, a tandem
Stock Appreciation Right may be granted either at or after the
time of the grant of such Option. In the case of an Incentive
Stock Option, a tandem Stock Appreciation Right may be granted
only at the time of the grant of such Option, may be exercised
only if and when the Fair Market Value of the Shares subject to
the Incentive Stock Option exceeds the exercise price of such
Option, and shall contain such other terms and conditions
required to comply with Section 422 of the Code and any rules or
regulations promulgated thereunder.
-208-
<PAGE>
6.2 Terms
Stock Appreciation Rights shall be granted only
pursuant to a written agreement, which shall be executed by the
Participant and an authorized officer of the Company and which
shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan, including the following:
(a) Price/Amount Paid on Exercise. The strike price
for a Stock Appreciation Right shall be determined by the
Committee, in its sole discretion, provided that the strike price
per Share shall not be less than one hundred percent (100%) of
the Fair Market Value of a Share as of the date the Stock
Appreciation Right is granted. Upon the exercise of a Stock
Appreciation Right, a Participant shall be entitled to receive an
amount in cash and/or Shares equal in value to the excess of the
Fair Market Value of one Share on the date of exercise over the
strike price per Share for such Stock Appreciation Right,
multiplied by the number of Shares in respect of which the Stock
Appreciation Right shall have been exercised. The Committee
shall determine whether the Stock Appreciation Right shall be
settled in cash, Shares or a combination of cash and Shares.
(b) Term. Stock Appreciation Rights shall be for such
term as the Committee shall determine, and as shall be set forth
in each award agreement.
(c) Vesting. Stock Appreciation Rights shall be
exercisable in such installments (which need not be equal) and at
such times as may be designated by the Committee and set forth in
the award agreement, provided that no Stock Appreciation Right
shall be exercisable after the expiration of ten years from the
date it is granted.
-209-
<PAGE>
6.3 Method of Exercise
The exercise of a Stock Appreciation Right shall be
made only by a written notice delivered in person or by first
class mail to the Secretary of the Company at the Company's
principal executive office, specifying the number of Shares with
respect to which the Stock Appreciation Right is being exercised
and otherwise in accordance with the award agreement pursuant to
which the Stock Appreciation Right was granted. A Stock
Appreciation Right may not be exercised with respect to less than
one hundred (100) Shares, unless the number of Shares with
respect to which it is exercised constitutes the total number of
Shares then subject to such right or the Committee determines
otherwise, in its sole discretion.
6.4 Effects of Exercise
Upon the exercise of a Stock Appreciation Right that
was granted in tandem with an Option, such Option (a) shall be
surrendered and deemed to have been exercised for the purpose of
the limitations set forth in Section 3.1 on the number of Shares
to be issued under the Plan in the aggregate and to any
Participant to the extent of the number of Shares with respect to
which the Stock Appreciation Right has been exercised, and (b)
shall no longer be exercisable with respect to the number of
Shares for which the tandem Stock Appreciation Right has been
exercised. If requested by the Committee, the Participant shall
deliver the award agreement evidencing the Stock Appreciation
Right to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such agreement to the
Participant.
-210-
<PAGE>
7. Restricted Shares.
7.1 Grants
Subject to the provisions of the Plan, the Committee
shall have the sole and complete authority to determine the
eligible Employees to whom, and the time or times at which,
grants of Restricted Shares will be made, the number of
Restricted Shares to be awarded, the price (if any) to be paid by
the recipient of Restricted Shares, the time or times within
which such awards may be subject to forfeiture, and all other
conditions of the awards. Awards of Restricted Shares may be
granted either alone or in addition to other awards granted under
the Plan. The Committee may condition the grant or vesting of
Restricted Shares upon the attainment of Performance Criteria or
such other factors as the Committee may determine, in its sole
discretion. The provisions of Restricted Share awards need not
be the same with respect to each recipient.
7.2 Terms
Restricted Shares awards shall be granted only pursuant
to a written agreement, which shall be executed by the
Participant and a duly authorized officer of the Company and
which shall contain such terms and conditions as the Committee
shall determine, consistent with the Plan, including the
following:
(a) Price. The purchase price of Restricted Shares
shall be determined by the Committee, in its sole discretion, and
may be zero.
-211-
<PAGE>
(b) Restrictions and Conditions.
(i) The award may be subject to such restrictions
as may be imposed by the Committee in its sole discretion,
including, without limitation, Performance Criteria, as a
condition for the grant or vesting of the Restricted Shares;
provided, however, that the period within which Performance
Criteria must be achieved shall not exceed ten years after
the date of grant of the Restricted Shares. The Committee
may provide for the lapse of restrictions imposed on an
award in installments.
(ii) Except as provided in clause (i), the
Participant shall have, with respect to the Restricted
Shares, all of the rights of a shareholder of the Company,
including the right to vote the Shares and to receive any
cash dividends.
(iii) The Committee may, in its sole
discretion, retain in the applicable award agreement the
authority to waive in whole or in part any or all
restrictions with respect to a Participant's Restricted
Shares, based on such factors as the Committee may deem
appropriate.
(iv) The Committee may, in its sole discretion,
provide that Restricted Shares be held in escrow or trust
pending delivery to the Participant upon the satisfaction of
any applicable restrictions or delivery to the Company upon
forfeiture.
(v) The restrictions imposed on an award of
Restricted Shares that is subject to Performance Criteria
under Section 9.2 may not lapse until the Committee
-212-
<PAGE>
certifies in writing that the Performance Criteria and any
other material terms have been satisfied.
8. Performance Awards.
Subject to the provisions of the Plan, the Committee
shall have the sole and complete authority to determine eligible
Employees to whom Performance Awards shall be granted.
Performance Awards may be with respect to or unrelated to Shares
subject to Options or Stock Appreciation Rights granted under the
Plan. Performance Awards may be designated as performance shares
or performance units (which shall be valued at $1.00 per unit)
and shall consist of a predetermined amount, payable in cash or
in Shares, on such terms and subject to such conditions,
including Performance Criteria, as may be determined in writing
by the Committee in its discretion. Performance Awards may be
payable with respect to a specific period, and may be vested in
whole or in part on the date of the award thereof, as determined
from time to time by the Committee in its discretion. If the
Performance Awards are to be paid in the form of Restricted
Shares, the recipient must execute a written agreement as
described in Section 7.2 as a condition of the issuance of such
shares in his or her name. Performance Awards that are subject
to Performance Criteria under Section 9.2 may not be paid until
the Committee certifies in writing that the Performance Criteria
and any other material terms have been satisfied.
9. Performance Criteria.
9.1 Options, Stock Appreciation Rights, Restricted
Shares and Performance Awards, when so determined by the
Committee, may be subject to such financial or non-financial
performance or other criteria ("Performance Criteria") as may be
adopted from time to time by the Committee in its discretion.
-213-
<PAGE>
Performance Criteria shall not include the attaining of a certain
length of service with the Company. Performance Criteria may be
expressed either on an absolute basis or relative to other
companies or indices selected by the Committee.
9.2 The Performance Criteria applicable to any
Participant who is, or who is determined by the Committee to be
likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (a "Covered Employee"), shall be
limited to growth, improvement in or attainment by the Company or
its Subsidiaries or one or more business or functional units
thereof of certain levels of:
(i) return on capital, equity, or operating
costs;
(ii) economic value added;
(iii) margins;
(iv) total shareholder return or market
value;
(v) operating profit or net income;
(vi) cash flow, earnings before interest and
taxes, earnings before interest, taxes
and depreciation, or earnings before
interest, taxes, depreciation and
amortization;
(vii) sales or product volumes;
(viii) costs, expenses or inventory;
(ix) earnings per share;
(x) cost per kilowatt hour;
(xi) safety;
-214-
<PAGE>
(xii) environmental standards;
(xiii) customer favorability/loyalty;
(xiv) service reliability;
(xv) productivity;
(xvi) market share; or
(xvii) completion of specified tasks or goals.
This Section 9.2 is intended to comply with the exception from
Section 162(m) of the Code for qualified performance-based
compensation, and shall be construed, applied and administered
accordingly.
9.3 If the Committee determines that a change in the
business, operations, corporate structure or capital structure of
the Company, or the manner in which it conducts its business, or
other events or circumstances render the Performance Criteria to
be unsuitable, the Committee may modify such Performance Criteria
or the related minimum acceptable level of achievement, in whole
or in part, as the Committee deems appropriate and equitable;
provided, however, that no such modification shall be made in the
case of any award to a Participant who is, or is determined by
the Committee to be likely to become, a Covered Employee if the
effect would be to cause the award to fail to qualify for the
performance-based compensation exception to Section 162(m) of the
Code. In addition, at the time the award subject to Performance
Criteria is made and performance goals established, the Committee
is authorized to determine the manner in which the Performance
Criteria will be calculated or measured to take into account
certain factors over which Participants have no or limited
control including market related changes in inventory value,
-215-
<PAGE>
changes in industry margins, changes to rates or accounting
procedures ordered by regulatory bodies, changes in accounting
principles, and extraordinary charges to income; provided,
however, that no such calculation or measurement shall be made in
the case of any Participant who is, or is determined by the
Committee to be likely to become, a Covered Employee in such a
manner that would cause the award to fail to qualify for the
performance-based compensation exception to Section 162(m) of the
Code.
10. Change in Control.
10.1 Definition.
Except to the extent a different definition is provided
by the Committee in the grant of an award under the Plan, a
change in control ("Change in Control") for purposes of the Plan
shall have occurred if at any time on or after the Effective Date
any of the following events shall occur:
(a) The Company or KU (as defined below) is
merged or consolidated or reorganized
into or with another corporation or
other legal person, and as a result of
such merger, consolidation or
reorganization less than 60% of the
combined voting power of the then-
outstanding securities of such
corporation or person immediately after
such transaction is held in the
aggregate by the holders of the then-
outstanding securities entitled to vote
-216-
<PAGE>
generally in the election of directors
(the "Voting Stock") of the Company
immediately prior to such transaction;
(b) The Company or KU sells or otherwise
transfers all or substantially all of
its assets to any other corporation or
other legal entity, and as a result of
such sale or transfer less 60% of the
combined voting power of the then-
outstanding securities of such other
corporation or entity immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Stock
of the Company immediately prior to such
sale or transfer;
(c) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form or report or item
therein), each as promulgated pursuant
to the Exchange Act disclosing that any
person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act) has become the
beneficial owner (as the term
"beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the
Exchange Act) of securities representing
-217-
<PAGE>
10% or more of the combined voting power
of the Voting Stock of the Company or
the Voting Stock of KU; or
(d) If at any time during any period of two
consecutive years, individuals who at
the beginning of any such period
constitute the directors of the Company
or KU cease for any reason to constitute
at least a majority thereof, unless the
election, or the nomination for election
by such company's stockholders, of each
director of such company first elected
during such period was approved by a
vote of at least two-thirds of the
directors of such company then still in
office who were directors of such
company at the beginning of any such
period.
Notwithstanding the foregoing provisions
of paragraph (c) above, unless otherwise
determined in a specific case by
majority vote of the Board of Directors
of the Company and KU, a "Change in
Control" shall not be deemed to have
occurred for purposes of the Plan solely
because (i) the Company, (ii) a
Subsidiary, or (iii) any Company-
sponsored, KU-sponsored or Subsidiary-
-218-
<PAGE>
sponsored employee stock ownership plan
or any other employee benefit plan of
the Company, KU or Subsidiary, either
files or becomes obligated to file a
report under or in response to
Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or
item therein) under the Exchange Act,
disclosing beneficial ownership by it of
shares of Voting Stock of the Company or
KU, whether in excess of 10% or
otherwise. For purposes of this
Section 10.1, "KU" shall mean Kentucky
Utilities Company.
10.2 Share Based Awards.
Notwithstanding any other provisions of the Plan, in
the event of a Change in Control, all Share based awards granted
under this Plan shall immediately vest or become exercisable, as
the case may be, 100% in each Participant, including Incentive
Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, and Restricted Stock.
10.3 Performance Awards.
Notwithstanding any other provisions of the Plan,
unless otherwise provided by the Committee in the grant of a
Performance Award, in the event of a Change in Control, (i) all
performance units granted under this Plan shall be immediately
paid out in cash and (ii) all performance shares granted under
this Plan shall be paid out immediately in Shares. The amount of
-219-
<PAGE>
the payout in Shares or cash, as the case may be, shall be
determined on the assumption that the target for the applicable
performance period has been met and shall be the amount equal to
a fraction of the Participant's performance shares or performance
units, as the case may be, for the applicable performance period,
the numerator of which fraction is the whole and partial months
in the performance period which have passed as of the date of the
Change in Control and the denominator of which is the number of
months in the performance period.
-220-
<PAGE>
11. Miscellaneous.
11.1 Effective Date
The Plan shall become effective as of January 28, 1997,
the date of Board approval (the "Effective Date"), and shall
continue in effect until the tenth anniversary of such date,
subject to approval of the Plan by the affirmative vote of the
holders of a majority of the securities of the Company present,
or represented, and entitled to vote at a meeting of shareholders
duly held in accordance with the laws of the Commonwealth of
Kentucky within twelve months of adoption of the Plan by the
Board. Notwithstanding anything herein or in any award agreement
to the contrary, all awards awarded under the Plan shall be void
unless this Plan is so approved by the Company's shareholders.
11.2 Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from
time to time by the Board; provided, however, that, except as
provided in Section 3.3, no amendment shall be effective unless
approved by the affirmative vote of the holders of a majority of
securities of the Company present, or represented, and entitled
to vote at a meeting of shareholders of the Company duly held in
accordance with the laws of the Commonwealth of Kentucky within
twelve (12) months of the date of adoption of such amendment,
where such amendment will:
(a) increase the total number of Shares reserved for
the purposes of the Plan; or
(b) make such other change as may require shareholder
approval (i) under the rules of any exchange on which Shares
are traded, or (ii) in order for awards granted under the
-221-
<PAGE>
Plan to qualify for an exception from Section 162(m) of the
Code.
Neither the amendment, suspension nor termination of
the Plan shall, without the written consent of the Participant,
alter or impair any rights or obligations under any award
theretofore granted. No awards may be granted during any period
of suspension nor after termination of the Plan, and in no event
may any awards be granted under the Plan after ten years from the
Effective Date.
11.3 Amendment of Award
The Committee may amend, modify or terminate any
outstanding award with the Participant's written consent at any
time prior to payment or exercise in any manner not inconsistent
with the terms of the Plan, including without limitation, (a) to
change the date or dates as of which an Option or Stock
Appreciation Right becomes exercisable or Restricted Shares or
Performance Awards become vested, or (b) to cancel and reissue an
award under such different terms and conditions as it determines
appropriate.
11.4 Transferability
Except as otherwise determined by the Committee, no
award shall be assignable or transferable except by will or the
laws of descent and distribution, and no right or interest of any
Participant shall be subject to any lien, obligation or liability
of the Participant.
11.5 No Rights as Shareholder
Subject to the provisions of the applicable award, no
Participant shall be deemed for any purpose to be or to have the
-222-
<PAGE>
rights and privileges of the owner of any Shares subject to any
Option or otherwise to be distributed under the Plan until such
Participant shall have become the holder thereof.
Notwithstanding the foregoing, in connection with each grant of
Restricted Shares, the applicable award agreement shall specify
if and to what extent the Participant shall not be entitled to
the rights of a shareholder in respect of such Restricted Shares.
11.6 Effect of Plan Upon Other Compensation and
Incentive Plans
The adoption of the Plan shall not affect any other
compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in the Plan shall be construed to limit the
right of the Company or any Subsidiary to establish any other
forms of incentives or compensation for Employees of the Company
or any Subsidiary.
11.7 Regulations and Other Approvals; Governing Law
(a) The obligation of the Company to sell or deliver
Shares with respect to Options or any other award granted under
the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate
by the Committee.
(b) The Committee may make such changes in Incentive
Stock Options awarded under the Plan as may be necessary or
appropriate to comply with the rules and regulations of any
government authority or to obtain the tax benefits under the
-223-
<PAGE>
applicable provisions of the Code and regulations promulgated
thereunder for Employees granted Incentive Stock Options.
(c) Each Option and any other award payable in Shares
is subject to the requirement that, if at any time the Committee
determines, in its sole discretion, that the listing,
registration or qualification of Shares issuable pursuant to the
Plan is required by any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or
in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares
issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
(d) In the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act, and is not
otherwise exempt from such registration, such Shares shall be
restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may
require any individual receiving Shares pursuant to the Plan, as
a condition precedent to receipt of such Shares, to represent to
the Company in writing that the Shares acquired by such
individual are acquired for investment only and not with a view
to distribution. The certificate for any Shares acquired
pursuant to the Plan shall include any legend that the Committee
deems appropriate to reflect any restrictions on transfer.
-224-
<PAGE>
11.8 Governing Law
The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with
the laws of the Commonwealth of Kentucky without giving effect to
the choice of law principles thereof.
11.9 Withholding of Taxes
No later than the date which any award granted under
the Plan to a Participant becomes subject to any withholding tax,
the Participant shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, the
federal, state, local or other taxes of any kind required by the
law of any applicable jurisdiction or the Company to be withheld.
The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and
its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind
otherwise due to the Participant. In its discretion, the
Committee may permit Participants to satisfy withholding
obligations by delivering previously owned Shares or by electing
to have Shares withheld.
11.10 No Right to Continued Employment
Nothing in the Plan or in any award agreement shall
confer upon any Employee any right to continue in the employ of
the Company or any Subsidiary or shall interfere with or restrict
in any way the right of the Company and its Subsidiaries, which
are hereby expressly reserved, to remove, terminate or discharge
any Employee at any time for any reason whatsoever, with or
without cause.
-225-
<PAGE>
11.11 Titles; Construction
Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the
Plan. The masculine pronoun shall include the feminine and
neuter and the singular shall include the plural, when the
context so indicates. Any reference to a section (other than to
a section of the Plan) shall also include a successor to such
section.
11.12 Successors.
The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, reorganization
or otherwise) to all or substantially all of the business and/or
assets of the Company expressly to assume and agree to perform
this Plan in the same manner and to the same extent the Company
would be required to perform if no such succession had taken
place. This Plan shall be binding upon and inure to the benefit
of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly
all or substantially all of the business and/or assets of the
Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter
be deemed to "Company" for the purposes of this Plan), and the
heirs, executors and administrators of each Participant.
IN WITNESS THEREOF, the Company has caused this Plan to
be executed by its duly authorized officers as of the 28th day of
January, 1997.
-226-
<PAGE>
KU ENERGY CORPORATION
By:/s/Michael R. Whitley
Chairman of the Board,
President and Chief
Executive Officer
Attest:/s/George S. Brooks II
Secretary
(SEAL)
-227-
<TABLE>
EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992
(in thousands except ratios)
Earnings
<S> <C> <C> <C> <C> <C>
Net Income $ 86,163 $ 76,842 $ 77,512 $ 81,286 $ 76,298
Adjustments
Fixed charges 39,688 40,116 34,558 32,899 40,965
Income taxes
Current Federal 35,656 23,597 37,058 35,893 30,838
Current State 7,387 5,134 8,812 9,484 7,951
Deferred Federal--Net 5,510 12,165 (1,114) 2,837 2,269
Deferred State--Net 2,899 3,845 13 71 561
Deferred investment
tax credit--Net - (71) (86) (107) (130)
Income taxes included
in Other Income
and Deductions
Current Fed and State 4,426 1,044 1,881 (2,616) (224)
Deferred Fed and State (4,659) (508) (458) 2,817 1,144
Amortization of
investment credit (4,013) (4,024) (4,024) (4,024) (4,019)
Undistributed income of
Electric Energy, Inc 24 99 (39) (38) (53)
Total Earnings $ 173,081 $ 158,239 $ 154,113 $ 158,502 $ 155,600
Fixed Charges
Int on long-term debt $ 37,584 $ 36,095 $ 32,147 $ 31,650 $ 39,571
Other interest charges 2,104 4,021 2,411 1,249 1,394
Total Fixed Charges $ 39,688 $ 40,116 $ 34,558 $ 32,899 $ 40,965
Ratio of Earnings
to Fixed Charges 4.36 3.94 4.46 4.82 3.80
____________
Note--Rentals are not material and have not been included in fixed charges.
</TABLE>
-228-
EXHIBIT 13
Management's Discussion and Analysis of Financial Condition and Results
of Operation
COMPANY DESCRIPTION
KU Energy Corporation (KU Energy or the Company) is an investor-owned
utility holding company with two wholly owned subsidiaries. Kentucky
Utilities Company (KU or the Utility), the principal subsidiary of KU
Energy, is an electric utility, and KU Capital Corporation (KU Capital)
is a nonutility subsidiary.
Material changes in the consolidated financial condition and results of
operations of the Company are primarily attributable to the operations of
KU.
RESULTS OF OPERATIONS
1996 Compared to 1995
Earnings & Dividends
KU Energy's earnings in 1996 were $2.17 per share, up 8% from $2.01 per
share in 1995. The increase in 1996 earnings was largely due to
kilowatt-hour (kWh) sales growth which was attributable to increased
sales to neighboring utilities, continued economic growth in KU's service
area and the impact of KU's successful marketing efforts.
Common stock dividends were increased 2.4% to $1.72 per share in 1996.
In January 1997, KU Energy's Board increased the common dividend again to
an indicated annual rate of $1.76 per share. This marked the 16th
consecutive year in which dividends have increased.
1996 kWh Sales by Classification
Year Ended December 31, 1996
Residential 28%
Commercial 18%
Industrial 22%
Mine Power 5%
Public Authorities 7%
Sales for Resale 20%
Total 100%
-229-
<PAGE>
Sales & Revenues
1996 1995
kWh Revenue kWh Revenue
Change Variance Change Variance
(%) (000's) (%) (000's)
Residential 3 $ 3,469 7 $19,186
Commercial - (1,138) 4 9,571
Industrial 7 6,790 6 10,023
Mine Power (4) (2,062) (5) (422)
Public Authorities 4 1,862 6 4,292
Total Retail Sales 3 8,921 5 42,650
Sales for Resale 27 13,268 (23) (13,725)
Miscellaneous Revenues and Other - 3,097 - 1,462
Total Before Refund 7 25,286 (1) 30,387
Provisions for Refund -
Litigation Settlement - - - 19,385
Total 7 $25,286 (1) $49,772
Sales totaled 18.6 billion kWh in 1996, a 7% increase from 1995. Sales
for resale, which include wholesale and opportunity sales, rose 27% in
1996. Industrial sales increased 7% while residential sales increased
3%. These increases are the result of the Company's successful marketing
efforts. In addition, the increase in industrial sales reflects
continued economic growth in KU's service area.
Operating revenues for 1996 were $711.7 million, up $25.3 million (4%)
from 1995. The increase in 1996 revenues was largely due to the growth
in kWh sales described above.
Operating Expenses
Fuel expense for 1996 was $198.2 million, an $8.4 million (4%) increase
from 1995. This increase was due to increased generation for kWh sales,
partially offset by a 3% decrease in the cost per million British thermal
units (MBTU) of coal consumed.
Purchased power expense decreased $7.1 million (10%) in 1996. The
decline was due to a reduction in kWh purchases and to a reduction in
demand costs ($4.0 million) under a contract with a neighboring utility.
Depreciation expense increased $5.3 million (7%) in 1996. This increase
was due to increased plant in service including a combustion turbine
peaking unit placed into service in May 1996.
Federal and state income taxes increased $6.8 million (16%) in 1996. The
increase was primarily due to the increase in pretax income.
Other Income and Deductions
Other income and deductions of $8.3 million in 1996 were down 29% from
1995. Other income and deductions for 1996 include a $5.5 million pretax
write-off associated with nonutility investments. (For additional
information refer to Management's Discussion and Analysis - Nonutility
Activities.)
-230-
<PAGE>
1995 Compared To 1994
Earnings & Dividends
KU Energy s earnings in 1995 were $2.01 per share and compare to earnings
of $2.01 for 1994 (which included a one-time recovery of about $.05 per
share associated with the resolution of a coal contract dispute). Refer
to Note 1 of the Notes to Consolidated Financial Statements, Operating
Revenues and Fuel Costs.
In 1995, common stock dividends were increased to $1.68 per share from
$1.64 in 1994.
Sales & Revenues
KWh sales in 1995 were 1% below sales in 1994. The decrease was largely
due to a 23% decline in sales for resale which reflected a return to more
normal levels from the unusually high levels of those sales in 1994.
Sales to residential customers increased by 7% in 1995 as a result of
favorable weather in the second half of 1995, continued growth in the
number of residential customers and the impact of KU's marketing efforts.
Industrial sales rose 6% as a result of continued economic growth in KU's
service area. About 29% of the increase in industrial sales for 1995 was
due to greater sales to Toyota Motor Manufacturing (TMM), KU's largest
customer. A plant expansion at TMM completed in March 1994 was
operational the entire year of 1995.
Operating revenues for 1995 were $686.4 million, up $30.4 million (5%)
from 1994, excluding the impact of the refunds to customers associated
with the above mentioned resolution of a coal contract dispute.
Operating revenues in 1994 were reduced by about $19.4 million, and fuel
expense was reduced by about $23.1 million as a result of the refunds.
The increase in 1995 revenues was largely due to the growth in retail
sales described above and to amounts recovered under an environmental
surcharge (about $17.9 million in 1995 compared to $3.5 million in
1994). Refer to Note 9 of the Notes to Consolidated Financial
Statements, Environmental Cost Recovery.
Operating Expenses
Fuel expense for 1995 was $189.8 million, a $3.9 million (2%) decrease
from 1994, excluding the effect of the 1994 refunds to customers. This
decrease was due to a 1% decline in coal consumption and a 1% decrease in
the cost per MBTU of coal consumed.
Purchased power expense increased $8.1 million (13%) in 1995 due to
increased demand charges ($2.5 million) and energy costs ($5.6 million).
The increase in energy costs reflected a 6% increase in kWh purchases as
well as higher prices. The increase in kWh purchases was primarily
attributable to the significant demand for electricity in the third
quarter of 1995 due to unusually warm weather.
Other operating expenses increased $9.5 million (8%) in 1995 due to
increased generating plant operations expenses (primarily attributable
to costs associated with environmental compliance) and administrative and
general expenses.
-231-
<PAGE>
Maintenance expense decreased $3.5 million (5%) in 1995. Maintenance
expense for 1994 included additional costs for damage from two severe ice
storms in the first quarter of 1994.
Depreciation expense for 1995 increased $9.8 million (15%). This
increase was related to the Ghent Unit 1 scrubber, which was placed into
service late in 1994, and two combustion turbine peaking units placed
into service late in 1994 and early in 1995.
Interest and Other Charges
Interest and other charges rose $5.8 million (16%) in 1995 which
reflected the issuance of $54 million of long-term debt in the fourth
quarter of 1994, $50 million of long-term debt in the second quarter of
1995 and an increase in the average amount of short-term debt outstanding
during the first half of 1995.
LIQUIDITY & CAPITAL RESOURCES
The Company s financial position remained strong in 1996. At the end of
the year, common stock equity represented 52.4% of total capitalization
while long-term debt was 44.4%, and preferred stock was 3.2%. This
capital structure supports the Company's goal of maintaining double A
credit ratings. Current ratings on KU's senior debt securities are as
follows:
Duff & Phelps AA
Moody's Aa2
Standard & Poor's AA-
As of December 31, 1996 1995 1994 1993 1992
Capitalization (in millions) $1,232 $1,215 $1,152 $1,085 $1,067
Long-Term Debt 44.4% 44.9% 43.0% 40.8% 41.6%
Preferred Stock 3.2% 3.3% 3.5% 3.7% 3.7%
Common Stock Equity 52.4% 51.8% 53.5% 55.5% 54.7%
Cash from operations accounted for 99% of cash requirements in 1996 as
compared to 78% in 1995 and 54% in 1994. For these purposes, cash
requirements exclude optional debt refinancings and redemptions and
optional preferred stock redemptions.
At the end of 1996, KU's short-term borrowings were $54 million compared
to $56 million at December 31, 1995. The Company has used short-term
borrowings to temporarily finance ongoing construction expenditures and
general corporate requirements.
Taking advantage of lower interest rates, KU issued $36 million of
Series S First Mortgage Bonds at a rate of 5.99% in January 1996 and used
the proceeds to redeem $35.5 million of Series K First Mortgage Bonds
which carried a rate of 7 3/8%.
In June 1995, KU issued $50 million of Series R First Mortgage Bonds
which will mature in 2025 and bear interest at 7.55%. The proceeds were
used primarily to pay short-term indebtedness incurred to finance ongoing
construction expenditures and general corporate requirements.
In 1994, $54 million of Variable Rate Collateralized Solid Waste Disposal
-232-
<PAGE>
Facility Revenue Bonds were issued on behalf of KU. Proceeds from the
sale of this tax exempt issue were used to fund a portion of the costs of
certain environmental compliance facilities at the Utility's Ghent
Generating Station.
The Company's financial strength is enhanced by its competitive cost of
capital. Shown below are the Company's embedded costs of long-term debt
and preferred stock at year-end:
Embedded Cost 1996 1995 1994
Long-Term Debt 6.98% 7.15% 7.06%
Preferred Stock 5.64% 5.64% 5.64%
Capital Requirements
Construction Expenditures - 1996 Actual, 1997-2001 Estimated
Actual Estimated
(In millions of dollars) 1996 1997 1998 1999 2000 2001
Construction Expenditures $107 $ 90 $ 98 $114 $114 $115
During 1996, construction expenditures were $106.5 million. Construction
expenditures are expected to be approximately $89.7 million in 1997. For
the five-year period 1997-2001, construction expenditures are projected
to be $531.2 million. This compares to $687.5 million spent in the
five-year period ending in 1996. Included in the five-year projection
for 1997-2001 is $95.4 million for additional peaking units.
In addition to construction expenditures, projected capital requirements
for 1997-2001 include $61.5 million for scheduled debt retirements.
Capital requirements for the five-year period 1997-2001 are expected to
be met primarily through internal sources of funds. External financing to
fund scheduled debt retirements will be required.
KU forecasts annual growth in sales and peak demand of 2.6% and 3.0%,
respectively, over the next 5 years. The Utility plans to provide for
the future power needs of its customers primarily through purchased
power and the addition of combustion turbine peaking units. There are no
plans for additional baseload capacity before 2010.
NONUTILITY ACTIVITIES
KU Energy continues to pursue a core energy strategy for its nonutility
business activities. Under this strategy, targeted opportunities are
energy-related activities that build on the Company's knowledge and
expertise and have the appropriate risk/reward profile.
KU Capital, KU Energy's nonutility subsidiary, has an investment of
$25 million in equity interests in eight combustion turbine generating
units (all of which are leased to investment grade utility companies).
KU Capital has limited partnership interests in the identification,
development and ownership of certain independent power projects in North
America through agreements with Tenaska Inc. (a developer of gas-fired
cogeneration and independent power generation projects) and its
affiliates.
-233-
<PAGE>
Under the agreements with Tenaska, KU Capital, through its wholly owned
subsidiaries, has invested $5.0 million in limited partnership interests
in two operating cogeneration projects. KU Capital has committed
$4.8 million to an additional independent power project which began
operation in January 1997, and expects to fund this commitment in the
first quarter of 1997.
KU Capital also has a limited partnership interest in a 248-megawatt gas-
fired generation plant in Frederickson, Washington, under the sponsorship
of Tenaska. Construction of this independent power project was suspended
in 1995 after the Bonneville Power Administration (BPA) notified Tenaska
of its intent to cancel a power purchase agreement which BPA had entered
into for electricity which would be produced by the Frederickson project.
Tenaska has a $650 million claim for damages against BPA in the United
States Court of Federal Claims (Court of Claims). The arbitration
ordered by the Court of Claims began in February 1997. Although it is
not possible at this time to determine the outcome of such arbitration,
the Company believes the possibility of any material adverse impact on
the results of operations or the financial position of the Company as a
result of these matters is remote.
KU Capital also has been funding a portion of the costs associated with
identifying and pursuing potential independent power projects in North
America. During 1996, KU Capital determined that none of the costs
funded during 1994-1996 (approximately $5.5 million) would lead to
successful projects; therefore, this amount was written-off. KU
Capital's remaining funding commitment over the next several years totals
$4.5 million.
UTILITY ISSUES
Competition
The electric utility industry has been rapidly moving to a less regulated
and more competitive environment since the passage of the National Energy
Policy Act of 1992 (NEPA). NEPA gave the Federal Energy Regulatory
Commission (FERC) the authority to order electric utilities to provide
wholesale transmission access to independent power producers and other
utilities. It also reduced restrictions on the ownership and operation of
independent power producers.
Pursuant to NEPA, in 1995 the FERC issued a Notice of Proposed Rulemaking
(NOPR) to promote competition and deregulation in the wholesale electric
market by requiring electric utilities to offer nondiscriminatory open
access to their transmission systems.
In April 1996, the FERC issued two final rules and a new NOPR. FERC
Order No. 888 (Order 888) addresses both open access transmission service
and stranded cost issues. FERC Order No. 889 (Order 889) requires
utilities to establish an electronic Open Access Same-Time Information
System (OASIS) to share information about available transmission capacity
and also requires the establishment by each utility of standards of
conduct for its transmission system operation. The 1996 NOPR proposes to
establish a new system for utilities to use in reserving capacity on
their own and other s transmission lines.
In July 1996, KU filed an open access transmission tariff (TS) with the
FERC designed to comply with provisions of Order 888. This tariff has
-234-
<PAGE>
been accepted by the FERC, superseding the TS which had been in effect
since December 1994. The provisions of the new TS are similar to the
terms and conditions of service contained in KU s previously existing
tariff.
Although Order 888 does address stranded cost issues, KU is expected to
have very little, if any, stranded costs.
In conjunction with other utility members of the East Central Area
Reliability Coordination Agreement, KU has developed an OASIS and
finalized its standards of conduct pursuant to Order 889. KU met the
FERC's deadline (January 1997) for implementation of these requirements.
KU is also in the process of evaluating the FERC s 1996 NOPR. This NOPR
would replace certain aspects of KU s transmission tariff now in effect
with a capacity reservation tariff by the end of 1997. The FERC has
received comments from interested parties regarding the potential tariff
change and is currently evaluating those comments. KU cannot predict
when a final rule will be issued.
KU is one of 24 utilities in a ten-state region attempting to form the
Midwest Independent System Operator (ISO). The primary objectives of the
ISO are to advance wholesale competition by ensuring nondiscriminatory
open transmission access to all customers and to enhance transmission
reliability.
Proposals to bring competition to the retail level of the electric
utility industry are being considered in several states and at the
federal level. These proposals reflect many divergent opinions
concerning the complex issues surrounding retail competition. Some
states are conducting pilot projects to allow retail customers to choose
their electric supplier. Kentucky and Virginia have not initiated
projects of this nature.
The Company advocates competition in the electric utility industry and
believes customer choice should be extended to the retail level. With
low-cost generation and rates that are among the lowest in the nation,
the Company is well-positioned for the challenges and opportunities of a
competitive marketplace.
-235-
<PAGE>
Environmental Matters
Clean Air Act
KU met Phase I requirements of the Clean Air Act Amendments of 1990
(which were effective January 1, 1995) primarily through the addition of
a flue gas desulfurization system (scrubber) on Unit 1 of the Utility's
Ghent Generating Station. The scrubber began commercial operation in
December 1994.
The Company's current strategy for Phase II requirements (which will be
effective January 1, 2000) is to use accumulated emission allowances to
delay additional capital expenditures.
The Company's future compliance plans are contingent upon many factors,
including developments in the emission allowance market and the fuel
market as well as regulatory and legislative actions and advances in
clean air technology. The Company will continue to review and revise its
compliance plans accordingly to ensure that its environmental obligations
are met in the most efficient and cost-effective manner.
Environmental Cost Recovery
In August 1994, KU implemented an environmental cost recovery mechanism
(surcharge) in Kentucky. Authorized by a 1992 state statute and
approved by the Kentucky Public Service Commission (PSC), the surcharge
is designed to recover certain environmental compliance costs, including
costs to comply with the 1990 Clean Air Act Amendments, through a
surcharge on customers bills.
The constitutionality of the surcharge was challenged in a Kentucky state
court action brought against KU and the PSC by the Attorney General of
Kentucky and representatives of consumer groups. In July 1995, the state
court upheld the constitutionality of the surcharge statute but vacated
that part of the PSC's order which the state court described as allowing
KU to recover certain environmental expenditures characterized by the
state court as having been incurred before January 1, 1993. All parties
(including KU) have appealed to the Kentucky Court of Appeals.
KU believes the constitutionality of the surcharge statute will be
upheld, but it cannot predict the outcome of that part of the state court
judgment disallowing recovery of certain environmental expenditures
characterized by the state court as having been incurred before
January 1, 1993. If the state court judgment is ultimately upheld as
entered, KU estimates that the amount it would be required to refund
(which is based solely on costs associated with certain environmental
expenditures characterized by the state court as having been incurred
before January 1, 1993) for surcharge collections through December 31,
1996, from the implementation of the surcharge would be approximately
$11 million, and from February 1, 1995 would be approximately $9 million.
At this time, KU has not recorded any reserve for refund. Refer to
Note 9 of the Notes to Consolidated Financial Statements, Environmental
Cost Recovery.
-236-
<PAGE>
INFLATION
KU's rates are designed to recover operating and historical plant
investment costs. Financial statements, which are prepared in accordance
with generally accepted accounting principles, report operating results
in terms of historic costs and do not evaluate the impact of inflation.
Inflation affects the Utility's construction costs, operating expenses
and interest charges. Inflation can also impact KU's financial
performance if rate relief is not granted on a timely basis for increased
operating costs.
FORWARD LOOKING STATEMENTS
This report includes forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements made
herein which are not based on historical facts are forward looking and,
accordingly, involve risks and uncertainties that could cause actual
results to differ materially from those discussed. Such forward looking
statements include those under Management's Discussion and Analysis
relating to (i) amounts of future construction expenditures, sources of
funds to meet capital requirements and financing requirements,
(ii) forecasts of annual growth in sales and peak demand and anticipated
sources of additional power supply to meet customer demand, (iii) the
anticipated level of stranded costs resulting from competitive conditions
and deregulation, (iv) the anticipated strategy to comply with the Clean
Air Act Amendments of 1990, (v) the anticipated results of proceedings
related to the environmental surcharge and (vi) the anticipated results
of the arbitration relating to the Frederickson project. Such statements
are based on management's belief, judgment and analysis as well as
assumptions made by and information available to management at the date
hereof. In addition to any assumptions and cautionary factors referred
to specifically in this report in connection with such forward looking
statements, factors that could cause actual results to differ materially
from those contemplated by the forward looking statements include (i) the
speed and nature of increased competition and deregulation in the
electric and gas utility industry, (ii) economic or weather conditions
affecting future sales and margins, (iii) changing energy prices,
(iv) legislative and regulatory changes including revised environmental
requirements, (v) availability and cost of capital, (vi) unanticipated or
adverse decisions in regulatory proceedings or litigation and (vii) other
matters detailed from time to time in the Company's or KU's reports filed
with the Securities and Exchange Commission.
-237-
<PAGE>
<TABLE>
Consolidated Statements
of Income and
Retained Earnings
KU Energy Corporation
& Subsidiaries
<CAPTION>
Year Ended December 31, 1996 1995 1994
(in thousands of dollars, except for per share amounts)
<S> <C> <C> <C>
Operating Revenues $ 711,686 $ 686,400 $ 636,628
Operating Expenses:
Fuel, principally coal, used in generation 198,198 189,845 170,654
Electric power purchased 62,490 69,579 61,442
Other operating expenses 125,351 124,044 114,551
Maintenance 64,170 62,599 66,141
Depreciation 80,612 75,268 65,441
Federal and state income taxes 50,247 43,426 43,904
Other taxes 15,049 15,038 14,789
Total Operating Expenses 596,117 579,799 536,922
Net Operating Income 115,569 106,601 99,706
Other Income and Deductions:
Interest and dividend income 2,800 4,115 5,914
Other income and deductions - net 5,469 7,610 6,709
Total Other Income and Deductions 8,269 11,725 12,623
Income Before Interest and Other Charges 123,838 118,326 112,329
Interest and Other Charges:
Interest on long-term debt 37,584 36,095 32,147
Preferred stock dividend requirements of Subsidiary 2,256 2,256 2,384
Other interest charges 2,049 3,922 1,922
Total Interest and Other Charges 41,889 42,273 36,453
Net Income $ 81,949 $ 76,053 $ 75,876
Earnings per Average Common Share, based on average
shares outstanding of 37,817,878 $ 2.17 $ 2.01 $ 2.01
Retained Earnings Beginning of Year $ 321,066 $ 308,547 $ 294,949
Add Net Income 81,949 76,053 75,876
403,015 384,600 370,825
Deduct:
Dividends on common stock, $1.72, $1.68 and $1.64 per
share during 1996, 1995 and 1994, respectively 65,047 63,534 62,021
Preferred stock redemption expense - - 257
65,047 63,534 62,278
Retained Earnings End of Year $ 337,968 $ 321,066 $ 308,547
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-238-
<PAGE>
<TABLE>
Consolidated Statements
of Cash Flows
KU Energy Corporation
& Subsidiaries
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<CAPTION>
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 81,949 $ 76,053 $ 75,876
Items not requiring (providing) cash currently:
Depreciation 80,612 75,268 65,441
Deferred income taxes 5,891 16,919 (612)
Investment tax credit deferred (4,013) (4,095) (4,110)
Changes in current assets and liabilities:
Change in accounts receivable (969) (7,945) (190)
Change in accounts payable (9,682) (10,774) 4,815
Change in liability to ratepayers (6,599) (310) (29,958)
Change in escrow funds 6,599 312 30,841
Change in other current assets and liabilities 5,778 (433) (7,954)
Other - net 10,181 1,868 5,250
Net Cash Provided by Operating Activities 169,747 146,863 139,399
Cash Flows from Investing Activities:
Construction expenditures - utility (106,503) (124,515)(193,344)
Proceeds from sale of long-term investments - - 15,440
Investment in leveraged leases - - (6,609)
Investment in independent power projects (1,310) (3,204) (6,742)
Other 2,038 1,288 927
Net Cash Used by Investing Activities (105,775) (126,431)(190,328)
Cash Flows from Financing Activities:
Short-term borrowings - net (1,400) (20,700) 76,300
Issuance of long-term debt 35,666 49,288 53,305
Funds deposited with trustee - net 3,779 15,100 95
Retirement of long-term debt, including premiums (36,192) (21) (21)
Retirement of preferred stock, including premiums - - (20,302)
Payment of common stock dividends (65,047) (63,534) (62,021)
Net Cash Provided (Used) by Financing Activities (63,194) (19,867) 47,356
Net Increase (Decrease) in Cash and Cash Equivalents 778 565 (3,573)
Cash and Cash Equivalents Beginning of Year 29,492 28,927 32,500
Cash and Cash Equivalents End of Year $ 30,270 $ 29,492 $ 28,927
Supplemental Disclosures
Cash paid for:
Interest $ 36,729 $ 37,961 $ 31,864
Income Taxes $ 45,775 $ 31,507 $ 44,343
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-239-
<PAGE>
<TABLE>
Consolidated
Balance Sheets
KU Energy Corporation
& Subsidiaries
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Assets
Utility Plant:
<S> <C> <C>
Plant in service, at cost $2,482,812 $2,394,018
Less: Accumulated depreciation 1,067,911 997,366
1,414,901 1,396,652
Construction work in progress 63,435 61,410
Total Utility Plant 1,478,336 1,458,062
Current Assets:
Cash and cash equivalents 30,270 29,492
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable, net of allowance for doubtful accounts 50,498 49,529
Accrued utility revenues 24,239 27,900
Fuel, principally coal, at average cost 30,895 29,438
Plant materials and operating supplies, at average cost 21,656 23,064
Other 7,486 8,121
Total Current Assets 165,044 177,886
Other Assets:
Investment in leveraged leases 24,650 21,509
Unamortized loss on reacquired debt 10,838 11,304
Other 48,080 46,213
Total Other Assets 83,568 79,026
Total Assets $1,726,948 $1,714,974
Capitalization and Liabilities
Capitalization: (See Consolidated Statements of Capitalization)
Common stock equity $ 645,513 $ 628,611
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
Total Capitalization 1,231,886 1,214,591
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 54,200 55,600
Accounts payable 28,253 37,935
Accrued interest 8,048 7,556
Accrued taxes 4,005 4,960
Customer deposits 8,746 6,876
Accrued payroll and vacations 9,921 8,759
Liability to ratepayers - coal contract litigation - 6,599
Other 5,954 6,992
Total Current Liabilities 119,148 135,298
Other Liabilities:
Accumulated deferred income taxes 242,674 233,707
Accumulated deferred investment tax credits 30,167 34,180
Regulatory tax liability 54,388 57,726
Other 48,685 39,472
Total Other Liabilities 375,914 365,085
Total Capitalization and Liabilities $1,726,948 $1,714,974
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-240-
<PAGE>
<TABLE>
Consolidated
Statements of
Capitalization KU Energy Corporation
& Subsidiaries
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Common Stock Equity:
Common stock, without par value, authorized 160,000,000
<S> <C> <C>
shares, outstanding 37,817,878 shares $ 308,140 $ 308,140
Capital stock expense and other (595) (595)
Retained earnings 337,968 321,066
Total Common Stock Equity 645,513 628,611
Preferred Stock:
Kentucky Utilities cumulative, without par value,
$100 stated value
4 3/4%, outstanding 200,000 shares 20,000 20,000
6.53%, outstanding 200,000 shares 20,000 20,000
Total Preferred Stock 40,000 40,000
Long-Term Debt:
First Mortgage Bonds:
5.95% Series Q, due June 15, 2000 61,500 61,500
7 3/8% Series K, due December 1, 2002 - 35,500
6.32% Series Q, due June 15, 2003 62,000 62,000
5.99% Series S, due January 15, 2006 36,000 -
7.92% Series P, due May 15, 2007 53,000 53,000
7.55% Series R, due June 1, 2025 50,000 50,000
8.55% Series P, due May 15, 2027 33,000 33,000
295,500 295,000
First Mortgage Bonds, Pollution Control Series:
7 3/8% Pollution Control Series 7, due May 1, 2010 4,000 4,000
7.45% Pollution Control Series 8, due September 15, 2016 96,000 96,000
6 1/4% Pollution Control Series 1B, due February 1, 2018 20,930 20,930
6 1/4% Pollution Control Series 2B, due February 1, 2018 2,400 2,400
6 1/4% Pollution Control Series 3B, due February 1, 2018 7,200 7,200
6 1/4% Pollution Control Series 4B, due February 1, 2018 7,400 7,400
7.60% Pollution Control Series 7, due May 1, 2020 8,900 8,900
5 3/4% Pollution Control Series 9, due December 1, 2023 50,000 50,000
Variable Rate Pollution Control Series 10, due November 1, 2024 54,000 50,800
Variable Rate County of Carroll, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds, due November 1, 2024 - 3,200
250,830 250,830
Total First Mortgage Bonds 546,330 545,830
Unamortized premium - 86
8% secured note, due January 5, 1999 (net of current maturity) 43 64
Total Long-Term Debt 546,373 545,980
Total Capitalization $1,231,886 $1,214,591
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
-241-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
1. Summary of Significant Accounting Policies
General
The consolidated financial statements include the accounts of KU Energy
Corporation (KU Energy or the Company), a holding company, and its wholly
owned subsidiaries, Kentucky Utilities Company (KU) and KU Capital
Corporation (KU Capital). The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. All significant intercompany
balances and transactions have been eliminated from the consolidated
financial statements. Certain amounts from prior periods have been
reclassified to conform with the current year presentation.
KU is a public utility engaged in producing, transmitting and selling
electric energy. KU provides electric service to about 432,900 customers
in over 600 communities and adjacent suburban and rural areas in 77
counties in central, southeastern and western Kentucky and to about
28,800 customers in 5 counties in southwestern Virginia.
KU Capital continues to pursue a core energy strategy for its nonutility
business activities. Under this strategy, targeted opportunities are
energy-related activities that build on the Company's knowledge and
expertise and have the appropriate risk/reward profile.
Regulation
The Company is exempt from regulation as a registered holding company
under the Public Utility Holding Company Act of 1935. KU is subject to
regulation by the Kentucky Public Service Commission (PSC), the Virginia
State Corporation Commission (SCC) and the Federal Energy Regulatory
Commission (FERC). With respect to accounting matters, KU maintains its
accounts in accordance with the Uniform System of Accounts as defined by
these agencies. KU's accounting policies conform to generally accepted
accounting principles applicable to rate regulated enterprises and
reflect the effects of the ratemaking process. Other than the
unamortized loss on reacquired debt, KU's regulatory assets are
immaterial.
Utility Plant
Utility plant is stated at the original cost of construction. The cost
of repairs of property units and replacements of minor items is charged
to maintenance expense as incurred. Property unit replacements are
capitalized and the depreciation reserve is charged with the cost, less
net salvage, of units retired.
-242-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
Depreciation
Provision for depreciation of utility plant is based on straight-line
composite rates applied to the cost of depreciable property. The rates
approximated 3.5% in 1996 and 1995 and 3.4% in 1994.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers highly liquid
investments with a maturity of three months or less from the date of
purchase to be cash equivalents.
The Company utilizes a cash management mechanism that funds certain bank
accounts for checks as they are presented to those banks. The Company
classified checks written but not presented to those banks, which
amounted to $6.1 million and $10.5 million at December 31, 1996 and 1995,
respectively, in accounts payable.
Financial Instruments
The Company's temporary cash investments are classified as held-to-
maturity and are reported under the caption "Cash and cash equivalents"
on the Consolidated Balance Sheet.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," in 1996 by continuing to
account for stock compensation in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." If the
Company had recognized compensation expense for awards under its stock-
based compensation plan according to the new standard, net income and
earnings per share for the year-ended 1996, 1995 and 1994 would not have
been materially different from amounts recorded.
Unamortized Loss on Reacquired Debt
KU defers costs (primarily call premiums) arising from the reacquisition
or retirement of long-term debt. Costs related to refinanced debt are
amortized over the lives of the new debt issues. Costs related to
retired debt not refinanced are amortized over the period to the
scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. KU
accrues an estimate of revenues for electric service furnished from the
meter reading dates to the end of each accounting period. Cost of fuel
used in electric generation is charged to expense as the fuel is
consumed. Fuel adjustment clauses adjust operating revenues for changes
in the level of fuel costs charged to expense. An environmental
surcharge for Kentucky retail customers, implemented in August 1994,
permits the utility to recover certain ongoing operating and capital
costs of compliance with federal, state or local environmental
-243-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
requirements associated with the production of energy from coal,
including the Federal Clean Air Act as amended. See Note 9 of the Notes
to Consolidated Financial Statements, "Environmental Cost Recovery," for
an update of environmental surcharge legal proceedings.
Pursuant to regulatory orders, KU had been refunding fuel cost savings
related to the resolution of a coal contract dispute. Refunds were made
to Virginia retail customers during the period August 1993 through June
1994. Refunds were made to wholesale customers under the jurisdiction of
the FERC in lump sum payments in September 1993. Refunds to Kentucky
retail customers commenced in July 1994. Pursuant to legislation adopted
in 1996, KU paid the remaining balance of unclaimed Kentucky retail
customer refunds to the Kentucky Workers' Compensation Funding Commission
to pay certain workers compensation benefits.
By virtue of the legislation, KU's payment of the unclaimed refunds to
the State released KU from any future liability to customers relating to
such refunds. The legislation also preserved the rights of ratepayers
entitled to claim a refund who have not yet done so and authorized the
Funding Commission to honor future refund claims using any funds
available.
Operating revenues and fuel expense for 1994 were reduced by
$19.4 million and $23.1 million, respectively, resulting from the above-
mentioned refunds. The refunds had no impact on operating revenues or
fuel expense for 1995 or 1996. The difference between the reduction in
operating revenues and the reduction in fuel expense is attributable to
incurred litigation costs, fuel cost savings related to opportunity sales
and costs incurred to administer the refund plan. These amounts were
retained by KU pursuant to regulatory orders.
Income Taxes
The Company establishes deferred tax assets and liabilities, as
appropriate, for all temporary differences, and adjusts deferred tax
balances to reflect changes in tax rates expected to be in effect during
the periods the temporary differences reverse. Investment tax credits
resulted from provisions of the tax law which permitted a reduction of
the Company's tax liability based on certain construction expenditures.
Such credits have been deferred in the accounts and are being amortized
as reductions in income tax expense over the life of the related
property. Because of rate regulation, changes in tax rates are deferred
and amortized as the temporary differences reverse.
-244-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
2. Income Taxes
The accumulated deferred income taxes as set forth in the Consolidated
Balance Sheets arise from the following temporary differences:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Deferred Tax Assets:
Unamortized investment tax credit and other property
<S> <C> <C>
related differences $ 29,294 $ 31,667
Other 21,627 16,728
Less: Amounts included in current assets 4,723 4,985
46,198 43,410
Deferred Tax Liabilities:
Accelerated depreciation and other property
related differences 278,044 268,203
Other 10,828 8,914
288,872 277,117
Net accumulated deferred income tax liability $ 242,674 $ 233,707
</TABLE>
<TABLE>
The components of income tax expense are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 34,255 $ 22,011 $ 36,332
- state 6,585 4,734 8,623
40,840 26,745 44,955
Deferred - federal 5,949 12,809 (997)
- state 3,458 3,943 32
9,407 16,752 (965)
Deferred investment tax credit - (71) (86)
50,247 43,426 43,904
Income taxes charged to Other Income
and Deductions:
Current - federal 2,716 1,868 1,507
- state 900 384 266
3,616 2,252 1,773
Deferred - federal (3,138) 176 325
- state (378) (9) 28
(3,516) 167 353
Amortization of deferred investment tax credit (4,013) (4,024) (4,024)
(3,913) (1,605) (1,898)
Total income tax expense $ 46,334 $ 41,821 $ 42,006
</TABLE>
-245-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
The Company's effective income tax rate, determined by dividing income
taxes by the sum of such taxes and net income, was 36.1% in 1996, 35.5% in
1995 and 35.6% in 1994. The difference between the effective rate and the
statutory federal income tax rate is attributable to the following factors:
<TABLE>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Federal income tax computed at 35% $ 44,899 $ 41,256 $ 41,259
Add (Deduct):
State income taxes, net of federal income tax benefit 6,867 5,884 5,817
Amortization of deferred investment tax credit (4,013) (4,095) (4,110)
Other, net (1,419) (1,224) (960)
Total income tax expense $ 46,334 $ 41,821 $ 42,006
</TABLE>
3. Retirement Benefits
Pensions
The Company has a noncontributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan are based
on years of service, final average base pay and age at retirement. The
Company's funding policy is to make such contributions as are necessary
to finance the benefits provided under the plan. The Company's
contributions meet the funding standards set forth in the Employee
Retirement Income Security Act of 1974. The plan assets consist
primarily of common stocks, corporate bonds and U.S. Government
Securities.
The Company also has a Supplemental Security Plan for certain management
personnel. Retirement benefits under this plan are based on years of
service, earnings and age at retirement. The plan has no advance
funding. Benefit payments are made to retired employees or their
beneficiaries from the general assets of the Company.
The reconciliation of the funded status of the retirement plans and the
pension liability recorded by the Company is as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
<S> <C> <C>
Fair value of plan assets $ 191,778 $ 179,203
Projected benefit obligation (194,874) (183,795)
Plan assets less than projected benefit obligation (3,096) (4,592)
Unrecognized net (gain)/loss from past
experience different than that assumed (12,448) (5,907)
Unrecognized prior service cost 3,990 4,344
Unrecognized net asset (1,500) (1,649)
Regulatory effect recorded 201 (1,634)
Pension liability $ (12,853) $ (9,438)
Accumulated benefit obligation (including vested benefits
of $147,103 and $139,250, respectively) $ 149,814 $ 141,531
</TABLE>
-246-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
<TABLE>
Components of Net Pension Cost:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 6,399 $ 6,060 $ 6,017
Interest cost on projected benefit obligation 13,856 13,560 12,366
Actual return on plan assets (20,798) (27,064) (3,723)
Net amortization and deferral 6,568 14,608 (8,765)
Regulatory effect recorded (1,835) (1,595) (1,916)
Net pension cost $ 4,190 $ 5,569 $ 3,979
Assumptions Used in Determining Actuarial Valuations:
1996 1995 1994
Weighted average discount rate used to
determine the projected benefit obligation 7.75% 7.75% 8.25%
(1)
Rate of increase for compensation levels 4.75% 4.75% 5.50%
Weighted average expected long-term rate
of return on assets 8.25% 8.25% 8.25%
(1)
4.75%, 4.75%, and 6.00%, respectively, used for the Supplemental Security Plan
valuation.
</TABLE>
Other Postretirement Benefits
The Company provides certain health care and life insurance benefits to
eligible retired employees and their dependents. The Company accrues,
during the years that the employee renders service, the expected cost of
providing these benefits for retired employees, their beneficiaries and
covered dependents. The postretirement health care plan is contributory
for employees who retired after December 31, 1992, with retiree
contributions indexed annually based upon the experience of retiree
medical expenses for the preceding year. Pre-1993 retirees are not
required to contribute to the plan. The Company's employees become
eligible for retiree medical benefits after 15 years of service and
attainment of age 55. The life insurance plan is noncontributory and is
based on compensation levels prior to retirement.
In 1993, the Company began funding, in addition to current requirements
for benefit payments, the maximum tax-favored amount allowed through
certain tax deductible funding vehicles. The Company anticipates making
similar funding decisions in future years, but will consider and make
such funding decisions on the basis of tax, regulatory and other relevant
conditions in effect at such times. The plan assets consist primarily of
equity investments.
-247-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
The reconciliation of the funded status of the plans and the
postretirement benefit liability recorded by the Company is as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (29,313) $ (28,575)
Fully eligible active plan participants (8,678) (8,250)
Other active plan participants (28,528) (26,831)
(66,519) (63,656)
Plan assets at fair value 13,322 10,427
Accumulated postretirement benefit obligation
in excess of plan assets (53,197) (53,229)
Unrecognized net (gain)/loss from past
experience different from that assumed (20,029) (18,773)
Unrecognized transition obligation 53,460 56,801
Accrued postretirement benefit liability $ (19,766) $ (15,201)
</TABLE>
<TABLE>
Components of the net periodic postretirement benefit cost are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
Service cost (benefits attributed to
<S> <C> <C> <C>
service during the period) $ 1,859 $ 1,918 $ 2,105
Interest cost on accumulated postretirement
benefit obligation 4,751 4,926 4,926
Actual return on plan assets (1,633) (1,722) (80)
Net amortization and deferral 103 792 (118)
Amortization of transition obligation 3,341 3,341 3,341
Regulatory effect recorded - - 689
Net periodic postretirement benefit cost $ 8,421 $ 9,255 $ 10,863
</TABLE>
<TABLE>
Assumptions Used in Determining Actuarial Valuations: 1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate used to
determine the projected benefit obligation 7.75% 7.75% 8.25%
Rate of increase for compensation levels 4.75% 4.75% 5.50%
Weighted average expected long-term rate of
return on assets 8.00% 8.00% 8.25%
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits is assumed for 1997. The
health care cost trend rate is assumed to decrease gradually to 4.75%
through 2003 and remain at that level thereafter over the projected
-248-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
payout period of the benefits. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996, by
$10.4 million (16%) and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year
by $1.2 million (19%).
4. Commitments and Contingencies
<TABLE>
The effects of certain commitments made by the Company are estimated
below:
<CAPTION>
(in thousands of dollars) 1997 1998 1999 2000 2001 1997-2001
Estimated Construction
<S> <C> <C> <C> <C> <C> <C>
Expenditures $ 89,700 $ 98,300 $ 114,300 $ 113,700 $ 115,200 $ 531,200
Estimated Contract
Obligations:
Fuel 142,200 86,500 48,300 6,600 - 283,600
Purchased power 31,600 30,400 29,000 28,000 30,600 149,600
Operating leases 2,800 2,800 2,700 2,700 2,700 13,700
Independent Power Project
Commitments 5,700 1,000 1,000 900 700 9,300
First Mortgage Bond
Maturities:
Series Q $ - $ - $ - $ 61,500 $ - $ 61,500
</TABLE>
Construction Program
KU frequently reviews its construction program and may revise its
projections of related expenditures based on revisions to its estimated
load growth and projections of its future load.
See Management's Discussion and Analysis - Construction Requirements for
a discussion of future construction expenditures including those relating
to construction of peaking units.
Coal Supply
Obligations under KU's coal purchase contracts are stated at prices
effective January 1, 1997, and are subject to changes as defined by the
terms of the contracts.
Purchased Power
KU has purchase power arrangements with Owensboro Municipal Utilities
(OMU), Electric Energy, Inc. (EEI), and other parties. Under the OMU
agreement, which expires on January 1, 2020, KU purchases, on an economic
basis, all of the output of a 400-MW generating station not required by
OMU. The amount of purchased power available to KU during 1997-2001,
which is expected to be approximately 8% of KU's total kWh requirements,
is dependent upon a number of factors including the units' availability,
maintenance schedules, fuel costs and OMU requirements. Payments are
-249-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
based on the total costs of the station allocated per terms of the OMU
agreement, which generally follows delivered kWh. Included in the total
costs is KU's proportionate share of debt service requirements on
$192.9 million of OMU bonds outstanding at December 31, 1996. The debt
service is allocated to KU based on its annual allocated share of
capacity, which averaged approximately 48% in 1996.
KU has a 20% equity ownership in EEI, which is accounted for on the
equity method of accounting. KU's entitlement is 20% of the available
capacity of a 1,000-MW station. Payments are based on the total costs of
the station allocated per terms of an agreement among the owners, which
generally follows delivered kWh.
KU has several other contracts for purchased power during 1997-2001 of
various MW capacities and for varying periods with a maximum entitlement
at any time of 282 MW.
Independent Power Projects
During 1994, the Company entered into agreements with Tenaska, Inc. (a
developer of gas-fired cogeneration and independent power generation
projects), and its affiliates to purchase limited partnership interests
in the identification, development and ownership of certain independent
power projects in North America. Under the agreements, the Company
(through its wholly owned subsidiaries) is a limited partner in three
operating cogeneration projects, one of which became operational in
January 1997 and will be funded by the Company ($4.8 million) in the
first quarter of 1997 (see Credit Arrangements below). The Company also
has agreed to participate in funding the costs associated with
identifying and pursuing potential independent power projects in North
America. The remaining funding commitment over the next several years
totals $4.5 million.
Credit Arrangements
KU has aggregate bank lines of credit of $60 million, all of which
remained unused at December 31, 1996. All of these credit lines expire
in December 1999. In support of these lines of credit, KU compensates
the banks by paying a commitment fee.
KU Capital has a standby letter of credit in the amount of $4.8 million
to support its future commitment to an independent power project. This
letter of credit is effective for one year. In support of this letter of
credit, KU Capital compensates the bank by paying a commitment fee.
5. Common Stock
KU Energy is subject to restrictions applicable to all corporations under
Kentucky law on the use of retained earnings for cash dividends on common
stock. KU is subject to the same restrictions as well as those contained
in Virginia law, its Mortgage Indenture and Articles of Incorporation.
At December 31, 1996, there were no restricted retained earnings.
-250-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
The Company has a shareholder rights plan designed to provide protection
to shareholders in the event of an unsolicited attempt to acquire the
Company. Under the shareholder rights plan, in certain circumstances,
KU Energy shareholders will receive as a dividend one right for each
share of KU Energy common stock. Should certain events occur (for
instance, an acquirer becomes the beneficial owner of 20 percent or more
of the Company's outstanding voting stock without approval by the
Company, or certain transactions occur following an acquirer becoming the
beneficial owner of 10 percent or more of such voting stock without
Company approval), each right would entitle the holder, other than the
acquirer, to purchase common shares of KU Energy or shares of any company
that acquires KU Energy at a discount from the market value. In certain
circumstances, the Company may redeem the rights at a price of $.01 per
right. The rights expire in February 2002.
6. Preferred and Preference Stock
KU Energy
As of December 31, 1996, there were 20 million shares of KU Energy
preferred stock, without par value, authorized for issuance.
Kentucky Utilities
Each series of preferred stock is redeemable at the option of KU upon 30
days' written notice as follows:
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.)
$103.265 through November 30, 2004, decreasing
approximately $.33 each twelve months thereafter
to $100 on or after December 1, 2013.
As of December 31, 1996, there were 5.3 million shares of KU preferred
stock, having a maximum aggregate stated value of $200 million,
authorized for issuance, of which 400,000 shares were outstanding.
As of December 31, 1996, there were 2 million shares of KU preference
stock, without par value, authorized for issuance.
7. Short-Term and Long-Term Debt
KU's short-term financing requirements are satisfied through the sale of
commercial paper. The weighted average interest rate on the year-end
balance was 6.17% for 1996 and 5.83% for 1995.
-251-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
In 1994, KU entered into a loan agreement with the County of Carroll,
Kentucky to finance the construction of solid waste disposal facilities.
The County of Carroll issued $54 million of variable rate revenue bonds,
with the proceeds held in a construction fund. In 1994, 1995 and 1996,
KU drew down $35.7 million, $15.1 million and $3.2 million, respectively,
relating to these bonds. Kentucky Utilities Pollution Control Series 10
Bonds are issued under KU's Mortgage Indenture.
Under the provisions for the variable rate revenue bonds, KU can choose
between various interest rate options. Currently, the daily interest
rate option is being utilized. The average annual interest rate on the
bonds during 1996 and 1995 was 3.53% and 3.95%, respectively. The
variable rate bonds are subject to tender for purchase at the option of
the holder and to mandatory tender for purchase upon the occurrence of
certain events. If tendered bonds are not remarketed, the Company has
available lines of credit which may be used to repurchase the bonds.
In January 1996, KU issued $36 million of Series S First Mortgage Bonds
which bear interest at 5.99% and will mature January 15, 2006. The
proceeds were used to redeem $35.5 million of Series K First Mortgage
Bonds.
Substantially all of KU's utility plant is pledged as security for the
first mortgage bonds.
8. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
The carrying values of cash and cash equivalents, escrow funds,
construction funds, short-term borrowings, commercial paper and customer
deposits approximate fair value because of the short maturity of these
amounts.
Long-term debt fair values are based on quoted market prices for KU's
first mortgage bonds and on current rates available to KU for debt of the
same remaining maturities for KU's pollution control bonds and promissory
note. The carrying value of long-term debt on December 31, 1996 and 1995
was $546 million and $546 million, respectively, and the estimated fair
value was $587 million and $594 million, respectively.
If the difference between fair value and carrying value of KU's long-term
debt were settled at amounts approximating those above, the anticipated
regulatory treatment (based on the current regulatory environment) would
allow recovery of these amounts in rates over a prescribed amortization
period. Accordingly, any settlement would not have a material impact on
the Company's financial position or results of operations.
-252-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
9. Environmental Cost Recovery
Since August 1994, KU has been collecting an environmental surcharge from
its Kentucky retail customers under a Kentucky statute which authorizes
electric utilities (including KU) to implement, beginning January 1,
1993, an environmental surcharge. The surcharge is designed to recover
certain operating and capital costs of compliance with federal, state or
local environmental requirements associated with the production of energy
from coal, including the Federal Clean Air Act as amended. KU's
environmental surcharge was approved by the PSC in July 1994 and was
implemented in August 1994. The total surcharge collections from
August 1, 1994 through December 31, 1996 were approximately $40 million.
The constitutionality of the surcharge statute was challenged in the
Franklin County (Kentucky) Circuit Court in an action brought against KU
and the PSC by the Attorney General of Kentucky and joined by
representatives of consumer groups. In July 1995, the Circuit Court
entered a judgment upholding the constitutionality of the statute, but
vacating that part of the PSC's July 1994 order which the judgment
describes as allowing KU to recover, under the surcharge, certain
environmental expenditures characterized by the Circuit Court as having
been incurred before January 1, 1993. The Circuit Court further ordered
the case remanded to the PSC for a determination in accordance with the
judgment. KU and the PSC assert that none of the costs included in the
surcharge were incurred prior to June 1994.
The Attorney General and other consumer representatives appealed to the
Kentucky Court of Appeals that part of the Circuit Court judgment
upholding the constitutionality of the surcharge statute. The PSC and KU
a p pealed that part of the judgment denying recovery of certain
environmental expenditures characterized by the Circuit Court as having
been incurred before January 1, 1993. The PSC has ordered all surcharge
revenues collected by KU from February 1, 1995 subject to refund pending
final determination of all appeals. The total surcharge collections from
February 1, 1995 through December 31, 1996 were approximately
$36 million.
KU believes the constitutionality of the surcharge statute will be
upheld, but it cannot predict the outcome of that part of the Circuit
Court judgment disallowing recovery of certain environmental expenditures
characterized by the Circuit Court as having been incurred before
January 1, 1993. If the Circuit Court judgment is ultimately upheld as
entered, KU estimates that the amount it would be required to refund
(which is based solely on costs associated with certain environmental
expenditures characterized by the Circuit Court as having been incurred
before January 1, 1993) for surcharge collections through December 31,
1996, from the implementation of the surcharge would be approximately
$11 million, and from February 1, 1995 would be approximately $9 million.
At this time, KU has not recorded any reserve for refund.
10. Leveraged Leases
KU Capital owns equity interests in several leveraged leases for
combustion turbine units leased to utility companies. The leases expire
-253-
<PAGE>
Notes to Consolidated
Financial Statements
KU Energy Corporation
& Subsidiaries
in 1999. KU Capital's equity investment represents 75% of the aggregate
purchase price of the leases. The remaining 25% represents the
nonrecourse debt provided by lenders at the inception of the leases in
1974. The lenders have been granted, as their sole remedy in the event
of default by the lessees, an assignment of rentals due under the leases
and a security interest in the leased properties.
The following is a summary of the components of KU Capital's net
investment in leveraged leases:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1996 1995
<S> <C> <C>
Rentals receivable (net of nonrecourse debt) $ 3,511 $ 3,983
Estimated residual value of leased property 32,707 32,707
Less: Unearned and deferred income 11,568 15,181
Investment in leveraged leases 24,650 21,509
Less: Accumulated deferred income taxes 4,219 2,407
Net investment in leveraged leases $ 20,431 $19,102
</TABLE>
<TABLE>
The following is a summary of the components of income from leveraged
<CAPTION>
leases:
Year Ended December 31, (in thousands of dollars) 1996 1995 1994
<S> <C> <C> <C>
Income before income taxes $ 3,613 $ 3,306 $ 2,140
Income tax expense 1,890 1,286 829
Income from leveraged leases $ 1,723 $ 2,020 $ 1,311
</TABLE>
-254-
<PAGE>
Financial
Information
(Unaudited)
KU Energy Corporation
& Subsidiaries
Quarterly financial results for 1996 and 1995 are summarized below.
Generally, quarterly results may fluctuate due to seasonal variations,
changes in fuel costs and other factors.
Net Income and Earnings per Average Common Share for the fourth
quarter of 1996 were reduced by $2.4 million and $.06, respectively,
for the write-off associated with nonutility investments. (For
additional information refer to Management's Discussion and Analysis -
Nonutility Activities.)
<TABLE>
Quarter 4th 3rd 2nd 1st
<CAPTION>
(in thousands of dollars, except for per share amounts)
1996
<S> <C> <C> <C> <C>
Operating Revenues $ 174,917 $ 178,269 $ 167,510 $ 190,990
Net Operating Income 27,796 29,820 22,825 35,128
Net Income 17,064 22,493 16,073 26,319
Earnings per Average
Common Share .45 .60 .42 .70
1995
Operating Revenues $ 170,144 $ 194,367 $ 154,749 $ 167,140
Net Operating Income 30,161 32,536 17,893 26,011
Net Income 22,245 24,579 10,422 18,807
Earnings per Average
Common Share .59 .65 .27 .50
These quarterly amounts reflect, in the Company's opinion, all adjustments (including only
normal recurring adjustments) necessary for a fair presentation.
</TABLE>
-255-
<PAGE>
Report of
Independent
Public
Accountants
KU Energy Corporation
& Subsidiaries
To the Shareholders of
KU Energy Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of KU Energy Corporation (a Kentucky
corporation) and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of KU Energy
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
January 28, 1997
-256-
EXHIBIT 21
SUBSIDIARIES OF KU ENERGY AND KU
State or Jurisdiction
Name of Incorporation
KU Energy Corporation Kentucky
KU Capital Corporation* Kentucky
Kentucky Utilities Company* Kentucky and Virginia
Electric Energy, Inc.** Illinois
* KU Energy Corporation owns 100% of the common stock of KU Capital
Corporation and Kentucky Utilities Company.
** Kentucky Utilities Company owns 20% of the Common Stock of Electric
Energy, Inc.
-257-
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated January 28, 1997, on the financial
statements of KU Energy Corporation incorporated in this Form 10-K and our
report dated January 28, 1997, on the financial statements of Kentucky
Utilities Company included in this Form 10-K into the previously filed
Form S-8 Registration Statement of KU Energy Corporation and Kentucky
Utilities Company (File No. 33-57087).
/s/Arthur Andersen
Arthur Andersen LLP
Chicago, Illinois
March 10, 1997
-258-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K ANNUAL REPORT.
</LEGEND>
<NAME> KU ENERGY CORPORATION
<CIK> 0000835715
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,478,336
<OTHER-PROPERTY-AND-INVEST> 41,974
<TOTAL-CURRENT-ASSETS> 165,044
<TOTAL-DEFERRED-CHARGES> 41,594
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,726,948
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (595)
<RETAINED-EARNINGS> 337,968
<TOTAL-COMMON-STOCKHOLDERS-EQ> 645,513
0
40,000
<LONG-TERM-DEBT-NET> 546,373
<SHORT-TERM-NOTES> 54,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 440,841
<TOT-CAPITALIZATION-AND-LIAB> 1,726,948
<GROSS-OPERATING-REVENUE> 711,686
<INCOME-TAX-EXPENSE> 50,247
<OTHER-OPERATING-EXPENSES> 545,870
<TOTAL-OPERATING-EXPENSES> 596,117
<OPERATING-INCOME-LOSS> 115,569
<OTHER-INCOME-NET> 8,269
<INCOME-BEFORE-INTEREST-EXPEN> 123,838
<TOTAL-INTEREST-EXPENSE> 41,889
<NET-INCOME> 81,949
0
<EARNINGS-AVAILABLE-FOR-COMM> 81,949
<COMMON-STOCK-DIVIDENDS> 65,047
<TOTAL-INTEREST-ON-BONDS> 37,584
<CASH-FLOW-OPERATIONS> 169,747
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1996 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR
THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-K ANNUAL REPORT.
</LEGEND>
<NAME> KENTUCKY UTILITIES COMPANY
<CIK> 0000055387
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,478,336
<OTHER-PROPERTY-AND-INVEST> 12,548
<TOTAL-CURRENT-ASSETS> 140,577
<TOTAL-DEFERRED-CHARGES> 41,594
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,673,055
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (595)
<RETAINED-EARNINGS> 287,852
<TOTAL-COMMON-STOCKHOLDERS-EQ> 595,397
0
40,000
<LONG-TERM-DEBT-NET> 546,373
<SHORT-TERM-NOTES> 54,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 437,064
<TOT-CAPITALIZATION-AND-LIAB> 1,673,055
<GROSS-OPERATING-REVENUE> 711,711
<INCOME-TAX-EXPENSE> 51,452
<OTHER-OPERATING-EXPENSES> 542,922
<TOTAL-OPERATING-EXPENSES> 594,374
<OPERATING-INCOME-LOSS> 117,337
<OTHER-INCOME-NET> 8,443
<INCOME-BEFORE-INTEREST-EXPEN> 125,780
<TOTAL-INTEREST-EXPENSE> 39,617
<NET-INCOME> 86,163
2,256
<EARNINGS-AVAILABLE-FOR-COMM> 83,907
<COMMON-STOCK-DIVIDENDS> 65,047
<TOTAL-INTEREST-ON-BONDS> 37,584
<CASH-FLOW-OPERATIONS> 171,797
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>ALL OUTSTANDING COMMON STOCK OF KENTUCKY UTILITIES COMPANY IS HELD BY ITS
PARENT COMPANY, KU ENERGY CORPORATION. THEREFORE, EARNINGS PER SHARE IS NOT
APPLICABLE.
</FN>
</TABLE>
EXHIBIT 99.01
DESCRIPTION OF COMMON STOCK - KU ENERGY
General. The authorized capital stock of KU Energy consists of 20,000,000
shares of preferred stock, without par value, issuable in series of which
none is outstanding, and 160,000,000 shares of common stock, without par
value, of which 37,817,878 were outstanding at December 31, 1996. Kentucky
Utilities, KU Energy's subsidiary, has authorized capital stock of
5,300,000 shares of Cumulative Preferred Stock, without par value, issuable
in series, of which 400,000 shares, $100 per share stated value, were
outstanding at December 31, 1996; 2,000,000 shares of Preference Stock,
without par value, issuable in series, of which no shares are outstanding;
and 80,000,000 shares of common stock, of which 37,817,878 shares, all
owned by KU Energy, were outstanding at December 31, 1996. Kentucky
Utilities has issued and outstanding $546,330,000 in aggregate principal
amount of First Mortgage Bonds of various series under its First Mortgage
Indenture (Kentucky Utilities' Mortgage Indenture).
The following statements, unless the context otherwise indicates, are brief
summaries of the substance or general effect of certain provisions of KU
Energy's Amended and Restated Articles of Incorporation, as amended, (KU
Energy's Articles) or the Amended and Restated Articles of Incorporation,
as amended, of Kentucky Utilities' and the resolutions or amendments
establishing series of Kentucky Utilities Preferred Stock and Preference
Stock (collectively, Kentucky Utilities' Articles), and of Kentucky
Utilities' Mortgage Indenture securing its outstanding First Mortgage
Bonds. Such statements make use of defined terms and are not complete;
they are subject to all the provisions of KU Energy's Articles, Kentucky
Utilities' Articles or Kentucky Utilities' Mortgage Indenture, as the case
may be.
Dividend Rights. Dividends on Common Stock of KU Energy will depend in the
foreseeable future primarily upon the earnings, financial condition and
capital requirements of Kentucky Utilities. The ability of KU Energy to
pay dividends on its Common Stock would be limited to the extent Kentucky
Utilities is limited in its right to pay dividends on or acquire Kentucky
Utilities Common Stock.
Whenever dividends on all outstanding shares of Kentucky Utilities
Preferred and Preference Stock of all series for all previous quarter-
yearly dividend periods and the current quarter-yearly dividend period
shall have been paid or declared and set apart for payment, and whenever
all amounts required to be set aside for any sinking fund for the
redemption or purchase of shares of the Kentucky Utilities Preferred or
Preference Stock for all previous periods or dates shall have been paid or
set aside, and subject to the limitations summarized below, the Kentucky
Utilities Board of Directors may declare dividends on Kentucky Utilities
Common Stock out of any surplus or net profits of Kentucky Utilities
legally available for that purpose. Kentucky Utilities' Mortgage Indenture
provides, in effect, that, so long as certain currently outstanding series
of First Mortgage Bonds are outstanding, Kentucky Utilities will not
declare or pay any dividends (other than in stock) on Kentucky Utilities
Common Stock, or make any other distribution on or purchase any Kentucky
Utilities Common Stock, unless the total amount charged or provided for
maintenance, repairs and depreciation of the mortgaged properties
subsequent to May 1, 1947, plus the surplus earned during the period and
remaining after any such dividend, distribution or purchase, shall equal at
least 15% of Kentucky Utilities' total utility operating revenues for the
-261-
<PAGE>
period, after deducting from such revenues the cost of electricity
purchased for resale. Kentucky Utilities' Articles provide in effect that,
so long as any Kentucky Utilities Preferred Stock is outstanding, the total
amount of all dividends or other distributions on Kentucky Utilities Common
Stock (other than in stock) that may be paid, and purchases of Kentucky
Utilities Common Stock that may be made, during any 12-month period shall
not exceed (a) 5% of Kentucky Utilities' net income (as defined) for
the 12-month period next preceding each such dividend, distribution or
purchase, if the ratio of "common stock equity" to "total capital" (as
defined) is 20% to 25%, or (b) 50% of such net income if such ratio is less
than 20%. If such ratio is in excess of 25%, no such dividends may be paid
or distributions or purchases made that would reduce such ratio to less
than 25% except to the extent permitted by clauses (a) and (b). At
December 31, 1996, no amount of retained earnings was restricted as to the
payment of dividends on Kentucky Utilities Common Stock under the foregoing
provisions of Kentucky Utilities' Mortgage Indenture or Kentucky Utilities'
Articles.
Voting Rights. The shares of KU Energy's Common Stock entitle the holders
thereof to one vote for each share upon all matters upon which shareholders
have the right to vote, subject to any special voting rights, if any, which
may vest in the holders of KU Energy's preferred stock. KU Energy's
preferred stock may be issued in series, each of which will be identical
except for such relative rights and preferences with respect to the matters
listed in the next sentence as may be determined by the Board of Directors
of KU Energy. The Board of Directors of KU Energy may determine, for each
series of preferred stock, the number of shares and the rate of dividend
(or method of determining dividends) to be borne by the shares of each such
series, the voting rights, if any, the stated value, if any, and the
preferences with respect to distributions including dividends and
distributions upon dissolution of shares of such series, the price or
prices at which, and other terms and conditions on which, shares of each
series may be redeemed, and the sinking fund provisions, if any, for the
redemption or purchase of shares of each such series, the conversion
privileges, if any, and may change redeemed or re-acquired shares of any
such series into shares of another series, subject, however, to such
restrictions and limitations as are or may be, from time to time provided
by law or contained in KU Energy's Articles. If a quorum consisting of a
majority of the shares outstanding and entitled to vote on the matter is
present (either in person or by proxy) at a shareholders' meeting, action
on a matter (other than the election of directors) by a voting group shall
be approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, (i) except as described under
"Board of Directors" below, (ii) except that directors are elected by
cumulative voting and (iii) unless a greater vote is required by law.
Shareholder Rights. KU Energy has a shareholder rights plan designed to
provide protection to shareholders in the event of an unsolicited attempt
to acquire KU Energy. Under the shareholder rights plan, KU Energy
shareholders received as a dividend one right for each share of KU Energy
common stock. Should certain events occur - for instance, an acquirer
becomes the beneficial owner of 20 percent or more of KU Energy's
outstanding voting stock without approval by KU Energy or certain
transactions occur following an acquirer becoming the beneficial owner of
10 percent or more of such voting stock without KU Energy approval, each
right would entitle the holder, other than the acquirer, to purchase common
shares of KU Energy or shares of any company that acquires KU Energy at a
discount from the market value. In certain circumstances, KU Energy may
redeem the rights at a price of $.01 per right. The rights expire in
February 2002.
-262-
<PAGE>
Preemptive Rights. Holders of KU Energy's securities have no preemptive
subscription rights.
Liquidation Rights. In the event of any liquidation or dissolution of KU
Energy, holders of Common Stock are entitled to receive the net assets of
KU Energy except to the extent of the preferential rights, if any, of the
holders of KU Energy's preferred stock as may be established from time to
time in accordance with KU Energy's Articles.
Board of Directors. KU Energy's Bylaws provide for a Board of Directors
comprised of from nine to eleven members as determined from time to time by
the Board. The Board currently has ten members. KU Energy's Articles
provide for the classification of the Board of Directors into groups with
directors being elected for three-year terms. Under KU Energy's Articles,
the article providing for the classification of the Board of Directors may
not be altered, amended or repealed and no provision inconsistent with such
article may be adopted without the vote of 80 percent of the shares
entitled to vote generally, voting as a class.
Cumulative Voting. KU Energy's Articles provide for the election of
directors by cumulative voting.
Amendments to the Registrant's Articles. Except as set forth under "Board
of Directors" above, KU Energy's Articles may be amended or repealed, if
the number of shares voted in favor of such amendment exceeded the number
of shares voted against such amendment by each voting group or, if such
amendment would give rise to dissenters' rights, by the affirmative vote of
the holders of a majority of the outstanding shares of KU Energy entitled
to vote on such amendment (which would include the Common Stock and any
series of preferred stock which, by its terms or applicable law, was so
entitled to vote), unless any class or series of shares is entitled to vote
as a class in respect thereof, in which event the proposed amendment must
be approved in addition by the required vote of each class or series of
shares entitled to vote as a class in respect thereof.
Call of Special Meetings. KU Energy's Articles provide that no meeting of
shareholders may be called by shareholders unless called by the holders of
at least 51 percent of all the votes entitled to be cast on each issue
proposed to be considered at the special meeting.
Miscellaneous. The Transfer Agents for the Common Stock are Illinois Stock
Transfer Company, Chicago, Illinois, and Harris Trust and Savings Bank,
Chicago, Illinois; and the Registrar is Harris Trust and Savings Bank,
Chicago, Illinois.
The outstanding shares of Common Stock of KU Energy are fully paid and
nonassessable.
KU Energy reserves the right to increase, decrease or reclassify its
authorized capital stock or any class or series thereof, and to amend or
repeal any provisions of KU Energy's Articles, in the manner prescribed by
law, subject to the limitations described in KU Energy's Articles; and all
rights conferred on shareholders in KU Energy's Articles are subject to
this reservation.
-263-
EXHIBIT 99.02
DESCRIPTION OF COMMON STOCK - KU
General. The authorized capital stock of KU consists of 5,300,000 shares
of Preferred Stock, cumulative, without par value, issuable in series, of
which 400,000 shares were outstanding at December 31, 1996, 2,000,000
shares of Preference Stock, cumulative, without par value, issuable in
series, and 80,000,000 shares of Common Stock, without par value of which
37,817,878 shares were outstanding (all of which were held by KU Energy) at
December 31, 1996. No shares of Preference Stock are issued or
outstanding.
The following statements, unless the context otherwise indicates, are brief
summaries of the substance or general effect of certain provisions of KU's
Amended and Restated Articles of Incorporation and resolutions and
amendments establishing series of Preferred Stock (collectively, the
Articles) and of KU's Mortgage Indenture, as amended, securing its first
mortgage bonds (Indenture). The statements make use of defined terms, are
not complete and do not give effect to statutory or common law.
Dividend Rights. The Board of Directors of KU may declare dividends on the
Common Stock out of any surplus or net profits of KU legally available for
the purpose, provided full cumulative dividends on the Preferred Stock and
the Preference Stock for the current and all past quarterly dividend
periods shall have been paid or declared and set apart for payment and KU
is not in arrears in its sinking fund obligations in respect of any shares
of Preferred Stock or Preference Stock.
Limitations on Dividends on Common Stock. The Indenture provides that, so
long as certain currently outstanding series of First Mortgage Bonds are
outstanding, KU will not declare or pay any dividends on its Common Stock
or make any other distribution on or purchase any of its Common Stock
unless the amounts expended by KU for maintenance and repairs and provided
for depreciation subsequent to April 30, 1947, plus KU's earned surplus
(retained earnings) for such period and remaining after any such payment,
distribution or purchase, shall aggregate not less than 15% of the gross
operating revenues of KU for the period. The Articles provide, in effect,
that, so long as any of the Preferred Stock is outstanding, the total
amount of all dividends or other distributions on Common Stock and
purchases of such stock that may be paid or made during any 12-month period
shall not exceed (a) 75% of the "net income available for dividends on
common stock" if the ratio of "common stock equity" to "total capital"
(each as defined) of KU shall be 20% to 25%, or (b) 50% of such net income
if such ratio shall be less than 20%. When such ratio is 25% or more, no
such dividends, distributions or purchases may be paid or made which would
reduce such ratio to less than 25% except to the extent permitted by
clauses (a) and (b) above. As of December 31, 1996, no amount of retained
earnings was restricted under the Indenture or Articles.
Voting Rights. Each share of Common Stock is entitled to one vote on each
matter voted on at stockholders' meetings, except as otherwise provided in
the Articles, and to cumulative voting rights in the election of directors.
Shares of Preferred Stock and Preference Stock are not entitled to vote for
the election of directors or in respect of any other matters, except as
expressly provided in the Articles or as may be required by law. The
Articles give to holders of Preferred Stock and Preference Stock certain
special voting rights designed to protect their interest with respect to
specified corporate action. In addition, in certain events relating to
-264-
<PAGE>
dividends in default on Preferred Stock, holders of Preferred Stock as a
class are entitled to elect a majority of the full Board of Directors; and
in certain events relating to dividends in default on the Preference Stock,
holders of Preference Stock as a class are entitled to elect two directors.
Liquidation Rights. Upon the liquidation or dissolution of KU, the holders
of Preferred Stock and the Preference Stock are entitled to be paid
designated amounts out of the net assets of KU in preference to the Common
Stock. After such payment to holders of Preferred Stock and Preference
Stock, the remaining assets and profits shall be distributed to the holders
of Common Stock.
Board of Directors. KU's Bylaws provide for a Board of Directors comprised
of from nine to eleven members as determined from time to time by the
Board. The Board currently has ten members. KU's Articles provide for the
classification of the Board of Directors into groups with directors being
elected for three-year terms subject to certain rights of holders of
Preferred Stock and Preference Stock to elect directors.
Preemptive Rights. Holders of KU's Stock have no preemptive right to
subscribe for stock or securities of KU.
Call of Special Meetings. KU's Articles provide that no meeting of
shareholders (except for certain meetings called by holders of Preferred
Stock or Preference Stock) may be called by shareholders unless called by
the holders of at least 51 percent of all the votes entitled to be cast on
each issue proposed to be considered at the special meeting.
Miscellaneous. The outstanding shares of Common Stock of KU are fully paid
and non-assessable.
Under Kentucky and Virginia law, KU may amend the Articles to increase,
decrease or adjust its capital stock or any class thereof or otherwise
amend any provision of the Articles or any amendment thereto, in the manner
permitted by law, subject, however, to the limitations prescribed in the
Articles; and all rights conferred on stockholders in the Articles or any
amendment thereto are subject to the foregoing.
The Transfer Agents of the Common Stock are Illinois Stock Transfer
Company, Chicago, Illinois, and Harris Trust and Savings Bank, Chicago,
Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago,
Illinois.
-265-
EXHIBIT 99.03
Common Stock present or represented at the meeting, and entitled to vote at
the meeting. For purposes of action on the Long Term Incentive Plan Proposal
and Annual Performance Incentive Plan Proposal, an abstention is the
equivalent of a "no" vote on the proposal.
Shareholders may vote either in person or by duly authorized proxy. The
giving of a proxy will not prevent a shareholder from voting in person at the
meeting. A proxy may be revoked by a shareholder at any time prior to the
voting thereof by giving written notice to the Secretary of the Company prior
to such voting. All shares entitled to vote and represented by effective
proxies on the enclosed form, received by the Company, will be voted at the
meeting (or any adjourned session thereof) in accordance with the terms of
such proxies.
Each Participant in the Company's Automatic Dividend Reinvestment and Stock
Purchase Plan (the "Reinvestment Plan"), Kentucky Utilities' Employee Stock
Ownership Plan (the "ESOP") or the Kentucky Utilities Employee Savings Plan
(the "Savings Plan") will receive a form of proxy by which such Participant
may direct the agent or trustee under such Plans as to the manner of voting
shares credited to the Participant's accounts under such Plans. Shareholders
of record who are participants in the Reinvestment Plan will receive only one
form of proxy for their certificated shares and those shares which they may
have acquired through reinvested dividends. A Participant of any of such Plans
wishing to vote in person at the meeting may obtain a proxy for shares
credited to his account under such Plans by making a written request therefor
by April 7, 1997, as follows: for the Reinvestment Plan, to George S. Brooks
II, Secretary of the Company, at the address stated on page 1; for the ESOP,
to Banc One Kentucky, PO Box 32500, Louisville, Kentucky 40232, Attention:
Barbara J. Steele, Trust Investment Division; and for the Savings Plan, to CG
Trust Company, c/o Cigna Retirement and Investment Services, Routing Code M-
122, 350 Church Street, Hartford, Connecticut 06103, Attention: Bruce
Beckmann.
Election of Directors
GENERAL
Three directors are to be elected at the meeting. Barring unforeseen
circumstances and in the absence of contrary directions, the proxies solicited
herewith will be voted for the election of Milton W. Hudson, John T. Newton
and William L. Rouse, Jr. as directors of the Company. The nominees will hold
office until the 2000 Annual Meeting of Shareholders of the Company or until
their respective successors shall have been duly elected and qualified except
that pursuant to the Board of Director's policy on retirement, Mr. Hudson will
retire from the Board at the 1998 Annual Meeting. The proxies may also be
voted for a substitute nominee or nominees in the event any one or more of
said persons shall be unable to serve for any reason or be withdrawn from
nomination, an occurrence not now anticipated. Except as otherwise indicated,
each nominee has been engaged in his present principal occupation for at least
the past five years. All information regarding share ownership is as of
January 31, 1997.
The following information is given with respect to the nominees for election
as directors:
MILTON W. HUDSON, 69, has been an economic consultant
(Washington, DC) since 1991. He was Managing Director and Senior
Economic Advisor of Morgan Guaranty Trust Company of New York
from January 1990 until his retirement in June 1991. He has been
a director of the Company since 1991 and a director of Kentucky
Utilities since 1990. Mr. Hudson beneficially owns 1,210 shares
of Common Stock of the Company.
LOGO
-266-
<PAGE>
<PAGE>
JOHN T. NEWTON, 66, retired in 1995 as Chairman of the Board and
Chief Executive Officer of the Company and Kentucky Utilities,
positions he had held since 1987. He had also been President of
these companies from 1987 to November 1, 1994. Mr. Newton has
been a director of the Company since 1988 and a director of
Kentucky Utilities since 1974. He beneficially owns 32,653
shares of Common Stock of the Company which include 7,668 shares
held jointly with his wife and 5,000 shares held solely by his
wife.
LOGO
WILLIAM L. ROUSE, JR., 64, was Chairman of the Board and Chief
Executive Officer and a director of First Security Corporation
of Kentucky, a multi-bank holding company, prior to his
retirement in 1992. Mr. Rouse is a director of Ashland,
Incorporated. He has been a director of the Company since 1991
and a director of Kentucky Utilities since 1989. Mr. Rouse
beneficially owns 1,000 shares of Common Stock of the Company.
In addition, Mr. Rouse's account under the Directors Deferred
Compensation Plan described below has the equivalent of 3,937
shares of Common Stock.
LOGO
Information with respect to those directors whose terms are not expiring is
as follows:
MIRA S. BALL, 62, is Secretary-Treasurer and Chief Financial
Officer of Ball Homes, Inc., a single-family residential
developer and property management company. She has been a
director of the Company and Kentucky Utilities since 1992. Ms.
Ball beneficially owns 6,057 shares of Common Stock of the
Company. Her term expires in 1999.
LOGO
CAROL M. GATTON, 64, is Chairman of Area Bancshares, Inc., a
bank holding company in Owensboro, Kentucky. He is also involved
in real estate ventures and automobile dealerships. Mr. Gatton
beneficially owns 1,000 shares of Common Stock of the Company.
His term expires in 1998.
LOGO
HARRY M. HOE, 71, is President and a director of J. R. Hoe &
Sons, Inc., Middlesboro, Kentucky, a foundry and casting
company. He has been a director of the Company since 1991 and a
director of Kentucky Utilities since 1979. Mr. Hoe beneficially
owns 16,745 shares of Common Stock of the Company which include
5,394 shares held solely by his wife. His term expires in 1998.
LOGO
-267-
<PAGE>
<PAGE>
FRANK V. RAMSEY, JR., 65, is President and Director of Dixon
Bank, Dixon, Kentucky, and a farm owner and operator. He has
been a director of the Company since 1991 and a director of
Kentucky Utilities since 1986. Mr. Ramsey beneficially owns
1,400 shares of Common Stock of the Company. His term expires in
1999.
LOGO
CHARLES L. SHEARER, PH.D., 54, is President of Transylvania
University, Lexington, Kentucky. He has been a director of the
Company since 1991 and a director of Kentucky Utilities since
1987. Dr. Shearer beneficially owns 1,460 shares of Common Stock
of the Company which include 200 shares held solely by his wife
and 14 shares held by his children. His term expires in 1999.
LOGO
LEE T. TODD, JR., PH.D., 50, is President and Chief Executive
Officer of DataBeam Corporation, a Kentucky-based, high-
technology firm. He was elected a director of the Company and
Kentucky Utilities in 1995. Dr. Todd beneficially owns 500
shares of Common Stock of the Company. His term expires in 1999.
LOGO
MICHAEL R. WHITLEY, 54, has been Chairman, President and Chief
Executive Officer of the Company and Kentucky Utilities since
August 1, 1995. He was President and Chief Operating Officer of
the Company and Kentucky Utilities from November 1, 1994 to
August 1, 1995. He was Executive Vice President of these
companies from August 1, 1994 to November 1, 1994. Before this
period, he had been a Senior Vice President of the Company since
1988 and of Kentucky Utilities since 1987. Mr. Whitley was
Secretary of the Company from 1988 until 1992 and of Kentucky
Utilities from 1978 until 1992. He is a director of PNC Bank
Kentucky, Inc., a wholly owned subsidiary of PNC Bank Corp.,
Inc. Mr. Whitley has been a director of the Company and Kentucky
Utilities since 1992. He beneficially owns 30,985 shares of
Common Stock of the Company which include 6,300 shares held
jointly with his wife and 964 shares held solely by his wife.
LOGO His term expires in 1998.
VOTING SECURITIES BENEFICIALLY OWNED BY DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS
The directors, nominees and executive officers of the Company and Kentucky
Utilities owned beneficially at January 31, 1997 an aggregate of 189,117
shares of Common Stock of the Company, representing in the aggregate 0.5% of
such stock.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
All members of the Company's Board of Directors are currently members of
Kentucky Utilities' Board of Directors. The Board of Directors of the Company
and the Board of Directors of Kentucky Utilities have each
-268-
<PAGE>
<PAGE>
Compensation Committee in the grant or payment of awards to the director or
executive under incentive or other plans maintained by the Company. The Board
of Directors of the Company may amend or terminate the Equity Ownership
Guidelines at any time or from time to time.
DIRECTORS' COMPENSATION
Each director of the Company is also a director of its principal subsidiary,
Kentucky Utilities. Each director who is not an employee of the Company or
Kentucky Utilities is paid an annual retainer of $20,000. This retainer is
reduced by any retainer paid from a Company subsidiary. Kentucky Utilities
pays non-employee directors an annual retainer of $15,000. Thus, the net
annual Company retainer paid to such directors is $5,000 but the aggregate
paid for serving on both Boards is $20,000. An additional annual retainer of
$1,200 is paid to each non-employee director who is a chairperson of a
committee of either Board. However, if a non-employee director is a
chairperson of the same Board committee of the Company and Kentucky Utilities,
only one such additional annual retainer is paid.
In addition to an annual retainer, the Company and Kentucky Utilities pay
each non-employee director a $1,000 fee for each meeting of a Board or a
particular committee attended; provided that if the Boards of the Company and
Kentucky Utilities meet on the same day, only one $1,000 fee is paid for both
meetings. Similarly, if the same committee of the Boards of the Company and
Kentucky Utilities meets on the same day, only one $1,000 fee is paid for both
meetings. Out-of-pocket travel expenses are paid to directors for all meetings
attended.
All eligible directors of the Company and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs (the "Director
Retirement Plans") of the Company and Kentucky Utilities. Directors who are
not, and have not previously been, an officer of Kentucky Utilities, the
Company, or their affiliated companies ("outside directors") are eligible to
participate. An outside director who is 65 years of age and has completed at
least five consecutive years of service on the Company's and/or Kentucky
Utilities' Board will receive, upon termination of service from a Board for
any reason other than death, an annual retirement benefit equal to the annual
retainer paid to such Board's directors in effect as of such termination,
payable monthly over a period of years equal to the number of full years such
director served on the Board, but not in excess of 10 years. Such payments
cease, however, if the director dies before all such payments are made. The
annual retainer in effect upon the director's termination from a Board will
generally be calculated as described in the first paragraph under this caption
(excluding the additional annual retainer for chairpersons). In the event of a
change in control of the Company or Kentucky Utilities, any person then
receiving a retirement benefit would be paid, within 30 days of the change in
control, a lump-sum payment equal to the discounted present value of all then
unpaid installments of the director's retirement benefit. In the event of a
change in control, each outside director in office immediately prior to such
change in control will be eligible to receive an accelerated retirement
benefit if the director terminates service from a Board for any reason other
than death within three years of the date of the change in control. Such
accelerated retirement benefit would be paid in a lump sum within 30 days of
such termination and would be equal to the discounted present value of the
retirement benefit which such director would have received if the director had
retired from the Board at age 70 (or for certain directors, 72) and lived to
collect the full benefit otherwise payable under the applicable Director
Retirement Plan. Such benefit would be based on the higher of the annual
retainer in effect immediately prior to the change in control or immediately
prior to such director's termination of service. Change in control is broadly
defined under the Director Retirement Plans and includes any merger,
consolidation, reorganization or sale of substantially all of the assets of
the Company or Kentucky Utilities which results in less than 60% of the voting
power of the resulting entity being owned by the holders of the Common Stock
of the Company prior to the transaction; a change in the majority of the Board
of Directors of the Company or Kentucky Utilities over a two-
-269-
<PAGE>
<PAGE>
year period which is not approved by two-thirds of the incumbent directors; and
the acquisition by any person or group of persons of beneficial ownership of
10% or more of the Common Stock of the Company or Kentucky Utilities.
Directors may elect to have all or a specified portion of their directors'
fees deferred under the Director Deferred Compensation Plans (the "Director
Deferred Compensation Plans") of the Company and Kentucky Utilities, such
elections to be made in accordance with and subject to the terms of the
Director Deferred Compensation Plans. Amounts deferred will be maintained in
unfunded accounts for each participant, which, based on a choice made by the
director, either: (1) bear interest at a floating rate based upon the average
prime rate charged by banks as reported in the Federal Reserve Bulletin; or (2)
experience appreciation (depreciation) and earnings based on a hypothetical
investment in the Company's Common Stock. Amounts deferred under the Director
Deferred Compensation Plans will be paid to the participant upon termination as
a director for any reason other than death based on a choice made by the
Director as permitted by the Director Deferred Compensation Plans in a single
payment or, with interest, quarterly over a period of not to exceed 40 calendar
quarters, or, with interest, annually over a period of not to exceed 10 years.
In the event of a participant's death, payment of any remaining balance of
credited amounts will be made in a single payment to a designated beneficiary.
In certain cases, directors may receive a distribution of deferred amounts in
the event of substantial financial hardship. In the event of a change in
control of the Company or Kentucky Utilities, any director who terminated prior
to the change in control whose deferred amounts have not been distributed would
receive, within 15 days of the change in control, a lump sum payment of the
undistributed amounts. In the event of a change in control, each director who
terminates thereafter within three years of the date of the change in control
would be paid, within 15 days after termination, a lump sum payment of the
director's deferred amounts. Change in control has essentially the same meaning
as under the Director Retirement Plans described above. Because officers of the
Company and Kentucky Utilities receive no compensation for services as
directors, any director who is an officer is not eligible to participate in the
plans.
-270-
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
General. The following table contains information with respect to the
compensation paid by (or earned from) the Company and Kentucky Utilities, for
all services rendered during 1994 through 1996 in all capacities, to the Chief
Executive Officer and the other four most highly compensated executive
officers of the Company and Kentucky Utilities:
Summary Compensation Table
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
--------------------------- ------------
LTIP
OTHER ANNUAL ------------ ALL OTHER
SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) ($)(4)
- --------------------------- ---- ------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
MICHAEL R. WHITLEY; 1996 387,737 99,741 2,164 79,798 6,242
Chairman of the Board, President 1995 318,467 73,476 116 0 4,686
& Chief Executive Officer & 1994 245,490 67,157 481 50,508 5,560
Director of the Company &
Kentucky Utilities
JAMES W. TIPTON; 1996 230,750 38,304 2,004 77,882 5,670
Senior Vice President 1995 227,591 39,942 1,445 0 4,667
of the Company 1994 214,043 63,210 1,373 50,508 5,537
O. M. GOODLETT; 1996 231,840 51,994 0 52,560 5,181
Senior Vice President of the 1995 210,195 44,550 0 0 4,500
Company & Kentucky Utilities 1994 200,251 56,889 0 30,246 4,500
WAYNE T. LUCAS; 1996 208,137 49,043 749 33,124 6,361
Senior Vice President 1995 194,553 42,160 711 0 4,692
of Kentucky Utilities 1994 159,699 33,754 523 22,658 5,522
JAMES M. ALLISON; 1996 175,749 43,208 0 N/A 5,056
Senior Vice President 1995 169,405 38,160 0 N/A 4,527
of Kentucky Utilities 1994 133,674 29,131 0 N/A 4,500
(Resigned Feb. 21, 1997)
</TABLE>
- --------
(1) Bonuses are paid under the Incentive Plans. Any bonus earned but deferred
under the Executive Deferred Compensation Plans is included in the Table.
(2) Other annual compensation consists of amounts for group term life
insurance and related taxes.
(3) Reflects payouts under the Performance Share Plans described under "Report
of Compensation Committee on Executive Compensation" above. Performance
goals were not met, and thus no payouts were made for the Performance
Cycle that relates to 1995 in the table above. Amounts shown for 1994 and
1996 reflect a payout in the form of restricted shares of the Company's
Common Stock of 75% and 100%, respectively, of the contingent grant for
the applicable Performance Cycle. Such restricted stock will be forfeited
if the officer terminates employment prior to January 1, 2001 (for amounts
shown for 1994) and January 2, 2003 (for amounts shown for 1996) for any
reason other than retirement, disability or death. In the event of a
change in control, the restrictions lapse immediately.
(4) All other compensation includes: (a) above-market-rate interest earned on
deferred compensation; and (b) the employer matching contribution made to
the officer's account in the 401(k) Employee Savings Plan. Such amounts
for 1996 are shown in the following table.
<TABLE>
<CAPTION>
EXECUTIVE INTEREST ON 401(K) MATCHING
OFFICER DEFERRED COMPENSATION CONTRIBUTION
--------- --------------------- ---------------
<S> <C> <C>
Michael R. Whitley................. $1,742 $4,500
James W. Tipton.................... 1,170 4,500
O. M. Goodlett..................... 681 4,500
Wayne T. Lucas..................... 1,861 4,500
James M. Allison................... 556 4,500
</TABLE>
-271-
<PAGE>
<PAGE>
Long Term Incentive Awards. Performance Shares contingently awarded under
the Performance Share Plans in 1996 are reported in the Long-Term Incentive
Plan awards table below. A description of how awards are determined is
presented under "Report of Compensation Committee on Executive Compensation."
A description of the scale by which performance targets are set follows the
table.
Long-Term Incentive Plan--Awards In Last Fiscal Year
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD
SHARES, UNTIL ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR MATURATION NON-STOCK PRICE-BASED PLANS(4)
OTHER RIGHTS OR --------------------------------------
NAME (#) PAYOUT(3) THRESHOLD($) TARGET($) MAXIMUM($)
- ---- ------------ ----------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Michael R. Whitley...... 5,835 (1) 3 0 87,525-131,288 175,050
James W. Tipton......... 2,280 (1) 3 0 34,200-51,300 68,400
O.M. Goodlett........... 2,180 (1) 3 0 32,700-49,050 65,400
Wayne T. Lucas.......... 1,950 (2) 3 0 29,250-43,875 58,500
James M. Allison........ 1,730 (2) 3 0 25,950-38,925 51,900
</TABLE>
- --------
(1) Constitutes Performance Shares contingently granted under the KUE
Performance Share Plan in 1996.
(2) Constitutes Performance Shares contingently granted under the Kentucky
Utilities Performance Share Plan in 1996.
(3) Number of years in Performance Cycle.
(4) See description below for the scale that determines which amount would be
applicable. Amounts are calculated based on the price of the Company's
Common Stock on December 31, 1996.
For the Performance Cycle commencing in 1996, payouts of contingent grants
shown in the table above will be determined by calculating the average return
on equity for the Performance Cycle of the Company or Kentucky Utilities, as
the case may be, compared to the average return on equity for the Performance
Cycle for the comparable companies. The returns will be ranked in descending
order. For the 1996-1998 Performance Cycle, the scale that determines if
grants are earned is as follows: if the Company's or Kentucky Utilities' rank,
as the case may be, is in the top two, the payout will be 100% of the
contingent grant (the Maximum shown in the table); if their rank is third or
fourth, the payout will be 75%, and if their rank is fifth or sixth, the
payout will be 50% (the two figures shown as Target in the table); and if
their rank is seventh or below, no shares will be awarded (shown as the
Threshold in the table) for that Performance Cycle under the applicable
Performance Share Plan.
Retirement Plan. Each of the officers of the Company and Kentucky Utilities
is entitled to participate in the Kentucky Utilities employee retirement plans
described below. Executive officers, like other employees, are eligible to
participate in Kentucky Utilities' Retirement Plan, and all eligible persons
whose compensation is reported in the Summary Compensation Table participated
in the Retirement Plan. Contributions to the Retirement Plan are determined
actuarially and cannot be readily calculated as applied to any individual
participant or small group of participants. Generally, compensation for
Retirement Plan purposes means base compensation while a participant,
excluding overtime pay, commissions, performance incentive compensation or
other extraordinary compensation. The compensation for Retirement Plan
purposes of the individuals named in the foregoing table is substantially
equivalent to the base salary reported in the Summary Compensation Table. The
credited years of service under the Retirement Plan for such persons were as
follows: Mr. Whitley, 32 years; Mr. Tipton, 29 years; Mr. Goodlett, 26 years;
Mr. Lucas, 27 years; and Mr. Allison, 2 years. All of the credited years of
service were computed as of December 31, 1996. Retirement Plan benefits depend
upon length of service, age at retirement and amount of compensation
(determined in accordance with the Retirement Plan).
-272-
<PAGE>
<PAGE>
Although higher amounts are determined under the Retirement Plan and shown in
the table below, in most cases, pension benefits under the Retirement Plan or
compensation used to measure such benefits will be reduced to comply with
maximum limitations imposed by the Internal Revenue Code. Under such
limitations effective in 1996, no base compensation above $150,000 may be used
to calculate a benefit, except in the case of certain executive officers to
preserve benefits accrued under previously applicable rules. In addition, no
annual benefit derived from employer contributions may exceed $120,000.
Assuming retirement at age 65, a Retirement Plan participant would be eligible
at retirement for a maximum annual pension benefit (without taking into account
the Internal Revenue Code limitations referred to above) set forth in the
following table. However, assuming retirement at age 65, assuming 1996 base
compensation and taking into account the Internal Revenue Code limitations, the
annual pension benefit under the Retirement Plan for the executive officers
named in the Summary Compensation Table would be as follows: Mr. Whitley,
103,607; Mr. Tipton, 95,146; Mr. Goodlett, 90,672; Mr. Lucas, 92,904; and Mr.
Allison, 53,737.
<TABLE>
<CAPTION>
ANNUAL BENEFIT AFTER SPECIFIED YEARS OF SERVICE(2)
FINAL AVERAGE --------------------------------------------------------------
BASE PAY(1) 15 20 25 30 35 40 45
------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000........ $ 29,999 $ 39,999 $ 49,999 $ 59,999 $ 69,998 $ 79,998 $ 89,998
$200,000........ $ 39,999 $ 53,332 $ 66,665 $ 79,998 $ 93,331 $106,664 $119,997
$250,000........ $ 49,999 $ 66,665 $ 83,331 $ 99,998 $116,664 $133,330 $149,996
$300,000........ $ 59,999 $ 79,998 $ 99,998 $119,997 $139,997 $159,996 $179,996
$350,000........ $ 69,998 $ 93,331 $116,664 $139,997 $163,329 $186,662 $209,995
$400,000........ $ 79,998 $106,664 $133,330 $159,996 $186,662 $213,328 $239,994
$450,000........ $ 89,998 $119,997 $149,996 $179,996 $209,995 $239,994 $269,993
$500,000........ $ 99,998 $133,330 $166,663 $199,995 $233,328 $266,660 $299,993
$550,000........ $109,997 $146,663 $183,329 $219,995 $256,660 $293,326 $329,992
$600,000........ $119,997 $159,996 $199,995 $239,994 $279,993 $319,992 $359,991
</TABLE>
- --------
(1) "Final average base pay" generally means the average annual compensation
during the 60 consecutive months of highest pay during the period of
employment.
(2) Annual benefits shown are on a straight life annuity basis. Amounts shown
are not subject to any deduction for Social Security benefits or other
offset amounts. Benefits may be reduced by Internal Revenue Code
limitations described above.
Supplemental Security Plan. Executive officers and certain other employees of
the Company and Kentucky Utilities are eligible to be members in Kentucky
Utilities' Supplemental Security Plan which provides retirement, disability and
death benefits as well as a change in control retirement benefit and a change
in control severance benefit. As to executive officers, upon retirement at age
65, an eligible member will receive 15 annual payments of an amount equal to
75% of basic compensation, offset by benefits payable from any defined benefit
plan of the Company or an affiliate (such as Kentucky Utilities' Retirement
Plan) and social security benefits. Basic compensation is the annualized base
monthly salary of the member, exclusive of performance incentive compensation
or other extraordinary compensation, in effect at termination of employment by
retirement, disability or death. Upon termination of employment by death of an
eligible executive officer prior to age 65, the member's beneficiary will
receive an annual benefit equal to 50% of basic compensation until the later of
the date such member would have attained age 65 or completion of 15 annual
payments. Upon termination of employment by disability prior to age 65, the
member will receive the "retirement benefit" if the member lives to retirement
age and remains disabled or the "death benefit" if the member dies prior to
retirement age and is disabled at death. Benefits will be paid from the general
funds of the employer. The estimated annual benefits from Kentucky Utilities'
Supplemental Security Plan that would be payable upon retirement at normal
retirement
-273-
<PAGE>
<PAGE>
age (age 65) for the individuals named in the Summary Compensation Table
(assuming 1996 base salary) are as follows: Mr. Whitley, 188,128; Mr. Tipton,
65,342; Mr. Goodlett, 63,821; Mr. Lucas, 43,389; and Mr. Allison, 64,991. To
assist in providing funds to pay such benefits when they become payable,
insurance is purchased on the lives of the members of the Supplemental
Security Plan.
Change In Control Arrangements. Under the Supplemental Security Plan,
members are entitled to change in control severance benefits in the following
circumstances: (i) involuntary termination of the individual's employment
within two years following a change in control (or, if later, prior to the
consummation of the change in control transaction or its earlier abandonment)
for reasons other than cause, death or permanent disability; (ii) resignation
within two years of a change in control (or, if later, prior to the
consummation of the change in control transaction or its earlier abandonment)
for good reason (as defined in the plan); and (iii) in respect of the Chairman
of the Board, the President, the Chief Financial Officer (or, if such
positions are filled by less than three persons, the Executive Vice
President), the Senior Vice Presidents and the Corporate Secretary, in each
case of Kentucky Utilities, termination of employment for any reason during
the 30-day period commencing on the first anniversary of the consummation of a
change in control. In such circumstances, the employee will be entitled to a
change in control severance payment equal to a certain percentage (300% in the
case of executive officers of the Company or Kentucky Utilities) of the sum of
(i) the employee's basic compensation and (ii) the employee's target annual
performance incentive compensation. In addition, the employee will be entitled
to continuation of certain employee welfare benefits for up to three years
following termination of employment, subject to an offset for comparable
benefits. Under the Supplemental Security Plan, the employee is entitled to
receive additional payments, if necessary, to reimburse the employee for
certain federal excise tax liabilities. The Supplemental Security Plan's
change in control retirement benefit provides that, upon termination of
employment, other than for cause (as defined in the Supplemental Security
Plan) following a change in control, an eligible member will receive a lump-
sum amount equal to the present value of the retirement benefit (described in
the preceding paragraph and assuming the member is then 65 but prorated if the
member then has less than 15 years of service, including an assumed three
additional years of service in the case of executive officers); provided that,
if the termination is more than two years from the change in control, the
calculation of years of service will not include the assumed additional three
years and the compensation upon which the benefit is calculated will be the
actual compensation in effect at termination (rather than the compensation in
effect at the change in control which, if higher, would be used if termination
occurred within two years of the change in control). The change in control
severance benefits and change in control retirement benefits are effective for
a minimum of five years, which is automatically extended from year to year
unless Kentucky Utilities gives notice that it does not wish to extend the
period of effectiveness. Change in control has essentially the same meaning as
under the Director Retirement Plans described under "Directors' Compensation."
The Incentive Plans, Performance Share Plans and Executive Deferred
Compensation Plans contain provisions relating to a change in control. Under
each of these plans a change in control has essentially the same meaning as
under the Director Retirement Plans described under "Directors' Compensation."
Under the Performance Share Plans, if a participant's employment is terminated
voluntarily or involuntarily after a change in control, such participant will
have the right to an immediate payment in shares of Company Common Stock for
all Performance Cycles in which the participant is currently participating.
The amount payable to a participant in the event of termination in connection
with a change in control will be determined in accordance with the formula
specified in the Performance Share Plans. In addition, after a change in
control, whether or not the participant is terminated, under the Executive
Deferred Compensation Plans, all amounts held under such plans will be paid to
the participant. Under the Incentive Plans, after a change in control, whether
or not a participant is terminated, a participant, including a participant who
had terminated prior to the change in control by reason of retirement,
disability or death, will have a right to an immediate cash payment based on
actual base salary earned prior to the change in control and on the assumption
that established targets for the year had been met.
-274-
<PAGE>
EXHIBIT 99.04
KENTUCKY UTILITIES COMPANY
EMPLOYEE SAVINGS PLAN
_____________________________________________
(As Amended and Restated Effective As Of
January 1, 1997)
-275-
<PAGE>
TABLE OF CONTENTS
ARTICLE TITLE PAGE
I General 1
II Definitions and Construction 1
III Eligibility and Participation 6
IV Contributions 7
V Investment Funds 18
VI Allocations to Participant's Accounts 20
VII Vesting of Accounts 24
VIII Distribution of Benefits 24
IX Loans to Participants 33
X Administration 35
XI Miscellaneous 42
XII Amendment, Termination and Action by Employers 46
XIII Successor Employer and Merger or
Consolidation of Plans 47
-276-
<PAGE>
KENTUCKY UTILITIES COMPANY
EMPLOYEE SAVINGS PLAN
(As Amended and Restated Effective As Of
January 1, 1997)
ARTICLE I
General
In order to provide for a systematic savings program
for eligible employees and in order to supplement such savings
with employer contributions, Kentucky Utilities Company
established, effective January 1, 1988, the Kentucky Utilities
Company Employee Savings Plan. The terms and conditions of the
Plan, as amended and restated as of January 1, 1997, are
hereinafter set forth and shall be effective in respect of Plan
Years beginning on or after January 1, 1997. However, certain
provisions are effective as of other specified dates. Any
provisions of the Plan that are effective prior to January 1,
1997 shall be deemed to amend the corresponding provisions of the
Plan as in effect before this amendment and restatement.
ARTICLE II
Definitions and Construction
2.1 Definitions: The following words and phrases
shall have the meanings set forth below unless a different
meaning is clearly required by the context:
(a) Account: Any or all of the accounts maintained
for each Participant showing his interest in the Trust Fund
as described in (i), (n), (u), (y) and (z) below.
(b) Active Participant: An Employee who has in effect
while a Participant an authorization for a reduction in
Compensation as provided in Section 4.1.
(c) Affiliated Employer: Any member of a controlled
group of corporations (as defined in Section 414(b) of the
Code) of which the Corporation is a member, any member of a
group of trades or businesses which are under common control
(as defined in Section 414(c) of the Code) of which the
Corporation is a member, any member of an affiliated service
group (as defined in Section 414(m) of the Code) of which
the Corporation is a member, and any other organization
deemed to be affiliated with the Corporation under
Section 414(o) of the Code.
(d) Board of Directors: The Board of Directors of the
Corporation.
-277-
<PAGE>
(e) Code: The Internal Revenue Code of 1986, as
amended from time to time.
(f) Committee: The committee established pursuant to
the provisions of Section 10.2.
(g) Common Stock: Common Stock of KU Energy
Corporation or any successor or successors.
(h) Compensation: The base pay, excluding overtime
pay, shift differentials, commissions, pay-in-lieu of
vacations, bonuses, performance incentive compensation and
other special payments, paid to an Employee while an Active
Participant by an Employer for services performed, but
without reduction by the amount of any contributions made by
the Employer on behalf of the Employee to his Compensation
Conversion Accounts pursuant to Section 4.1 or pursuant to a
salary reduction agreement under any cafeteria plan meeting
the requirements of Section 125 of the Code.
For any Plan Year, however, Compensation in excess of
$150,000 (as adjusted for such Plan Year for the cost of
living in accordance with Section 401(a)(17)(B) of the Code)
shall be disregarded.
(i) Compensation Conversion Accounts: A Participant's
Matched Compensation Conversion Account and Supplemental
Compensation Conversion Account.
(j) Corporation: Kentucky Utilities Company or any
successor or successors.
(k) Effective Date: January 1, 1988.
(l) Employee: Any person, on or after the Effective
Date, receiving regular stated salary or wages from and
rendering service to an Employer, but excluding, however,
(i) any person who is part of a collective bargaining unit
unless and until the certified collective bargaining agent
and the Employer agree to coverage under the Plan, (ii) any
person who is a leased employee or deemed to be an employee
of an Employer as provided in Section 414(n) or (o) of the
Code, and (iii) any person who is an independent contractor.
Any individual who is a "leased employee" as provided
by Section 414(n) of the Code shall be treated as a leased
employee for purposes of Section 2.1(l)(ii) above and any
other applicable provision of the Plan. A "leased employee"
as provided by Section 414(n) of the Code means any
individual who, pursuant to an agreement between the
Employer or Affiliated Employer and any other person
("leasing organization"), has performed services for the
Employer or Affiliated Employer on a substantially full time
basis for a period of at least one year if such services are
performed under primary direction or control by the Employer
-278-
<PAGE>
or Affiliated Employer, as the case may be. An individual
will not be considered a "leased employee" as provided in
Section 414(n) of the Code, however, if (A) leased employees
(determined without regard to this sentence) do not
constitute more than 20 percent of the Employer's or
Affiliated Employer's nonhighly compensated work force
(within the meaning of Section 414(n)(5)(C)(ii) of the Code)
and (B) such leased employee is covered by a money purchase
pension plan maintained by the leasing organization that
provides (i) a nonintegrated employer contribution rate of
at least 10 percent of compensation, but including amounts
contributed pursuant to a salary reduction agreement which
are excludable from the leased employee's gross income under
Section 125, Section 402(a)(8), Section 402(h) or Section
403(b) of the Code, (ii) immediate participation and (iii)
full and immediate vesting.
(m) Employer: The Corporation and any Affiliated
Employer to which the Plan has been extended by the Board of
Directors and which adopts the Plan. Effective July 28,
1992 KU Energy Corporation became an Employer under the Plan
and effective March 1, 1994 KU Capital Corporation became an
Employer under the Plan.
(n) Employer Matching Contribution Account: The
account maintained for a Participant to record
contributions, if any, made by an Employer on his behalf to
the Trust Fund pursuant to Section 4.2, and adjustments
relating thereto.
(o) ERISA: The Employee Retirement Income Security
Act of 1974, as amended from time to time.
(p) Highly Compensated Employee: With respect to any
Plan Year, any employee of the Employer or Affiliated
Employer who during the preceding Plan Year:
(i) was at any time a 5% owner (as defined in
Section 416(i)(1) of the Code) of the Employer or any
Affiliated Employer; or
(ii) received compensation (as defined in Section
414(q)(7) of the Code) from the Employer and Affiliated
Employers in excess of $80,000 (as adjusted under the
Code) and, if the Corporation elects application for
such preceding Plan Year, was in the top-paid 20% of
employees of the Employer and Affiliated Employers
ranked on the basis of compensation.
With respect to the Plan Year, the term "Highly Compensated
Employee" also means any employee of the Employer or
Affiliated Employer who meets the requirements of paragraph
(i) above during such Plan Year.
-279-
<PAGE>
The identification of Highly Compensated Employees
under this Section 2.1(p) shall be made in accordance with
the provisions of Section 414(q) of the Code and the
regulations thereunder.
(q) Hour of Employment: An Hour of Employment shall
mean:
(i) each hour for which an employee is directly
or indirectly paid, or entitled to payment, by an
Employer or Affiliated Employer for the performance of
duties (such hours to be credited to the employee for
the computation period or periods in which the duties
are performed);
(ii) each hour, calculated in accordance with the
provisions of Department of Labor Regulation
Section 2530.200b-2(b) which are incorporated herein by
reference, for which an employee is directly or
indirectly paid, or entitled to payment, by an Employer
or Affiliated Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave
of absence, provided, however, that no more than 501
Hours of Employment shall be credited under this
Section 2.1(q)(ii) for any single continuous period
whether or not such period occurs in a single
computation period (such hours to be credited to the
employee for the computation period or periods in which
the period of time during which no duties are performed
occurs); and
(iii) each hour for which back pay, irrespective
of mitigation of damages, has been either awarded or
agreed to by an Employer or Affiliated Employer (such
hours to be credited to the employee for the
computation period or periods to which the award or
agreement pertains rather than the computation period
in which the award, agreement or payment is made).
For the purposes of this Section 2.1(q), the term "employee"
shall include a leased employee or other person deemed to be
an employee of an Employer or Affiliated Employer as
provided in Section 414(n) or (o) of the Code.
(r) Implementation Date: The date, as determined by
the Committee, on which the Telephone Response System will
become operational under the Plan and Trust, which date will
occur after January 1, 1997 and before May 1, 1997.
(s) Inactive Participant: A Participant (i) who
ceases to be an Employee but remains an employee of an
Employer or Affiliated Employer, (ii) who while continuing
-280-
<PAGE>
as an Employee has terminated his authorization for
reduction in Compensation as provided in Section 4.1, or
(iii) who has made a rollover contribution to his Rollover
Contribution Account prior to becoming an Active
Participant.
(t) Investment Fund(s): Any or all of the funds
provided for in Section 5.1.
(u) Matched Compensation Conversion Account: The
account maintained for a Participant to record
contributions, if any, made by an Employer on his behalf to
the Trust Fund pursuant to Section 4.1 that are matched by
Employer matching contributions made pursuant to
Section 4.2, and adjustments relating thereto.
(v) Participant: An Employee participating in the
Plan in accordance with the provisions of Section 3.1, an
Inactive Participant or an Employee whose employment with
the Employer and Affiliated Employers has terminated and who
is having distribution of his Account deferred to age 65 in
accordance with Section 8.5.
(w) Plan: The Plan set forth in this instrument, as
it may, from time to time, be amended.
(x) Plan Year: The 12-month period commencing on
January 1 and ending on December 31 of each year.
(y) Rollover Contribution Account: The account
maintained for a Participant to record rollover
contributions, if any, made to the Trust Fund by or on
behalf of the Participant pursuant to Section 4.9, and
adjustments relating thereto.
(z) Supplemental Compensation Conversion Account: The
account maintained for a Participant to record
contributions, if any, made by an Employer on his behalf to
the Trust Fund pursuant to Section 4.1 that are unmatched by
Employer matching contributions made pursuant to
Section 4.2, and adjustments relating thereto.
(aa) Telephone Response System: The telephone response
system, if any, maintained by the Trustee, or an affiliate
thereof, for purposes of the Plan and Trust and by means of
which a Participant may make or provide certain elections,
authorizations, directions and instructions under the Plan
and Trust. All elections, authorizations, directions and
instructions made by a Participant by means of the Telephone
Response System shall be processed by the Trustee or its
affiliates only after the identity of the Participant is
verified by use of a personal identification number
furnished by the Trustee or its affiliate and shall be
subject to and become effective in accordance with the
written rules of the Telephone Response System as prepared
-281-
<PAGE>
by the Trustee or its affiliates and in effect from time to
time.
(bb) Trust: The Trust to which contributions under the
Plan are to be made in order to establish a fund (the "Trust
Fund") to be held in trust and administered by the Trustee,
which Trust, as from time to time amended, constitutes part
of the Plan.
(cc) Trustee: The trustee or trustees of the Trust,
and their successors and substitutes.
(dd) Valuation Date: The last day of each calendar
quarter. On and after January 1, 1997, however, Valuation
Date shall mean each day the New York Stock Exchange is
open.
2.2 Construction: The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine
gender, and the singular may include the plural, unless the
context clearly indicates to the contrary. The words "hereof,"
"herein," "hereunder" and other similar compounds of the word
"here" shall mean and refer to the entire Plan, and not to any
particular provision or Section.
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each Employee shall be eligible to
participate in the Plan as of the first day of the payroll period
beginning coincident with or next following the date as of which
he has completed a 12-consecutive month period beginning with his
employment commencement date, or anniversary thereof, of not less
than 1,000 Hours of Employment, provided, however, an Employee
shall not be eligible to participate in the Plan prior to the
first day of the payroll period beginning coincident with or next
following January 1, 1988 or the date he becomes an Employee, if
later. For purposes of this Section 3.1, "employment
commencement date" means the date on which an Employee first
performs an Hour of Employment within the meaning of Section
2.1(q)(i).
-282-
<PAGE>
3.2 Participation:
(a) Prior to the Implementation Date, an Employee who
is eligible to participate in the Plan may elect to become a
Participant in the Plan as of the date he first becomes
eligible to participate as provided in Section 3.1, or as of
the first day of any payroll period thereafter, by filing
prior written notice of such election with the Employer,
accompanied by (i) an authorization for a reduction in
Compensation as provided in Section 4.1 and (ii) an election
as to Investment Funds as provided in Section 5.2. Upon
filing such election notice, he shall become a Participant
as of the date elected if such date is at least 30 days
after filing the election notice or, if such date is less
than 30 days thereafter or a date is not specified, as of
the first day of the first payroll period practicable
beginning not more than 30 days after filing the election
notice.
(b) On and After the Implementation Date, an Employee
who is eligible to participate in the Plan may elect to
become a Participant in the Plan as of the date he first
becomes eligible to participate as provided in Section 3.1,
or as of the first day of any payroll period thereafter, by
providing prior notice of such election by such means (which
may include through use of the Telephone Response System) as
the Committee shall prescribe from time to time, accompanied
by (i) an authorization for a reduction in Compensation as
provided in Section 4.1 and (ii) an election as to
Investment Funds as provided in Section 5.2. Upon providing
such election notice, he shall become a Participant as of
the first day of the first payroll period practicable
beginning not more than 30 days after the election notice is
given.
3.3 Re-Employment: If an employee of an Employer or
Affiliated Employer terminates his employment after he has
completed a period of employment described in Section 3.1 and
thereafter he is hired as an Employee, he shall be eligible to
become an Active Participant on the first day of the payroll
period beginning coincident with or next following the date of
his reemployment, and he may elect to become an Active
Participant as of such date, or as of the first day of any
payroll period thereafter, as provided in Section 3.2.
ARTICLE IV
Contributions
4.1 Compensation Conversion Contributions:
(a) At the time an Employee elects to become a
Participant, he shall authorize the Employer, subject to the
provisions of this Section 4.1 and Sections 4.5, 4.7, 4.8
-283-
<PAGE>
and 6.4, to reduce his Compensation in an amount equal to 1%
of his Compensation per payroll period while an Active
Participant or such multiple of 1% thereof, but not to
exceed 16%, as he may designate, and the Employer shall make
contributions to the Trust Fund for allocation (i) to the
Matched Compensation Conversion Account of each of its
Active Participants who so authorizes in an amount equal to
such reduction of his Compensation for a payroll period of
up to 6% and (ii) to the Supplemental Compensation
Conversion Account of each of its Active Participants who so
authorizes in an amount equal to such reduction of his
Compensation for a payroll period of over 6% (up to 16%).
(b) A Participant may change his authorization for a
reduction in Compensation as of the first day of any payroll
period (i) prior to the Implementation Date by giving the
Committee at least 15 days prior written notice, or (ii) on
or after the Implementation Date by such means (which may
include through use of the Telephone Response System) as the
Committee shall prescribe from time to time. Any change may
either (i) increase or decrease within the limits prescribed
in Section 4.1(a) the rate of Compensation reduction under
this Section 4.1 or (ii) terminate or revoke a prior
termination of such Compensation reduction authorization. A
change in the rate or termination of a Participant's
Compensation reduction authorization shall not entitle him
to receive payment of benefits under Article VIII, which
shall be payable only as provided therein.
Notwithstanding the preceding paragraph or the
provisions of Section 4.1(c), in the event a Participant
receives a hardship withdrawal under Section 8.6 or from any
other cash or deferred arrangement within the meaning of
Section 401(k) of the Code which is part of a qualified plan
maintained by the Corporation or the Affiliated Employers,
then the Participant's authorization for a reduction in
Compensation under this Section 4.1 shall terminate
automatically on the date as of which such hardship
withdrawal is made and such termination shall continue in
effect for a period of 12 months thereafter. After the
expiration of such 12-month period, the Participant may
again elect to actively participate in the Plan in
accordance with the provisions of this Section 4.1.
(c) Any authorization or change in authorization under
this Section 4.1 made by means other than the Telephone
Response System shall be effective as soon as practicable
after it is made and shall be made (i) on a form provided or
prescribed by the Committee and (ii) in accordance with
rules of the Committee in effect from time to time. Any
authorization or change therein made from time to time by
means of the Telephone Response System shall be effective as
soon as practicable after it is made, but in no event shall
such an authorization or a change in authorization be
effective unless and until the Participant has filed with
-284-
<PAGE>
the Employer a signed statement authorizing Compensation
reductions and other transactions under the Plan made by
means of the Telephone Response System.
(d) The maximum amount that may be contributed in the
aggregate to the Compensation Conversion Accounts on behalf
of a Participant for any Plan Year shall not exceed $9,500,
as adjusted for cost of living in accordance with Section
402(g)(5) of the Code. In the event the Participant
received a hardship withdrawal in the immediately preceding
Plan Year under Section 8.6 or from any other cash or
deferred arrangement within the meaning of Section 401(k) of
the Code which is part of a qualified plan maintained by the
Corporation or the Affiliated Employers, such maximum amount
shall be reduced as provided in clause (B)(iv) of the second
sentence of Section 8.6(b). Such maximum amount for any
Plan Year shall also be reduced by the excess, if any, of
(i) the amount of any elective deferrals (within the meaning
of Treasury Reg. Section 1.402(g)-1(b)) contributed by the
Employer or Affiliated Employers for such Plan Year on
behalf of the Participant pursuant to a salary reduction
agreement under any other cash or deferred arrangement
within the meaning of Section 401(k) of the Code which is
part of a qualified plan maintained by the Employer or
Affiliated Employer or to any other plan, contract or
arrangement of the Employer or Affiliated Employer described
in said regulation, over (ii) the amount of any excess
contributions paid to the Participant for the Plan Year
pursuant to Section 4.5 or similar provision under any other
such cash or deferred arrangement.
(e) In the event the limitation under Section 4.1(d)
is exceeded for a Plan Year, then, notwithstanding any other
provision of the Plan or law, such excess, plus any income
and minus any loss allocable thereto, shall be distributed
to the Participant not later than April 15 next following
the end of such Plan Year. Such excess to be distributed,
however, shall be reduced by the amount of contributions, if
any, previously distributed for such Plan Year from the
Participant's Compensation Conversion Accounts pursuant to
the requirements of Section 4.5 or 4.8. A Participant,
however, may only receive such a distribution during such
Plan Year if:
(i) the Participant designates in writing that
the distribution is a distribution of an amount in
excess of the limitation under Section 402(g) of the
Code for the Plan Year,
(ii) the distribution is made after the date on
which the Plan received the excess contribution, and
(iii) the Plan designates the distribution as a
distribution of amounts in excess of the limitation
under Section 402(g) of the Code for the Plan Year.
-285-
<PAGE>
(f) Distribution in accordance with Section 4.1(e)
shall be made first from the Participant's Supplemental
Compensation Conversion Account and then from his Matched
Compensation Conversion Account only to the extent the
amount to be distributed exceeds the balance in his
Supplemental Compensation Conversion Account. Excess
contributions distributed from an Account, plus any income
and minus any loss allocable thereto, shall be distributed
from the Investment Funds in which such Account is invested
at the time of distribution pro rata in accordance with the
balance of the Account in each of the Investment Funds as of
the Valuation Date next preceding the date of distribution,
except that no amount shall be distributed from the Account
invested in the Participant Loan Fund until the balance in
the other Investment Funds has been distributed.
(g) For purposes of Section 4.1(d), the income or loss
allocable to the excess contributions to be distributed from
a particular Account for a Plan Year shall be determined by
multiplying the total income or loss of the Account for such
Plan Year by a fraction, the numerator of which is the
excess contributions to be distributed from such Account for
such Plan Year and the denominator of which is the balance
in such Account as of the end of such Plan Year reduced by
the income allocable to such Account for the Plan Year or
increased by the loss allocable to such Account for the Plan
Year.
4.2 Employer Matching Contributions: Subject to the
provisions of Sections 4.6, 4.7, 4.8 and 6.4, each Employer shall
contribute to the Trust Fund for each payroll period beginning on
or after January 1, 1997 matching contributions on behalf of each
of its Employees who is an Active Participant during such payroll
period in an amount equal to fifty percent (50%) of the amount
contributed in accordance with Section 4.1 on behalf of the
Participant to his Matched Compensation Conversion Account for
such payroll period. Such amount shall be allocated to the
Participant's Employer Matching Contribution Account.
4.3 Remittance of Contributions: Contributions under
Sections 4.1 and 4.2 shall be paid in cash to the Trustee as soon
as practicable after the payroll period for which they are paid,
but in no event later than the 15th business day of the month
following the month in which amounts contributed under Section
4.1 would otherwise have been payable in cash to Participants as
wages. The Trustee shall be accountable for all contributions
received from the Employers, but the Trustee shall have no duty
to see that the contributions received comply with the provisions
of the Plan, nor shall the Trustee be obligated or have any right
to enforce or collect any contribution from the Employers or
otherwise see that the funds are deposited according to the
provisions of the Plan.
-286-
<PAGE>
4.4 Participant Contributions: Non-deductible
contributions shall not be required or permitted under the Plan
by any Participant.
4.5 Adjustments to Compensation Conversion Accounts:
(a) Notwithstanding the provisions of Section 4.1, if
the Actual Deferral Percentage for the Eligible Employees
who are Highly Compensated Employees for any Plan Year
beginning on or after January 1, 1997 exceeds, or in the
judgment of the Committee is likely to exceed, the greater
of (i) or (ii) as follows:
(i) The Actual Deferral Percentage for the next
preceding Plan Year for Eligible Employees who are not
Highly Compensated Employees, multiplied by 1.25, or
(ii) The Actual Deferral Percentage for the next
preceding Plan Year for Eligible Employees who are not
Highly Compensated Employees, multiplied by 2;
provided, however, that the Actual Deferral Percentage
for the Eligible Employees who are Highly Compensated
Employees for the Plan Year may not exceed the Actual
Deferral Percentage for the next preceding Plan Year
for Eligible Employees who are not Highly Compensated
Employees by more than two percentage points;
then the amounts contributed, or to be contributed, to the
Compensation Conversion Accounts on behalf of Participants
who are Highly Compensated Employees for such Plan Year
shall be reduced at such time and in such manner as the
Committee shall determine under rules and regulations
uniformly applied and consistent with the following
provisions of this Section 4.5 so that the Actual Deferral
Percentage for the Eligible Employees who are Highly
Compensated Employees for such Plan Year does not exceed the
greater of (i) or (ii) above.
For purposes of applying the preceding paragraph for any
Plan Year, the Corporation may elect to use the Actual
Deferral Percentage for the Plan Year for Eligible Employees
who are not Highly Compensated Employees rather than for the
next preceding Plan Year, but if such an election is made,
it may not be changed except to the extent provided in
applicable governmental regulations, rulings or
announcements.
The provisions of this Section 4.5(a) shall be applied
separately in respect of any Participants covered under each
separate collective bargaining agreement.
(b) If during the Plan Year a Participant who is a
Highly Compensated Employee for such Plan Year also
participated in any other plan of an Employer or Affiliated
Employer which includes a cash or deferred arrangement
-287-
<PAGE>
qualifying under Section 401(k) of the Code, his
compensation, and contributions made pursuant to the cash or
deferred arrangement, under such other plan shall be taken
into account for purposes of applying the tests under
Section 4.5(a)(i) and (ii) above. If during the Plan Year
one or more other plans which include a cash or deferred
arrangement under Section 401(k) of the Code are considered
along with this Plan as one plan for purposes of
Section 410(b) of the Code (other than the average benefit
percentage test thereunder), all such plans shall be treated
as one plan in applying the tests under Section 4.5(a)(i)
and (ii) above. If during a Plan Year a Participant who is
not a Highly Compensated Employee for such Plan Year had
contributions made under Section 4.1 on his behalf in excess
of the maximum limitation contained in Section 4.1(d) for
the Plan Year, such excess contributions shall not be taken
into account for purposes of applying the tests of Section
4.5(a)(i) and (ii) above.
(c) In order to accomplish the reductions required
under Section 4.5(a) or to meet the limitations of
Section 4.8, the Committee, in its discretion, may reduce
contributions previously made first from a Participant's
Supplemental Compensation Conversion Account to the extent
thereof and then from his Matched Compensation Conversion
Account, or adjust the amount of reductions in Compensation
authorized pursuant to the provisions of Section 4.1, for
such period as may be required. Any reductions in the
amounts contributed to the Compensation Conversion Accounts
on behalf of Participants who are Highly Compensated
Employees for such Plan Year shall be made on the basis of
the amounts of Compensation reductions contributed by such
Participants beginning with the greatest amounts.
(d) The amount by which contributions previously made
to a Participant's Compensation Conversion Accounts for a
Plan Year are reduced under this Section 4.5, plus any
income and minus any loss allocable thereto, shall be paid,
notwithstanding any other provision of the Plan or law, to
the Participant not later than two and one-half months after
the end of such Plan Year. The amount of such contributions
to be distributed, however, shall be reduced by the amount
of excess contributions, if any, previously distributed for
such Plan Year from the Participant's Compensation
Conversion Accounts pursuant to the requirements of Section
4.1(d). Such distributions from an Account shall be made
from the Investment Funds in which such Account is invested
at the time of distribution pro rata in accordance with the
balance of the Account in each of the Investment Funds as of
the Valuation Date next preceding the date of distribution,
except that no amount shall be distributed from the Account
invested in the Participant Loan Fund until the balance in
the other Investment Funds has been distributed. For
purposes of this Section 4.5(d), the income or loss
allocable to contributions to be distributed from a
-288-
<PAGE>
particular Account for a Plan Year shall be determined in
the manner provided in Section 4.1(g) for determining income
or loss allocable to excess contributions thereunder.
(e) For purposes of this Section 4.5 and Section 4.8:
(i) "Actual Deferral Percentage" for a specified
group of Eligible Employees for a Plan Year shall be
the average of 100 times the result (calculated
separately for each Eligible Employee in such group and
rounded to four decimal places) obtained by dividing
the amount actually contributed to the Account of each
such Eligible Employee under Section 4.1 for such Plan
Year by the Eligible Employee's compensation for the
portion of such Plan Year for which contributions to
the Compensation Conversion Accounts were made or could
have been made for such Eligible Employee;
(ii) "Eligible Employee" shall mean an Employee
who is eligible to participate in the Plan as provided
in Section 3.1 for all or any part of a Plan Year; and
(iii) "Compensation" for a Plan Year for purposes
of Section 4.5(e)(i) shall have the meaning determined
by the Committee in accordance with Section 414(s) of
the Code and the regulations thereunder (but not in
excess of the limitation described in Section
401(a)(17) of the Code) and shall only include such
compensation for the portion of such Plan Year for
which contributions to the Eligible Employee's
Compensation Conversion Accounts were made or could
have been made.
4.6 Adjustments to Employer Matching Contribution
Accounts:
(a) Notwithstanding the provisions of Section 4.2, if
the Average Contribution Percentage for the Eligible
Employees who are Highly Compensated Employees for any Plan
Year beginning on or after January 1, 1997 exceeds, or in
the judgment of the Committee is likely to exceed, the
greater of (i) or (ii) as follows:
(i) The Average Contribution Percentage for the
next preceding Plan Year for Eligible Employees who are
not Highly Compensated Employees, multiplied by 1.25,
or
(ii) The Average Contribution Percentage for the
next preceding Plan Year for Eligible Employees who are
not Highly Compensated Employees, multiplied by 2;
provided, however, that the Average Contribution
Percentage for the Eligible Employees who are Highly
Compensated Employees for the Plan Year may not exceed
the Average Contribution Percentage for the next
-289-
<PAGE>
preceding Plan Year for Eligible Employees who are not
Highly Compensated Employees by more than two
percentage points;
then the amounts contributed, or to be contributed, to the
Employer Matching Contribution Accounts on behalf of
Participants who are Highly Compensated Employees for such
Plan Year shall be reduced at such time and in such manner
as the Committee shall determine under rules and regulations
uniformly applied and consistent with the following
provisions of this Section 4.6 so that the Average
Contribution Percentage for the Eligible Employees who are
Highly Compensated Employees for such Plan Year does not
exceed the greater of (i) or (ii) above.
For purposes of applying the preceding paragraph for
any Plan Year, the Corporation may elect to use the Actual
Contribution Percentage for the Plan Year for Eligible
Employees who are not Highly Compensated Employees rather
than for the next preceding Plan Year, but if such an
election is made, it may not be changed except to the extent
provided in applicable governmental regulations, rulings or
announcements.
The provisions of this Section 4.6(a) shall not apply
in respect of any Participants covered under a collective
bargaining agreement.
(b) If during the Plan Year a Participant who is a
Highly Compensated Employee for such Plan Year also
participated in any other plan of an Employer or Affiliated
Employer to which employer matching contributions or
employee contributions required to be taken into account
under this Section 4.6 are made, his compensation, and such
contributions made, under such other plan shall be taken
into account for purposes of applying the tests under
Section 4.6(a)(i) and (ii) above. If during a Plan Year one
or more plans to which employer matching contributions or
employee contributions required to be taken into account
under this Section 4.6 are made are considered along with
the Plan as one plan for purposes of Section 410(b) of the
Code (other than the average benefit percentage test
thereunder), all such plans shall be treated as one plan in
determining the Average Contribution Percentage of a group
of Participants in the Plan.
(c) In order to accomplish the reductions required
under Section 4.6(a) or to meet the limitations of
Section 4.8, the Committee, in its discretion, may reduce
contributions previously made, or adjust the amount of
contributions to be made, pursuant to the provisions of
Section 4.2, for such period as may be required. Any
reductions in the amounts contributed to the Employer
Matching Contribution Accounts on behalf of Participants who
are Highly Compensated Employees for such Plan Year shall be
-290-
<PAGE>
made on the basis of the amounts of the Employer matching
contributions contributed on behalf of such Participants
beginning with the greatest amounts.
(d) The amount by which contributions previously made
to a Participant's Employer Matching Contribution Account
for a Plan Year are reduced under this Section 4.6, plus any
income and minus any loss allocable thereto, shall be paid,
notwithstanding any other provision of the Plan or law, to
the Participant not later than two and one-half months after
the end of such Plan Year. In addition, if reductions in
contributions to a Participant's Matched Compensation
Conversion Account are made pursuant to Sections 4.1 or 4.5,
the Committee shall reduce Employer matching contributions
previously made with respect to such contributions pursuant
to the provisions of Section 4.2, and such amount, plus any
income and minus any loss allocable thereto, shall be
forfeited and applied to reduce the amount of Employer
matching contributions made pursuant to Section 4.2.
Reductions in contributions from the Participant's Employer
Matching Contribution Account, plus any income and minus any
loss allocable thereto, shall be made from the Investment
Funds in which such Account is invested at the time of
reduction pro rata in accordance with the balance of the
Account in each of the Investment Funds as of the Valuation
Date next preceding the date of reduction, except that no
reduction shall be made from the Account invested in the
Participant Loan Fund until the balance in the other
Investment Funds has been reduced to zero. For purposes of
this Section 4.6(d), the income or loss allocable to
contributions for a Plan Year shall be determined in the
manner provided in Section 4.1(g) for determining income or
loss allocable to excess contributions under Section 4.1.
(e) For purposes of this Section 4.6 and Section 4.8:
(i) "Average Contribution Percentage" for a
specified group of Eligible Employees for a Plan Year
shall be the average of 100 times the result
(calculated separately for each Eligible Employee in
such group and rounded to four decimal places) obtained
by dividing the amount actually contributed to the
Account of each such Eligible Employee under Section
4.2 for such Plan Year by the Eligible Employee's
compensation for the portion of such Plan Year for
which contributions to the Employer Matching
Contribution Account were made or could have been made
for such Eligible Employee;
(ii) "Eligible Employee" shall mean an Employee
who is eligible to participate in the Plan as provided
in Section 3.1 for all or any part of a Plan Year,
excluding, however, any Employee who is covered under a
collective bargaining agreement; and
-291-
<PAGE>
(iii) "Compensation" for a Plan Year for purposes
of Section 4.6(e)(i) shall have the meaning determined
by the Committee in accordance with Section 414(s) of
the Code and the regulations thereunder (but not in
excess of the limitation described in Section
401(a)(17) of the Code) and shall only include such
compensation for the portion of such Plan Year for
which contributions to the Eligible Employee's Employer
Matching Contribution Account were made or could have
been made.
4.7 Aggregation of Discrimination Tests: The Actual
Deferral Percentage Test described in Section 4.5 and the Average
Contribution Percentage Test described in Section 4.6 may be
aggregated, at the election of the Corporation, and applied as
provided in Section 401(k) of the Code and the regulations
thereunder.
4.8 Multiple Use of Alternative Limitation:
(a) Notwithstanding the foregoing provisions of this
Article IV, if, after the application of Sections 4.5 and
4.6, the sum of the Actual Deferral Percentage and the
Average Contribution Percentage for the group of Eligible
Employees who are Highly Compensated Employees for a Plan
Year exceeds the aggregate limit (as defined below) for the
Plan Year, then the contributions made for such Plan Year
pursuant to Sections 4.1 and 4.2 for Eligible Employees who
are Highly Compensated Employees shall be reduced so that
the aggregate limit is not exceeded. Such reductions shall
be made first in contributions made pursuant to Section 4.1
(but only to the extent such contributions are allocated to
Supplemental Compensation Conversion Accounts) and then in
contributions made pursuant to Section 4.2. Reductions in
contributions shall be made in the manner provided in
Section 4.5 or Section 4.6, whichever is applicable. The
amount by which a Highly Compensated Employee's
contributions is reduced in accordance with the foregoing
shall be treated as an excess contribution under Section 4.5
or Section 4.6, whichever the case may be. For the purposes
of this Section 4.8, the Actual Deferral Percentage and
Average Contribution Percentage of Eligible Employees who
are Highly Compensated Employees are determined after any
reductions required for such Plan Year under Sections 4.5
and 4.6, respectively.
No reduction, however, shall be required by this
Section 4.8 for a Plan Year if either (i) the Actual
Deferral Percentage of the Eligible Employees who are Highly
Compensated Employees does not exceed 1.25 multiplied by the
Actual Deferral Percentage for the next preceding Plan Year
for Eligible Employees who are not Highly Compensated
Employees, or (b) the Average Contribution Percentage of
Eligible Employees who are Highly Compensated Employees does
not exceed 1.25 multiplied by the Average Contribution
-292-
<PAGE>
Percentage for the next preceding Plan Year for Eligible
Employees who are not Highly Compensated Employees.
(b) For purposes of this Section 4.8, the term
"aggregate limit" for a Plan Year means the sum of (i) 125%
of the greater of (A) the Actual Deferral Percentage for the
next preceding Plan Year for Eligible Employees who are not
Highly Compensated Employees or (B) the Average Contribution
Percentage for the next preceding Plan Year for Eligible
Employees who are not Highly Compensated Employees, and (ii)
the lesser of (A) 200% of, or (B) two percentage points
plus, the lesser of such Actual Deferral Percentage or
Average Contribution Percentage. If it would result in a
larger aggregate limit, the word "lesser" is substituted for
the word "greater" in subpart (i) of this paragraph, and the
word "greater" is substituted for the word "lesser" the
second place it is used in subpart (ii) of this paragraph.
(c) For purposes of applying the provisions of this
Section 4.8, if pursuant to Section 4.5 or 4.6,
respectively, the Corporation has elected to use the Actual
Deferral Percentage and/or Actual Contribution Percentage
for the Plan Year for Eligible Employees who are not Highly
Compensated Employees rather than for the next preceding
Plan Year, then such election shall also apply for purposes
of this Section 4.8.
4.9 Rollover Contributions: An Employee, whether or
not he is eligible to participate in the Plan as provided in
Section 3.1, may make a "qualifying rollover contribution" to the
Plan. A qualifying rollover contribution means the contribution
to the Plan by or on behalf of an Employee of:
(a) All or a portion of an eligible rollover
distribution (as defined in Section 402(c)(4) of the
Code); provided, however, that the portion, if any, of
an eligible rollover distribution consisting of
nondeductible employee contributions may not be
contributed to the Plan; or
(b) A rollover contribution (as defined in Section
408(d)(3)(A)(ii) of the Code).
A qualifying rollover contribution to be made by or on behalf of
an Employee must be made in cash to the Trustee by an Employee no
later than the 60th day following the day upon which the Employee
received the eligible rollover distribution or rollover
contribution with respect to which the qualifying rollover
contribution is to be made or directly by the trustee of another
plan qualified under Section 401(a) of the Code. The Committee
shall develop such procedures, and may require such information
and verifications from an Employee desiring to make a qualifying
rollover contribution, as it deems necessary or desirable to
determine that the proposed contribution will meet the
requirements of this Section 4.9. A qualifying rollover
-293-
<PAGE>
contribution made under this Section 4.9 shall be allocated to
the Employee's Rollover Contribution Account. If the Employee is
not eligible to or has not elected to participate in the Plan as
an Active Participant, his qualifying rollover contribution shall
be accompanied by an election as to Investment Funds as provided
in Section 5.2 and he shall become an Inactive Participant as of
the date the qualifying rollover contribution is made.
ARTICLE V
Investment Funds
5.1 Investment Funds: As of January 1, 1997, there
shall be the following Investment Funds under the Plan:
(a) Protected Income Fund.
(b) Common Stock Fund.
The Company as of January 1, 1997 and from time to time
thereafter may, in its discretion, establish one or more
additional Investment Funds or terminate any Investment Fund,
including the Protected Income Fund or the Company Stock Fund, as
it deems appropriate. Amounts loaned to a Participant as
provided in Article IX shall be recorded in and considered an
investment by such Participant in a fund designated as the
Participant Loan Fund.
5.2 Participant's Election of Investment Funds:
(a) Each Employee who becomes a Participant prior to
the Implementation Date shall file a written election with
the Committee directing that contributions to his Employer
Matching Contribution Account, to his Compensation
Conversion Accounts and to his Rollover Contribution Account
be invested in specified multiples of 10% (1% on or after
January 1, 1997) in any of the Investment Funds offered
under the Plan (other than the Participant Loan Fund). Each
Employee who becomes a Participant on or after the
Implementation Date shall make an election with the Trustee
by such means (which may include through use of the
Telephone Response System) as the Committee shall prescribe
from time to time, directing that contributions to his
Employer Matching Contribution Account, to his Compensation
Conversion Accounts and to his Rollover Contribution Account
be invested in specified multiples of 1% in any of the
Investment Funds offered under the Plan (other than the
Participant Loan Fund). Contributions shall be invested in
accordance with an election made under this Section 5.2(a)
until an election is changed as hereinafter provided in the
Plan from time to time.
(b) An election under this Section 5.2 may be changed
after January 2, 1997 by a Participant only as of a
-294-
<PAGE>
Valuation Date occurring on or after the Implementation Date
and by giving the Trustee notice of such change by such
means (which may include through use of the Telephone
Response System) as the Committee shall prescribe from time
to time. Any change shall direct either or both of:
(i) that the balance in such Participant's
Employer Matching Contribution Account, Matched
Compensation Conversion Account, Supplemental
Compensation Conversion Account and Rollover
Contribution Account which is not invested in the
Participant Loan Fund as of the effective date of such
change, be transferred in multiples of 1% to one of the
remaining Investment Funds (other than the Participant
Loan Fund), or
(ii) that subsequent contributions to the
Participant's Employer Matching Contribution Account,
Matched Compensation Conversion Account, Supplemental
Compensation Conversion Account and Rollover
Contribution Account be invested in multiples of 1% in
any of Investment Funds offered under the Plan (other
than the Participant Loan Fund).
For purposes of subparagraph (i) above, transfers from the
Common Stock Fund to the extent invested in shares of Common
Stock shall be made based on 1% multiples of the number of
shares held in the Participant's Account as of the effective
date of the change.
Any change in investment election made in accordance
with the preceding paragraph shall be initiated and
completed as of the Valuation Date made or as soon as
practicable thereafter, subject to the rules and procedures,
if any, relating to the Investment Funds involved. To the
extent any common, collective, pooled or similar investment
fund or guaranteed investment contract in which an
Investment Fund is invested restricts transfers into or from
such common, collective, pooled or similar investment fund
or guaranteed investment contract, such restrictions shall
apply to limit a Participant's ability to change investment
elections under this Section 5.2(b).
(c) Any election or change in election under this
Section 5.2 required to be made in writing shall be made (i)
on a form provided or prescribed by the Committee and (ii)
in accordance with rules of the Committee in effect from
time to time.
-295-
<PAGE>
ARTICLE VI
Allocations to Participant's Accounts
6.1 Individual Accounts: A separate Account shall be
maintained for each Participant to show his interest in the
Investment Funds. Each of the Investment Funds may, however, be
invested as a single fund, without segregation of Trust Fund
investments to the individual Accounts of Participants. Each
Account will consist of an "Employer Matching Contribution
Account," a "Matched Compensation Conversion Account", a
"Supplemental Compensation Conversion Account" and a "Rollover
Contribution Account".
6.2 Valuations and Adjustments: Each Participant's
Accounts in an Investment Fund as of each Valuation Date with
respect to that Investment Fund shall be adjusted as follows:
(a) As of each Valuation Date with respect to an
Investment Fund, the amount of contributions made by or on
behalf of the Participant and paid to the Trust Fund since
the next preceding Valuation Date and allocable to such
Investment Fund shall be added to the Accounts and the
Investment Fund to which allocated.
(b) As of each Valuation Date with respect to an
Investment Fund, the amount of any interest and loan
repayments paid since the next preceding Valuation Date by
the Participant to the Trust Fund in respect of loans in
accordance with Article IX and allocable to such Investment
Fund in accordance with Section 9.4 shall be added to the
Accounts and the Investment Fund to which allocated.
(c) As of each Valuation Date with respect to an
Investment Fund, the amount of any distributions,
withdrawals or expenses paid from the Accounts and such
Investment Fund since the next preceding Valuation Date
shall be subtracted from the Accounts and the Investment
Fund from which paid.
(d) The Trustee shall, as of the close of business on
each Valuation Date with respect to an Investment Fund,
determine the fair market value and "Fund Earnings" of such
Investment Fund. "Fund Earnings" of an Investment Fund as
of any Valuation Date shall mean the net of such Investment
Fund's earnings (including accrued interest), expenses
(other than expenses charged to a particular Participant's
Accounts) and gains, losses and unrealized appreciation and
depreciation on the assets of such Investment Fund since the
next preceding Valuation Date. However, in respect of
amounts invested in common, collective, pooled or similar
investment funds, fair market value and "Fund Earnings"
shall be as reported by that fund. As of the close of
business on each Valuation Date with respect to an
Investment Fund, "Fund Earnings" for such Investment Fund
-296-
<PAGE>
shall be allocated among Participants' Accounts in the same
ratio as the Participant's "Adjusted Account Balance" with
respect to each of his Accounts in the Investment Fund bears
to the total of all Participants' "Adjusted Account
Balances" in such Investment Fund as of the Valuation Date.
However, with respect to the Common Stock Fund and any other
Investment Fund that utilizes full and fractional share
accounting, any dividends or other rights paid on shares
allocated to Participants' Accounts in such Investment Fund
as of the shareholder record date in respect of such
dividend or right shall be allocated, when paid, to the
Accounts of Participants in such Investment Fund to whom the
shares in respect of which the dividends or rights were paid
were allocated as of the shareholder record date. A
Participant's "Adjusted Account Balance" with respect to an
Account in an Investment Fund shall mean the Account balance
in such Investment Fund as of the next preceding Valuation
Date plus or minus, as the case may be, such percentage, if
any, of the amount of the adjustments made pursuant to
Section 6.2(a), (b), (c) or (e) with respect to such Account
as of such Valuation Date as the Committee shall determine
in accordance with a uniform and non-discriminatory policy
with respect to such Investment Fund.
(e) As of each Valuation Date with respect to an
Investment Fund, the amount of any transfers in respect of
the Accounts made since the next preceding Valuation Date to
or from the Investment Fund (including amounts to be paid
from the Trust Fund on account of loans in accordance with
Article IX) shall be subtracted from or added to, as the
case may be, the Investment Fund.
6.3 Adjustments Conclusive: Every adjustment under
this Article VI shall be deemed to have been made on the
applicable date, regardless of the dates of actual entries. The
determination of the net value of the assets of the Trust Fund
and of the debits or credits to the Accounts of the respective
Participants and their Beneficiaries, as provided, shall be
conclusive and binding upon all parties.
-297-
<PAGE>
6.4 Limitation on Allocations:
(a) Notwithstanding anything to the contrary contained
in the Plan, in no case shall the amount of the "annual
addition," as defined in Section 415(c)(2) of the Code,
consisting of Employer contributions under Sections 4.1 and
4.2 which are allocated to a Participant's Account for any
Plan Year, combined with the annual additions that are
allocated to his accounts for such Plan Year under all other
defined contribution plans maintained by any Employer or
Affiliated Employer, together with amounts treated as an
annual addition for such Plan Year under Sections 415(l)(1)
and 419A(d)(2) of the Code, exceed the lesser of (i)
$30,000, as adjusted, effective on and after January 1,
1995, by the cost of living pursuant to Section 415(d) of
the Code (the "Dollar Limitation") and (ii) 25 percent of
the Participant's compensation as reported on his Forms W-2
from the Employers and Affiliated Employers for such Plan
Year.
(b) Notwithstanding the provisions of Section 6.4(a),
the otherwise permissible "annual addition" for any
Participant under this Plan may be reduced to the extent
necessary, as determined by the Committee, to prevent
disqualification of the Plan under Section 415 of the Code,
which imposes the following additional limitations on the
benefits payable to Participants who also may be
participating in another tax-qualified pension, profit
sharing, thrift, savings or stock bonus plan or in a welfare
plan maintained by an Employer or Affiliated Employer: If
the Participant is also covered under a qualified defined
benefit plan of an Employer or Affiliated Employer, the sum
of a Participant's "defined benefit plan fraction" and his
"defined contribution plan fraction" may not exceed 1.0.
The "defined benefit plan fraction" shall be a fraction (not
in excess of 1) the numerator of which is the projected
annual benefit of the Participant under all defined benefit
plans required to be taken into account, determined as of
the end of the Plan Year, and the denominator of which is
the lesser of (A) the product of 1.25 multiplied by the
dollar limitation in effect under Section 415(b)(1)(A) of
the Code for such Plan Year (or, if greater, by the
Participant's current accrued benefit under such defined
benefit plans as of December 31, 1986) and (B) the product
of 1.4 multiplied by the amount that may be taken into
account under Section 415(b)(1)(B) of the Code with respect
to the Participant for such Plan Year. The "defined
contribution plan fraction" shall be a fraction (not in
excess of 1) the numerator of which is the sum of the
"annual additions" as determined under Sections 415(c)(2),
415(l)(1) and 419A(d)(2) of the Code (except that employee
contributions made for any Plan Year prior to 1987 that were
not treated as an annual addition for such year shall not be
treated as an annual addition hereunder for any year after
1986) to the Participant's account under all plans required
-298-
<PAGE>
to be taken into account, as of the end of the Plan Year,
and the denominator of which is the sum of the "applicable
maximum amount" of annual additions that could have been
made under Section 415(c) of the Code for the Plan Year and
for each prior calendar year of such Participant's
employment with the Employers and Affiliated Employers. The
"applicable maximum amount" of annual addition for any year
shall be equal to the lesser of 1.25 multiplied by the
Dollar Limitation in effect for such year, and 1.4
multiplied by the amount that may be taken into account
under Section 415(c)(1)(B) of the Code with respect to the
Participant for such year. The numerator of the "defined
contribution plan fraction" shall be adjusted, where
applicable, as prescribed by the Internal Revenue Service.
In the event the Plan is determined to be a "top-heavy
plan" within the meaning of Section 416(g) of the Code with
respect to any Plan Year, then, unless the requirements of
Section 416(h)(2) of the Code are met with respect to the
Plan, the number "1.0" shall be substituted for the number
"1.25" wherever it appears in this Section 6.4(b).
The provisions of this Section 6.4(b) shall be without
effect for any Plan Year beginning after December 31, 1999.
(c) Any contribution, plus or minus any earnings,
gains, or losses attributable thereto, which may not be
allocated by reason of this Section 6.4 shall, subject to
the limitations of this Section 6.4, be (i) reallocated to
the Accounts of other Participants entitled to share in
Employer matching contributions for such Plan Year where
Employer matching contributions under Section 4.2 are
involved in proportion to the ratio which the Compensation
of each of such other Participants for the Plan Year bears
to the aggregate Compensation of all of such other
Participants for the Plan Year, and (ii) paid to the
Participant where any contributions under Section 4.1 are
involved. If, however, the reallocation provided for in (i)
of the preceding sentence would cause the limitations of
this Section 6.4 to be exceeded with respect to each
Participant for the Plan Year, then any Employer matching
contributions under Section 4.2 that may not be so
reallocated may not be distributed to Participants but shall
be held unallocated in a suspense account under the Plan.
All amounts held in the suspense account during any
subsequent Plan Year shall be used to reduce Employer
matching contributions for such subsequent Plan Year and
succeeding Plan Years as necessary.
6.5 Statement of Account: As soon as practicable
after the end of each calendar quarter, a statement will be
furnished to each Participant showing the status of his Account
at the beginning and end of such calendar quarter, any changes in
such Account during such calendar quarter, and such other
information as the Committee may determine.
-299-
<PAGE>
ARTICLE VII
Vesting of Accounts
7.1 Vesting of Accounts: A Participant's Accounts
shall at all times be fully vested in such Participant and a
Participant's right to receive distributions from his Accounts
shall at all times be nonforfeitable.
ARTICLE VIII
Distribution of Benefits
8.1 Settlement Date: A Participant shall be entitled
to distribution of his Account following his Settlement Date.
The Settlement Date of a Participant shall be whichever of the
following dates is applicable:
(a) Normal Retirement Date: The Participant's sixty-
fifth (65th) birthday.
(b) Late Retirement Date: The actual retirement date
of a Participant who remains in active service of the
Employers and Affiliated Employers after his normal
retirement date.
(c) Early Retirement Date: The date before a
Participant's normal retirement date on which he retires
from the active service of the Employers and Affiliated
Employers under a qualified defined benefit plan of the
Employer or Affiliated Employer.
(d) Date of Death: The date of a Participant's death
prior to his actual retirement date.
(e) Date of Disability: The date before a
Participant's normal or early retirement date on which the
Employer determines that he is totally and permanently
disabled. A Participant shall be deemed totally and
permanently disabled if he is receiving disability benefits
under the long term disability plan of his Employer or would
be entitled to receive such benefits if he were a
participant in such plan.
(f) Date of Termination of Employment: The date on
which, before his normal or early retirement date, a
Participant terminates his employment with the Employers and
Affiliated Employers for any reason other than his death or
disability. Leaves of absence and layoffs granted by the
Employer or Affiliated Employer in accordance with practices
uniformly applied will not be considered as terminations of
employment during the term of such leave or layoff. While a
Participant is on a leave of absence or layoff, his
-300-
<PAGE>
participation in the Plan shall continue on the same basis
as if he were not absent on leave or layoff. In the event
an arbitration proceeding is instituted under a collective
bargaining agreement in respect of the termination of a
Participant's employment, such Participant will not be
considered to have terminated his employment for purposes of
this Plan unless and until a final decision upholding the
termination is rendered in such proceeding or the grievance
is dropped on behalf of the Participant.
8.2 Amount to be Distributed:
(a) Except a provided in Section 8.5, if the
Participant's Settlement Date occurs prior to the
Implementation Date, the full amount in his Account as of
the Valuation Date next preceding the Implementation Date,
and less the unpaid portion of all loans made to the
Participant pursuant to Article IX including interest
accrued thereon (which shall be considered distributed),
shall be distributed to him or, in the event of his death,
to his Beneficiary; provided, however, that any such
Participant whose Settlement Date occurs prior to February
28, 1997 may elect prior to his Settlement Date to receive
as of January 29, 1997 or February 28, 1997, provided the
date elected is subsequent to his Settlement Date, an
advance payment of the amount due to the Participant
hereunder which equals to 80% of his Account balance as of
December 31, 1996 exclusive of the unpaid portion of all
loans made to the Participant pursuant to Article IX.
(b) If a Participant's Settlement Date occurs on or
after the Implementation Date, the full amount in the
Participant's Account as of the Valuation Date coincident
with or next preceding the effective date as of which
distribution is made, and less the unpaid portion of all
loans made to the Participant pursuant to Article IX
including interest accrued thereon (which shall be
considered distributed), shall be distributed to the
Participant or, in the event of his death, to his
Beneficiary.
8.3 Form of Distribution: A distribution under this
Article VIII shall be made in cash, except that the Participant
or Beneficiary may request that all of the Participant's Account
invested in Common Stock in the Common Stock Fund be distributed
in whole shares of Common Stock with any fractional share being
paid in cash. Requests for distribution in the form of Common
Stock shall be made at such time and in such manner as the
Committee shall determine under rules and regulations which are
uniformly applied. The amount of any cash distribution made
shall be based on the net amount received by the Trust Fund on
the sale of Common Stock required to be sold in order to make
cash distributions.
-301-
<PAGE>
8.4 Method of Distribution: Except as provided in
Section 8.5(e), distribution to a Participant or his Beneficiary
shall be made in a lump sum.
8.5 Time of Distribution:
(a) Except as hereinafter provided in this Section
8.5, distribution of the Participant's Account to which he
is entitled under Section 8.2 shall be made not later than
sixty (60) days after the date on which the Participant's
Settlement Date occurs (or within 60 days after the
Implementation Date if the Participant's Settlement Date
occurs on or after December 1, 1996 and before the
Implementation Date).
(b) If the value of the Participant's Account to be
distributed exceeds $3,500 (or at the time of any prior
distribution or withdrawal exceeded $3,500) and he has not
attained age 65, distribution to the Participant shall be
deferred until he attains age 65 and shall be made, as
provided in Section 8.4, not later than sixty (60) days
following the date on which he attains age 65 (or not later
than April 30, 1997 if the Participant attains age 65 on or
after December 1, 1996 and before the Implementation Date)
unless the Participant consents in writing to, or is deemed
to have elected, earlier distribution as hereinafter
provided. The amount to be distributed shall be the full
amount in the Participant's Account as of the Valuation Date
coincident with or next preceding the effective date as of
which distribution is made and less the unpaid portion of
all loans made to the Participant pursuant to Article IX
including interest accrued thereon (which shall be
considered distributed). A Participant who does not wish to
have distribution deferred may elect to have his Account
distributed after his Settlement Date as provided in Section
8.5(a). If a Participant has not repaid all loans made to
him under the Plan at the time of his termination, he shall
be deemed to have elected to have that portion of his
Account equal to the unpaid portion of said loans, including
accrued interest, distributed after his Settlement Date as
provided in Section 8.5(a) unless he is not in default on
such loan at the time of termination. If the Participant is
not in default on the loan at the time of his termination or
if a Participant receives a loan after his termination of
employment, the unpaid portion of such loan, including
accrued interest, shall be deducted from the balance of his
Account to which he is entitled and considered a
distribution from his Account on the first to occur of (i)
the Participant's default on repayment on the loan and (ii)
the date payment of his Account is made under this Section
8.5.
(c) If distribution of a Participant's Account
following his Settlement Date is deferred under Section
8.5(b), the Participant may elect at any time to have
-302-
<PAGE>
distribution made prior to his attaining age 65 and, in such
case, distribution shall be made not later than sixty (60)
days following the date he files his election with the
Committee (or not later than April 30, 1997 if the
Participant files his election on or after December 1, 1996
and before the Implementation Date). If distribution of a
Participant's Account is deferred and the Participant dies
prior to distribution, distribution of his Account shall be
made to his Beneficiary not later than sixty (60) days
following the date of the Participant's death (or not later
than April 30, 1997 if the Participant's death occurs on or
after December 1, 1996 and before the Implementation Date).
In each case, the amount to be distributed shall be the full
amount in the Participant's Account as of the Valuation Date
coincident with or next preceding the effective date as of
which distribution is to be made and less the unpaid portion
of all loans made to the Participant pursuant to Article IX
including interest accrued thereon (which shall be
considered distributed).
(d) If consent to distribution is required under
Section 8.5(b) or (c) or a withdrawal is to be made under
Section 8.6 or Section 8.10, the Committee shall no less
than 30 days and no more than 90 days prior to the date
distribution or withdrawal is to be made provide the
Participant with written notice of his right to defer
payment to age 65. Such distribution or withdrawal,
however, may be made less than 30 days after the provision
of the written notice, if the notice informs the Participant
of his right of at least 30 days after receiving the notice
to consider the decision of whether or not to elect
distribution or withdrawal and the Participant, after
receiving the notice, affirmatively elects distribution or
withdrawal.
(e) If the amount of the payment to be made on or
before a particular date cannot be ascertained by such date,
a payment retroactive to such date shall be made no later
than 60 days after the earliest date on which the amount of
such payment can be ascertained. If any amount is allocated
to a Participant's Account subsequent to the payment of his
Account, a payment of such additional amount shall be made
to the Participant within 60 days after the allocation is
made. If the proceeds from the liquidation of any portion
of a Participant's Account are received by the Trust Fund
subsequent to the payment of the remaining portion of his
Account, payment of such additional amount shall be made as
soon as practicable after the proceeds are received.
(f) If a Participant's payment is deferred under
Section 8.5 to a date following his Settlement Date, the
unpaid amounts not considered an investment from time to
time in the Participant Loan Fund shall be invested prior to
distribution in accordance with the election of the
Participant as provided in Section 5.2 of the Plan.
-303-
<PAGE>
(g) Notwithstanding the foregoing provisions of this
Section 8.5 or any other provision of the Plan, if a
Participant continues in employment of the Employer or
Affiliated Employers after he attains age 70-1/2,
distribution of the Participant's Account shall be made to
him not later than the April 1 of the calendar year
following the later of (i) the calendar year in which he
attains age 70-1/2, or (ii) the calendar year in which his
Settlement Date occurs. However, if the Participant owns,
or is considered to own, in the Plan Year ending in calendar
year in which he attains age 70-1/2, more than 5% of the
outstanding stock of the Corporation or an Affiliated
Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Corporation or an
Affiliated Employer, then distribution of the Participant's
Account shall be made to him not later than the April 1 next
following the last day of the calendar year in which the
Participant attains age 70-1/2. To the extent that
governmental regulations, rulings or announcements require
that any Participant with an Account balance at December 31,
1996 be paid at the Participant's election no later than the
April 1 of the calendar year following the calendar year in
which he attains age 70-1/2 as provided in the Plan as in
effect prior to this restatement, such Participant shall be
so paid.
8.6 Hardship Withdrawals: A Participant shall have
the right to withdraw amounts from his Compensation Conversion
Account(s) as of a Valuation Date (but on and after January 1,
1997 not until on or after the Implementation Date) on account of
his financial hardship in accordance with the following:
(a) The Participant shall file a written request with
the Committee at least 30 days prior to the date as of which
the withdrawal is to be made setting forth the amount he
wishes to withdraw, the Investment Fund(s) from which it is
to be withdrawn and data establishing his financial
hardship; and
(b) A hardship withdrawal under this Section 8.6 shall
be permitted only if the withdrawal both (i) is made on
account of an immediate and heavy financial need of the
Participant and (ii) is necessary to satisfy such financial
need. For purposes of this Section 8.6:
(A) a withdrawal will be considered to be
made on account of an immediate and heavy
financial need of the Participant only if it is on
account of (i) medical expenses, as described in
Section 213(d) of the Code, previously incurred by
the Participant, the Participant's spouse or any
dependent of the Participant (as defined in
Section 152 of the Code) or necessary for these
persons to obtain medical care described in
Section 213(d) of the Code, (ii) the purchase
-304-
<PAGE>
(excluding mortgage payments) of a principal
residence for the Participant, (iii) the need to
make payment of tuition and related educational
fees for the next 12 months of post-secondary
education for the Participant, his spouse,
children or dependents, or (iv) the need to
prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage
of the Participant's principal residence; and
(B) a withdrawal will be considered to be
necessary to satisfy an immediate and heavy
financial need of the Participant only if (i) the
withdrawal is not in excess of the amount of the
immediate and heavy financial need of the
Participant, including amounts necessary to pay
any Federal, state or local income taxes or
penalties reasonably anticipated to result from
the withdrawal, (ii) the Participant has obtained
all distributions, other than hardship
distributions, and all nontaxable (at the time of
the loan) loans currently available to him under
the Plan and all other qualified plans maintained
by the Corporation or the Affiliated Employers,
(iii) the Participant is precluded from making or
having made on his behalf any contributions under
Section 4.1 or elective contributions under other
qualified or nonqualified plans of deferred
compensation maintained by the Corporation or the
Affiliated Employers, or any elective after-tax
employee contributions under any such plan of the
Corporation or the Affiliated Employers, for a
period of at least 12 months after receipt of the
withdrawal, and (iv) the maximum amount within the
meaning of Section 402(g) of the Code that may be
contributed as elective contributions to the
Participant's Compensation Conversion Accounts and
to any other qualified or nonqualified plan of
deferred compensation maintained by the
Corporation or the Affiliated Employers is reduced
for the Plan Year next following the Plan Year in
which the hardship withdrawal is received by the
amount of such contributions made by or on behalf
of the Participant for the Plan Year in which the
withdrawal is received.
The determination of the existence of financial hardship
hereunder and of the amount required to be distributed to
meet the need created by the hardship will be made by the
Committee and its decisions shall be applied in a
nondiscriminatory manner.
(c) No withdrawal under this Section 8.6 may exceed an
amount equal to the lesser of (i) the balance in the
Participant's Compensation Conversion Accounts as of the
-305-
<PAGE>
Valuation Date coincident with or next preceding the
effective date of the withdrawal, less all unpaid loans as
of the date of withdrawal made to the Participant pursuant
to Article IX, including interest accrued thereon, that are
made from such Accounts, and (ii) the aggregate amount of
contributions made to such Accounts under Section 4.1 and
not previously withdrawn less all unpaid loans made to the
Participant pursuant to Article IX that are made from such
Accounts.
(d) Only one withdrawal under this Section 8.6 may be
made by a Participant during each Plan Year. The minimum
withdrawal that will be allowed is $500.
(e) Payment of any withdrawals will be made in cash in
a lump sum to the Participant as soon as practicable
following the date the request is approved by the Committee
but a Participant may elect to have such amount rolled over
directly to an "eligible retirement plan" in accordance with
Section 8.9.
8.7 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(a) The last person or persons designated as
beneficiary by the Participant in a written notice on a form
prescribed by the Committee, provided, however, that if the
Participant is married at the time of his death and the
person so designated is not his surviving spouse, such
designation will not be effective under the Plan unless the
requirements of the last paragraph of this Section 8.7 have
been met in respect of such designation;
(b) If there is no beneficiary designation in
accordance with Section 8.7(a) that is effective under the
Plan or if the person designated pursuant to an effective
designation shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated beneficiary and no such
spouse is living upon the death of a Participant, or if all
such persons die prior to the full distribution of such
Participant's Account, then the legal representative of the
last survivor of the Participant and such persons, or, if
the Committee shall not receive notice of the appointment of
any such legal representative within one (1) year after such
death, the heirs-at-law of such survivor (in the proportions
in which they would inherit his intestate personal property)
shall be the beneficiary to whom the then remaining balance
of such Account shall be distributed.
Any Beneficiary designation may be changed from time to
time by like notice similarly delivered. No notice given under
this Section shall be effective unless and until the Committee
actually receives such notice and enters it in its records.
-306-
<PAGE>
No beneficiary designation under Section 8.7(a) which
designates a beneficiary who is not the Participant's surviving
spouse shall be effective under the Plan unless the Participant's
surviving spouse consents to such designation, such consent
acknowledges the effect of such designation and the surviving
spouse's signature on such consent is witnessed by a notary
public. Notwithstanding the foregoing sentence, such consent of
the surviving spouse shall not be required if the Participant
establishes to the satisfaction of the Committee that (i) the
surviving spouse cannot be located, (ii) the Participant is
legally separated or the Participant has been abandoned (and the
Participant has a court order to such effect) unless a qualified
domestic relations order provides otherwise, or (iii) the spouse
is legally incompetent and the spouse's legal guardian gives such
consent.
8.8 Facility of Payment: Whenever and as often as any
Participant or his Beneficiary entitled to payments hereunder
shall be under a legal disability or, in the sole judgment of the
Committee, shall otherwise be unable to apply such payments to
his own best interest and advantage, the Committee in the
exercise of its discretion may direct all or any portion of such
payments to be made in any one or more of the following ways:
(i) directly to him; (ii) to his legal guardian or conservator;
or (iii) to his spouse or to any other person, to be expended for
his benefit. The decision of the Committee shall in each case be
final and binding upon all persons in interest.
8.9 Direct Rollovers: If a Participant (which for
purposes of this Section 8.9 shall include a spouse or former
spouse who is an alternate payee under a qualified domestic
relations order as defined in Section 414(p) of the Code) or a
Beneficiary who is the Participant's surviving spouse is to
receive a distribution or a withdrawal under this Article VIII or
Section 12.3, he may elect to have all of the amounts, or any
portion thereof equal to $500 or more, that would otherwise be
paid to him, including the unpaid balance of any loan that would
be considered a distribution, paid directly by the Trustee to an
"eligible retirement plan" (as defined below) that will accept
such rollover. Such election shall apply, however, only to the
extent a distribution is not a minimum distribution required
under Code Section 401(a)(9).
Upon the election of a Participant or Beneficiary under
this Section 8.9, the amount of the distribution or withdrawal
with respect to which the election was made shall be paid
directly, by such means as the Committee shall determine, to the
specified eligible retirement plan at the time it would otherwise
have been paid to the Participant or Beneficiary. The portion,
if any, of the distribution or withdrawal that may not be
directly rolled over or which the Participant or Beneficiary has
elected not to be rolled over shall be made to the Participant or
Beneficiary as otherwise provided in the Plan.
-307-
<PAGE>
Not earlier than 90 days or later than 30 days before a
distribution or withdrawal would otherwise be made (or at such
other time as is permitted or prescribed by government
regulation, ruling or announcement), the Committee will deliver
or cause to be delivered to the Participant or Beneficiary notice
of his right to make an election under this Section 8.9. Any
election must be made within such period and shall be subject to
such terms and conditions as the Committee shall prescribe,
including any such terms, conditions or limitations required or
permitted by government regulations, rulings and announcements.
An election shall be accompanied by such documentation,
information and verifications as the Committee shall require
regarding the eligible retirement plan to which the direct
rollover is to be made and to enable the Trustee to properly make
the direct rollover.
For purposes of this Section 8.9, "eligible retirement
plan" shall mean:
(i) an individual retirement account described in Code
Section 408(a);
(ii) an individual retirement annuity described in Code
Section 408(b) (other than an endowment contract);
(iii) with respect to a Participant, a defined
contribution plan qualified under Code Section 401(a);
or
(iv) with respect to a Participant, an annuity plan
described in Code Section 403(a).
8.10 Rollover Contribution Account Withdrawals: A
Participant shall have the right to withdraw amounts from his
Rollover Contribution Account as of a Valuation Date occurring on
or after the Implementation Date in accordance with the
following:
(a) The Participant shall file a written request with
the Committee at least 30 days prior to the date as of which
the withdrawal is to be made setting forth the amount he
wishes to withdraw and the Investment Fund(s) from which it
is to be withdrawn.
(b) No withdrawal may exceed an amount equal to the
balance in the Participant's Rollover Contribution Account
as of the Valuation Date coincident with or next preceding
the effective date of the withdrawal, less all unpaid loans
as of the date of withdrawal made to the Participant
pursuant to Article IX, including accrued interest that are
made from such Account.
(c) Payment of any withdrawal will be made in cash in
a lump sum to the Participant as soon as practicable
following the effective date of the withdrawal but a
-308-
<PAGE>
Participant may elect to have such amount rolled over
directly to an "eligible retirement plan" in accordance with
Section 8.9.
ARTICLE IX
Loans to Participants
9.1 Application for Loans: Upon the application of a
Participant, the Committee, in accordance with a uniform and non-
discriminatory policy, may direct the Trustee to make a loan to
such Participant upon such terms as the Committee shall specify
subject to the provisions of this Article IX. In making loans,
the Committee may consider only those factors which would be
considered in a normal commercial setting by an entity in the
business of making similar types of loans. Any loan approved by
the Committee will be disbursed on such date as the Committee
shall direct. A loan shall be charged first to the Participant's
Rollover Contribution Account, next to his Supplemental
Compensation Conversion Account, next to his Matched Compensation
Conversion Account and finally to his Employer Matching
Contribution Account. All loans will be charged prorata to the
Investment Fund(s) (other than the Participant Loan Fund) in
which the Participant's Account(s) from which the loan is to be
made are invested. Any loan applied for by means of the
Telephone Response System shall be deemed made on the effective
date of the application under the rules of the Telephone Response
System.
Until after the Implementation Date, no loan may be
made unless the loan application is submitted by the Participant
in writing to the Committee on or prior to November 15, 1996. On
and after the Implementation Date, an application shall be made
by such means (which may include through use of the Telephone
Response System) as the Committee shall prescribe from time to
time, and the loan application fee, if any, then in effect shall
be charged to and paid from the Participant's Account(s) and the
Investment Fund(s) in which it is invested as soon as practicable
after the loan has been made in the same manner as the loan is
charged. The loan application fee, if any, shall be determined
-309-
<PAGE>
by the Committee from time to time on a uniform and
non-discriminatory basis without regard to the amount of the loan
requested and shall be non-refundable. Any costs incurred at the
request of a Participant in respect of the manner in which the
loan proceeds are to be disbursed shall be paid by the
Participant.
In the event a loan is applied for by means of the
Telephone Response System but the application is denied by the
Committee or the Participant cancels the application for the loan
before the loan is disbursed, any funds in the Participant's
Accounts that had been obtained by liquidating investments in the
Investment Funds in order to make the loan shall be reinvested in
the Investment Funds as soon as practicable in accordance with
the Participant's most recent investment election with respect to
the investment of contributions under Article V.
9.2 Limitations on Loans: No loan to any Participant,
when added to the outstanding balance of all other loans from all
qualified plans of the Employers and Affiliated Employers made to
the Participant, shall exceed the lesser of (a) $50,000, reduced
by the excess, if any, of the highest outstanding balance of all
loans from such plans to the Participant during the one-year
period ending on the day before the date on which the loan is
made over the outstanding balance of loans from such plans to the
Participant on the date the loan is made or (b) 50% of the sum of
the balance in his Account and the vested balances in all other
qualified plans of the Employers and Affiliated Employers, as of
the most recent Valuation Date for which a valuation is
available, as adjusted for any distributions, withdrawals or
contributions made after such Valuation Date. In no event,
however, shall any loan under the Plan to the Participant exceed
50% of the balance in his Account as of the Valuation Date
coinciding with the date the loan is made. The Committee shall
not approve a loan of less than $1,000 nor shall the Committee
approve more than one loan to any Participant in any Plan Year.
No more than one unpaid loan shall be outstanding to any
Participant at any time.
9.3 Interest on Loans: The Committee will establish
the interest rate to apply for the term of all loans. The
interest rate for any loan shall be commensurate with the
interest rate charged by persons in the business of lending money
for loans which would be made under similar circumstances, as
determined by the Committee.
9.4 Repayment of Loans: Any loan to a Participant
shall be repaid by the Participant in such manner as the
Committee shall determine, subject to the limitations of this
Section 9.4. The Committee shall require that the loan and
interest thereon be repaid in equal monthly installments, payable
on the first day of each month (commencing as soon as practicable
following the date the loan is disbursed), over a period which
shall not exceed five years from the date of the loan. Each
monthly installment, which in no event shall be less than $25,
-310-
<PAGE>
may be paid by payroll deductions by the Employer from the
compensation of the Participant or by such other method as the
Committee shall prescribe. Payroll deductions for a monthly
installment shall be made from the second regular paycheck of the
month next preceding the month in which the installment is
payable. The Employer shall deposit with the Trustee the sums so
deducted or paid with respect to a loan. Any loan under the Plan
may be prepaid without penalty on the first day of any month.
Partial prepayments shall not be permitted. Amounts received by
the Trust Fund as a repayment of a loan to a Participant or as
payment of interest on a loan to a Participant shall be added to
Investment Funds in accordance with the Participant's most recent
election with respect to the investment of contributions under
Article V and loan repayments shall be made to the Participant's
Accounts in the reverse order from which the loan was charged.
9.5 Security for Loans: Each loan to a Participant
shall be evidenced by a note, payable to the order of the
Trustee, for the amount of the loan including interest thereon.
Each loan shall be secured by a pledge of the borrower's Account
considered an investment in the Participant Loan Fund, which
pledge shall give the Trustee a security interest in all of the
Participant's then existing and thereafter acquired rights in his
Account considered an investment in the Participant Loan Fund.
By accepting the loan the Participant automatically assigns, as
security for the loan, such rights in his Account. In the event
the Participant's employment with the Employer and Affiliated
Employers is terminated for any reason prior to the repayment of
the loan, the unpaid balance plus accrued interest thereon shall
be deducted from the amount of his Account balance to which he is
entitled as provided in Section 8.2. If, however, a Participant
is having distribution of his Account deferred to age 65 and he
is not in default on repayment on the loan at the time of his
termination of employment or if a Participant receives a loan
after his termination of employment, any unpaid balance on such
loan plus accrued interest shall be deducted from the balance of
his Account to which he is entitled and considered a distribution
from his Account on the first to occur of (i) the default on
repayment of the loan and (ii) the date payment of his Account is
made under Section 8.5.
ARTICLE X
Administration
10.1 Allocation of Responsibility Among Fiduciaries
for Plan and Trust Administration: In general, the Corporation,
which shall be the "administrator" and a "named fiduciary" under
the Plan for purposes of ERISA, shall have the sole authority to
appoint and remove the Trustee, members of the Committee and any
investment manager that may be provided for under the Trust and
to delegate fiduciary responsibilities in addition to any
delegation provided herein, and to amend or terminate, in whole
or in part, the Plan or the Trust. The Committee, the members of
-311-
<PAGE>
which shall be "named fiduciaries" under ERISA, shall have the
general responsibility for the administration of the Plan and
shall have the power to delegate fiduciary responsibilities in
addition to any delegation provided herein.
10.2 Appointment of Committee: The Plan shall be
administered by a Committee consisting of at least three persons
and not more than seven persons who shall be appointed by and
serve at the pleasure of the Board of Directors. No member of
the Committee who is an employee of an Employer shall receive
compensation with respect to his services as a member of the
Committee. The Corporation shall notify the Trustee of the
members of the Committee and any changes in membership that may
take place from time to time.
10.3 Claims Procedure: The Committee shall make all
determinations as to the right of any person to a benefit. Any
denial by the Committee of a claim for benefits under the Plan by
a Participant or Beneficiary shall be stated in writing by the
Committee and delivered or mailed to the Participant or
Beneficiary. Such notice shall set forth the specific reasons
for the denial, written in a manner calculated to be understood
by the Participant. In addition, the Committee shall afford a
reasonable opportunity to any Participant or Beneficiary whose
claim for benefits has been denied for a full and fair review of
the decision denying the claim. To the extent that any portion
of the benefits of a Participant or Beneficiary under the Plan
are not in dispute, payment of the undisputed portion shall be
made without regard to any disputed benefits in accordance with
the terms of the Plan. The Committee's decision on review shall,
to the extent permitted by law, be final and binding on all
persons.
10.4 Other Committee Powers and Duties: The Committee
shall have such duties and powers as may be necessary to
discharge its duties hereunder, including, but not by way of
limitation, the following:
(a) to have the full and exclusive power to (i)
construe and interpret the Plan, construe any ambiguous
provision of the Plan, correct any defect, supply any
omission or reconcile any inconsistency in such manner and
to such extent as the Committee in its sole and absolute
discretion may determine, and (ii) decide all questions of
eligibility and determine the amount, manner and time of
payment of any benefits hereunder;
(b) to prescribe procedures to be followed by
Participants or Beneficiaries in filing applications for
benefits;
(c) to prepare and distribute, in such manner as the
Committee determines to be appropriate, information
explaining the Plan;
-312-
<PAGE>
(d) to receive from the Employers and from
Participants such information as shall be necessary for the
proper administration of the Plan;
(e) to furnish the Employers, upon request, such
annual reports with respect to the administration of the
Plan as are reasonable and appropriate;
(f) to receive, review and keep on file reports from
the Trustee of the financial condition, and of the receipts
and disbursements, of the Trust Fund; and
(g) to appoint or employ individuals to assist in the
administration of the Plan.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided by the Plan, or to waive or fail to apply any
requirements of eligibility for a benefit under the Plan.
10.5 Rules and Decisions: The Committee may adopt
such rules as it deems necessary, desirable or appropriate. All
rules and decisions of the Committee shall be uniformly and
consistently applied to all Participants in similar
circumstances. When making a determination or calculation, the
Committee shall be entitled to rely upon information furnished by
a Participant or Beneficiary, the Employers, the legal counsel
for the Employers or the Trustee.
10.6 Committee Procedures: The Committee may act at a
meeting or in writing without a meeting. The Committee shall
elect one of its members as chairman, appoint a secretary, who
may or may not be a Committee member, and advise the Trustee of
such actions in writing. The secretary shall keep a record of
all meetings and forward all necessary communications to the
Employers or the Trustee. The Committee may adopt such bylaws
and regulations as it deems desirable for the conduct of its
affairs. All decisions of the Committee shall be made by the
vote of the majority including actions in writing taken without a
meeting.
10.7 Authorization of Benefit Payments: The Committee
shall issue directions to the Trustee concerning all benefits
that are to be paid from the Trust Fund pursuant to the
provisions of the Plan and shall warrant that all such directions
are in accordance with the Plan.
10.8 Applications and Forms: Any action permitted or
required to be taken by a Participant or Beneficiary shall be by
means of the Telephone Response System or on such form or forms
as the Committee may require. The Committee may require a
Participant or Beneficiary to complete and file with the
Committee all other forms prescribed by the Committee, and to
furnish all pertinent information requested by the Committee.
-313-
<PAGE>
The Committee may rely upon all such information so furnished to
it.
10.9 Administration Expenses: All expenses, including
Trustee's fees, and all other costs and expenses, including those
of the Committee, incurred in operating and administering the
Plan and Trust may be paid in whole or in part by the Corporation
and any expenses not paid by it shall be paid by the Trustee out
of principal or income of the Trust Fund. Any expenses, however,
of processing loan applications and disbursing loans shall be
paid by Participants or charged to their Accounts as and to the
extent provided in Article IX. Any expenses, including but not
limited to investment advisor fees, related to the investment of
assets of any Investment Fund shall be paid by the Trustee from
the Investment Fund and where allocable to a particular
Participant's Account shall be changed to such Accounts unless
paid by the Corporation.
10.10 Provisions Regarding Common Stock:
(a) Named Fiduciaries:
(i) The Committee will be the "named fiduciary" under
ERISA for purposes of directing the Trustee (i) with
respect to the voting of all allocated shares of Common
Stock held in the Common Stock Fund of the Trust Fund
for which voting instructions are not timely furnished
by Participants and Beneficiaries pursuant to the
provisions of Section 10.10(b) or which have not been
allocated to Participant Accounts; (ii) exercising any
options, warrants or other rights in connection with
shares of Common Stock held in the Common Stock Fund of
the Trust Fund; and (iii) exercising any appraisal
rights, dissenters' rights or similar rights granted by
applicable law to the registered or beneficial holders
of Common Stock. The Committee will adopt from time to
time whatever procedures it determines to be
appropriate in order to exercise its powers and duties
under this Section 10.10(a)(i) and may retain advisors
and consultants (including, without limitation, legal
counsel and financial advisors) who are independent of
the Corporation, the Board of Directors and the Trustee
to the extent the Committee determines such independent
advice to be necessary or appropriate.
(ii) The Committee may, in its discretion, delegate any
power or duty allocated to it pursuant to Section
10.10(a)(i) above to another person or entity, who will
act as an independent fiduciary and will exercise such
power or duty to the same extent as it could have been
exercised by the Committee. The persons or entities to
which such powers and duties may be delegated will
include, without limitation, the Board of Directors or
any committee of the Board of Directors, the Trustee,
any other person or entity that meets the requirements
-314-
<PAGE>
of an investment manager under ERISA Section 3(38), or
any other person or entity that the Committee
determines in good faith has the requisite knowledge
and experience concerning the matter with respect to
which the delegation is made. The Committee may also
remove any fiduciary to whom it has delegated any power
or duty and exercise such power or duty itself or
appoint a successor fiduciary. For purposes of Section
10.10(b) and 10.10(c), the term "Committee" will also
mean any fiduciary to which the Committee has delegated
any power or duty pursuant to this Section
10.10(a)(ii).
(iii) Each Participant and Beneficiary who furnishes
instructions to the Trustee on any matter relating to
Common Stock held in the Common Stock Fund of the Trust
Fund in accordance with the provisions of Section
10.10(b) or Section 10.10(c) will be a "named
fiduciary" under ERISA with respect to such matter.
(b) Voting of Common Stock:
(i) With respect to all corporate matters submitted to
shareholders of Common Stock at any annual or special
meeting thereof or pursuant to any solicitation of
written consents in lieu of a meeting (a "consent
solicitation"), all shares of Common Stock allocated to
the Accounts of Participants in the Common Stock Fund
as of the record date established for such meeting or
consent solicitation will be voted in accordance with
the voting instructions of such Participants as
provided to the Trustee, provided that such
instructions are received by the fifth day before the
meeting or deadline for submitting consents. Upon
timely receipt of proper voting instructions, the
Trustee will vote the shares as instructed. With
respect to shares of Common Stock allocated to the
Account of a deceased Participant, such Participant's
Beneficiary will be entitled to direct the voting with
respect to such allocated shares as if such Beneficiary
were the Participant.
(ii) The Committee will instruct the Trustee how to
vote any allocated shares of Common Stock in the Common
Stock Fund for which the Trustee does not receive
timely instructions from Participants or Beneficiaries
and any shares of Common Stock in the Common Stock Fund
that have not been allocated to Participants' Accounts.
(iii) As soon as practicable before each annual or
special meeting of the holders of Common Stock or
deadline for submitting consents, the Trustee will
deliver or cause to be delivered to each Participant,
or in the event of his death to his Beneficiary, who
has shares of Common Stock in the Common Stock Fund
-315-
<PAGE>
allocated to his Account as of the applicable record
date, a copy of all reports, financial statements,
proxies and proxy solicitation material sent generally
to shareholders with respect to such matter, together
with forms requesting instructions on how to vote the
shares of Common Stock allocated to his Account. The
Committee and the Trustee may also provide Participants
with such other material concerning the matters to be
voted on as or the Committee in its discretion determines
to be appropriate, provided, however, that prior to any
distribution of materials by the Committee, the Trustee
will be furnished with complete copies of all such
materials. The instructions received by the Trustee
from Participants or Beneficiaries will be held by the
Trustee in strict confidence and will not be divulged
or released to any person including directors, officers
or employees of the Corporation, or of any other
company, except as otherwise required by law.
(iv) A Participant's or Beneficiary's right to
instruct the Trustee with respect to voting shares of
Common Stock will not include rights concerning the
exercise of any appraisal rights, dissenters' rights or
similar rights granted by applicable law to the
registered or beneficial holders of Common Stock.
These matters will be exercised by the Trustee in
accordance with the Committee's instructions.
(c) Tender Offer for Common Stock:
(i) The Trustee will tender or not tender shares or
exchange shares of Common Stock in the Common Stock
Fund allocated to the Account of any Participant only
as and to the extent instructed by the Participant.
With respect to shares of Common Stock in the Common
Fund allocated to the Account of a deceased
Participant, such Participant's Beneficiary will be
entitled to direct the Trustee whether or not to tender
or exchange such shares as if such Beneficiary were the
Participant. If tender or exchange instructions for
shares of Common Stock in the Common Stock Fund
allocated to the Account of any Participant are not
timely received by the Trustee, the Trustee will treat
the non-receipt as an instruction not to tender such
shares.
(ii) The Committee will instruct the Trustee whether
or not to tender any shares of Common Stock in the
Common Stock Fund that have not been allocated to
Participants' Accounts.
(iii) In the event an offer is received by the Trustee
to purchase or exchange any shares of Common Stock held
in the Common Stock Fund by the Trust (including a
-316-
<PAGE>
tender offer for shares of Common Stock subject to
Section 14(d)(1) of the Securities Exchange Act of 1934
or subject to Rule 13e-4 promulgated under that Act, as
those provisions may from time to time be amended), the
Trustee will advise each Participant who has shares of
Common Stock in the Common Stock Fund allocated to such
Participant's Account in writing of the terms of the
offer as soon as practicable after its commencement and
will furnish each Participant with a form by which he
may instruct the Trustee confidentially whether or not
to tender or exchange shares allocated to such
Participant's Account. The Committee and the Trustee
may also provide Participants with such other material
concerning the tender or exchange offer as the Trustee
or the Committee in its discretion determines to be
appropriate, provided, however, that prior to any
distribution of materials by the Committee, the Trustee
will be furnished with complete copies of all such
materials. The instructions received by the Trustee
from Participants or Beneficiaries will be held by the
Trustee in strict confidence and will not be divulged
or released to any person, including directors,
officers or employees of the Corporation, or of any
other company, except as otherwise required by law.
(iv) In the event, under the terms of a tender offer
or otherwise, any shares of Common Stock held in the
Common Stock Fund tendered for sale, exchange or
transfer pursuant to such offer may be withdrawn from
such offer, the Trustee will follow instructions
received from Participants, Beneficiaries or the
Committee respecting the withdrawal of such securities
from such offer in the same manner as other
instructions pursuant to this Section 10.10(c).
(v) In the event that an offer for fewer than all of
the shares of Common Stock held by the Trustee in the
Common Stock Fund is received by the Trustee,
Participants, Beneficiaries and the Committee will be
entitled to direct the Trustee as to the acceptance or
rejection of such offer as provided by Sections
10.10(c)(i)-(iv). The instructions received by the
Trustee to tender shares will be applied on a pro rata
basis in accordance with the number or amount of such
shares subject to the instruction, based on the largest
portion of such Common Stock that the Plan may sell,
exchange or transfer pursuant to the offer and the
instructions received by the Trustee from Participants,
Beneficiaries and the Committee.
(vi) In the event instructions are solicited from
Participants and the Committee with respect to an offer
pursuant to Sections 10.10(c)(i)-(iv), and prior to the
termination of such offer another offer is received by
the Trustee for the securities subject to the first
-317-
<PAGE>
offer, the Trustee will treat the offer as a new offer
for purposes of apprising Participants of their rights
to provide instructions to the Trustee. The Trustee
will use its best efforts in the circumstances to
solicit instructions from Participants and the
Committee to the Trustee (i) whether to withdraw any
tender with respect to securities tendered pursuant to
the first offer, if possible, and if withdrawn, whether
to tender any securities so withdrawn pursuant to the
second offer and (ii) whether or not to tender pursuant
to the second offer any securities not tendered
pursuant to the first offer.
(vii) A Participant's instructions to the Trustee to
tender or exchange shares of Common Stock will not be
deemed a withdrawal or suspension from the Plan or a
forfeiture of any portion of the Participant's interest
in the Plan. Funds received in exchange for tendered
shares will be credited to the Account of the
Participant whose shares were tendered and will be used
by the Trustee to purchase Common Stock, as soon as
practicable. In the interim, the Trustee will invest
such funds in short-term investments permitted under
the Trust.
(viii) In the event the Corporation or KU Energy
Corporation initiates a tender or exchange offer, the
Committee may, in its sole discretion, direct the
Trustee to enter into an agreement with the Corporation
not to tender or exchange any shares of Common Stock
held in the Common Stock Fund in such offer, in which
event, the foregoing provisions of this Section
10.10(c) will have no effect with respect to such offer
and the Trustee will not tender or exchange any shares
of Common Stock held in the Common Stock Fund
(allocated or unallocated) in such offer.
ARTICLE XI
Miscellaneous
11.1 No Guarantee of Employment: Nothing contained in
the Plan shall be construed as a contract of the employment
between an Employer and any Employee, or as a right of any
Employee to be continued in the employment of an Employer, or as
a limitation of the right of an Employer to discharge any of its
Employees, with or without cause.
11.2 Rights to Trust Assets: No Participant shall
have at any time any right to, or interest in, any assets of the
Trust Fund, except as provided from time to time under the Plan,
and then only to the extent of the benefits payable under the
Plan to such Participant out of the assets of the Trust Fund.
-318-
<PAGE>
All payments of benefits as provided for in the Plan shall be
made solely out of the assets of the Trust Fund.
11.3 Nonalienation of Benefits: Except as provided in
Section 9.5 or in respect of the creation, assignment or
recognition of a right to any benefit under the Plan pursuant to
the provisions of a "qualified domestic relations order" as
defined in Section 414(p)(1)(A) of the Code, benefits payable
under the Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, including any such liability
which is for alimony or other payments for the support of a
spouse or former spouse, or for any other relative of the
Participant, prior to actually being received by the person
entitled to the benefit under the terms of the Plan; and any such
attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber, charge or otherwise dispose of any right to benefits
payable hereunder, shall be void. Except as provided above, the
Trust Fund shall not in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements or torts of any
person entitled to benefits hereunder.
11.4 Notice of Address: Each Participant or
Beneficiary shall file with the Committee a written notice giving
his post office address and each change of post office address.
Any communication, statement, or notice addressed and mailed,
postage prepaid, to such person at his latest post office address
as so filed shall constitute an effective notice upon such person
for all purposes of the Plan, and neither the Trustee, the
Employers nor the Committee shall be obliged to search for or
ascertain the whereabouts of any such person. If any such person
is notified that he is entitled to payment under the Plan, and
also is notified of the provisions of this Section, and such
person fails to claim his benefits or make his whereabouts known,
or cannot be located after reasonably diligent inquiry, within
one (1) year thereafter, the remaining interest of such person
shall be distributed to any one or more of the spouse or next of
kin of the Participant or Beneficiary involved, or shall be
otherwise applied at such time and to such extent as shall be
permitted under any applicable federal government publication,
ruling or regulation.
11.5 Applicable Law: All questions arising in respect
of the Plan, including those pertaining to its validity,
interpretation and administration, shall be governed, controlled
and determined in accordance with the laws of the Commonwealth of
Kentucky insofar as such laws are not preempted by the laws of
the United States.
11.6 Profit Sharing Plan: It is intended that the
Plan be a qualified profit sharing plan under Section 401(a) of
the Code.
-319-
<PAGE>
11.7 Top-Heavy Provisions: The following provisions
shall become effective in any Plan Year in which the Plan is
determined to be a "top-heavy plan."
(a) The Plan will be considered a "top-heavy plan" for
a Plan Year if as of the last day of the next preceding Plan
Year (i) the aggregate value of the Accounts of
Participants, including former Participants, who are "key
employees" within the meaning of Section 416(i)(1) of the
Code exceeds 60% of the aggregate value of the Accounts of
all Participants, including former Participants, or (ii) the
Plan is part of a required aggregation group and the
required aggregation group is top-heavy. However, and
notwithstanding the above, the Plan shall not be considered
a "top-heavy plan" for any Plan Year in which the Plan is a
part of a required or permissive aggregation group which is
not top-heavy. For purposes of this subsection, the value
of a Participant's or former Participant's Account shall be
adjusted as provided in Sections 416(g)(3) and (4) of the
Code. A "required aggregation group" shall mean each
qualified plan of an Employer or Affiliated Employer in
which a "key employee" participates and any other qualified
plan of an Employer or Affiliated Employer which enables any
such plan to meet the requirements of Section 401(a)(4) or
410 of the Code. A "permissive aggregation group" shall
mean any required aggregation group plus any other qualified
plan or plans of an Employer or Affiliated Employer which,
when considered with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4)
and 410 of the Code. A Participant's or former
Participant's compensation as reported on his Forms W-2 from
the Employers for a Plan Year shall be used, where
applicable, in determining whether he is a "key employee."
(b) Notwithstanding the provisions of Article IV to
the contrary, if for any Plan Year the Plan is a "top-heavy
plan," an Employer shall contribute to the Trust Fund for
each of its Employees who is an Eligible Employee (as
defined below) on the last day of the Plan Year and who is
not a "key employee," an amount equal to the excess, if any,
of (i) over (ii), where (i) is the lesser of (A) three
percent of such Eligible Employee's compensation (as
reported on his Form W-2 from the Employer and Affiliated
Employers but not in excess of the compensation limitation
described in Section 401(a)(17) of the Code) for the Plan
Year and (B) to the extent permitted under Section
416(c)(2)(B) of the Code, the percentage of such Eligible
Employee's compensation (as reported on his Form W-2 from
the Employer and Affiliated Employers but not in excess of
the compensation limitation described in Section 401(a)(17)
of the Code) for the Plan Year equal to the percentage of
compensation (not in excess of the compensation limitation
described in Section 401(a)(17) of the Code) of employer
contributions (including contributions made pursuant to a
salary reduction agreement) and forfeitures allocated for
-320-
<PAGE>
the Plan Year under the Plan and each other qualified
defined contribution plan maintained by the Employers or
Affiliated Employers for the "key employee" for whom such
percentage is the highest for such Plan Year, and (ii) is
the sum of employer contributions (excluding contributions
made pursuant to a salary reduction agreement) and
forfeitures allocated to such Eligible Employee under the
Plan and all other qualified defined contribution plans
maintained by an Employer or Affiliated Employers for the
Plan Year. However, and notwithstanding the above, the
provisions of this subsection (b) shall not apply for any
Plan Year with respect to an Eligible Employee who has
accrued the defined benefit minimum provided under Section
416 of the Code under a qualified defined benefit plan
maintained by the Employers or a Affiliated Employer. Any
amount contributed in accordance with this subsection (b)
with respect to an Eligible Employee for a Plan Year shall
be deemed to be a contribution made under Section 4.2 and
shall be allocated to the Eligible Employee's Account. Any
Eligible Employee for whom such a contribution is made who
is not already a Participant shall, notwithstanding the
provisions of Section 3.1, become a Participant in the Plan
as of the last day of the Plan Year for which the
contribution is made.
(c) For purposes of this Section 11.7, "Eligible
Employee" shall mean any Employee who is eligible to
participate in the Plan as provided in Section 3.1 other
than an Employee who is included in a unit of employees
covered by a collective bargaining agreement between
employee representatives and one or more Employers if there
is evidence that retirement benefits have been the subject
of good faith bargaining between such employee
representatives and such Employer or Employers.
11.8 Return of Contributions: Notwithstanding any
provision of the Plan to the contrary, contributions made by an
Employer shall be returned to the Employer in the following
circumstances:
(a) Each contribution of the Employers under the Plan
is expressly conditioned upon the current deductibility of
the contribution under Section 404 of the Code. If all or
part of an Employer's contribution is disallowed as a
deduction under Section 404 of the Code, such disallowed
amount (reduced by any losses attributable thereto) shall be
returned to the Employer with respect to which the deduction
was disallowed within one year after disallowance.
(b) If a contribution is made by an Employer by reason
of a mistake of fact, then so much of the contribution as
was made as a result of the mistake (reduced by any losses
attributable thereto) shall be returned to the Employer
within one year after the mistaken contribution was made.
-321-
<PAGE>
ARTICLE XII
Amendment, Termination and Action by Employers
12.1 Amendment and Termination: The Corporation may
amend, discontinue contributions under or terminate, and each
Employer as to itself may discontinue contributions or terminate,
the Plan in whole or in part, at any time or from time to time.
Notwithstanding the foregoing, no amendment or termination of the
Plan shall cause any part of the Trust Fund to be used for, or
diverted to, any purpose other than the exclusive benefit of
Participants or their Beneficiaries or shall operate
retroactively so as to affect adversely the right of any
Participant or Beneficiary of the Plan prior to such action;
provided, however, that the Corporation may make any amendment it
determines necessary or desirable, with or without retroactive
effect, to comply with ERISA or the Code.
12.2 Action by Employers: Any action by an Employer
under the Plan may be by resolution of its Board of Directors, or
by any person or persons duly authorized by resolution of said
Board to take such action.
12.3 Effect of Termination: Upon the bankruptcy,
insolvency, merger, consolidation, or dissolution of an Employer,
without provision being made by its successor, if any, for the
continuation of the Plan, or upon the termination, partial
termination or discontinuance of the Plan or of the payment of
contributions thereunder, by an Employer, the Accounts of the
Participants who are Employees of such Employer and who are
affected by such termination, partial termination or
discontinuance shall continue to be fully vested and held in the
Trust Fund in accordance with the provisions of the Plan and
Trust, except that the Committee may direct that the assets of
the Trust Fund allocable to each such Participant and his
Beneficiary shall be distributed to such Participant or
Beneficiary; in which event the Trust shall thereupon terminate
as to such Employer when all Accounts have been distributed;
provided, however, that no such distribution shall be made to any
Participant until he attains age 59-1/2 except in the case of
termination of employment or as otherwise provided in Article
VIII or upon termination of the Plan without the establishment or
maintenance by the Employer or an Affiliated Employer, within 12
months after distribution, of another qualified defined
contribution plan (other than an employee stock ownership plan as
defined in Section 4975(e)(7) of the Code).
ARTICLE XIII
Successor Employer and Merger or Consolidation of Plans
13.1 Successor Employer: In the event of the
dissolution, merger, consolidation or reorganization of an
Employer, provision may be made by which the Plan and Trust will
-322-
<PAGE>
be continued by the successor; and, in that event, such successor
(subject to the consent of the Corporation if the Employer is
other than the Corporation) shall be substituted for the Employer
under the Plan. The substitution of the successor shall
constitute an assumption of Plan liabilities by the successor and
the successor shall have all of the powers, duties and
responsibilities of an Employer under the Plan.
13.2 Plan Assets: In the event of any merger or
consolidation of the Plan with, or transfer in whole or in part
of the assets and liabilities of the Trust Fund to another trust
fund held under any other plan of deferred compensation
maintained or to be established for the benefit of all or some of
the Participants of the Plan, the assets of the Trust Fund
applicable to such Participants shall be transferred to the other
trust fund only if:
(a) Each Participant would (if either the Plan or the
other plan then terminated) receive a benefit immediately
after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled
to receive immediately before the merger, consolidation or
transfer (if this Plan had then terminated);
(b) Resolutions of the Board of Directors of the
Corporation under this Plan, and of any new successor
employer of the affected Participants, shall authorize such
transfer of assets; and, in the case of the new or successor
employer of the affected Participants, its resolutions shall
include an assumption of liabilities with respect to such
Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under
Sections 401(a) and 501(a) of the Code.
-323-
<PAGE>
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board, President and Chief Executive Officer and its
Corporate Seal to be hereunto affixed, attested by its Secretary,
on this 8th day of November, 1996.
KENTUCKY UTILITIES COMPANY
By /s/ Michael R. Whitley
Chairman of the Board, President and
Chief Executive Officer
[Corporate Seal]
ATTEST:
/s/ George S. Brooks II
Secretary
-324-
EXHIBIT 99.05
KENTUCKY UTILITIES COMPANY
EMPLOYEE SAVINGS PLAN TRUST
(Effective January 2, 1997)
-325-
<PAGE>
TABLE OF CONTENTS
Page
Section 1: Establishment of Trust . . . . . . . . . . . . . . . . . . . 1
Section 2: General Duties of the Company and Plan Committee;
Indemnification . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3: General Duties of Trustee . . . . . . . . . . . . . . . . . . 2
Section 4: Power and Duties of Trustee with Respect to Trust
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5: Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 6
Section 6: Investment Managers . . . . . . . . . . . . . . . . . . . . . 6
Section 7: Disbursement of Trust Funds . . . . . . . . . . . . . . . . . 7
Section 8: Investment Fund Directions . . . . . . . . . . . . . . . . . 8
Section 9: Common Trust Funds . . . . . . . . . . . . . . . . . . . . . 8
Section 10: Expenses of the Plan and Trust . . . . . . . . . . . . . . . 8
Section 11: Accounts of the Trustee . . . . . . . . . . . . . . . . . . . 9
Section 12: Resignation, Removal and Substitution of Trustee . . . . . . 9
Section 13: Amendment and Termination of Trust . . . . . . . . . . . . . 10
Section 14: Action of Company and Plan Committee . . . . . . . . . . . . 11
Section 15: Miscellaneous Provisions . . . . . . . . . . . . . . . . . . 11
-326-
<PAGE>
KENTUCKY UTILITIES COMPANY EMPLOYEE SAVINGS PLAN TRUST
THIS TRUST AGREEMENT, made as of the 2nd day of January, 1997, by and
between KENTUCKY UTILITIES COMPANY (hereinafter called the "Company") and CG
TRUST COMPANY, a trust company organized under the laws of the State of
Illinois with its principal office and place of business in the City of
Chicago, Illinois (hereinafter called the "Trustee").
WITNESSETH:
WHEREAS, the Company has heretofore adopted for its eligible employees
the Kentucky Utilities Company Employee Savings Plan (which, as amended from
time to time, is hereinafter called the "Plan");
WHEREAS, the Kentucky Utilities Company Master Retirement and Employee
Savings Plan Trust (the "Master Trust") was established to serve as the
funding medium for the Plan and certain other plans maintained by the Company;
WHEREAS, the Company desires to separate the equitable share of the
Master Trust attributable to the Plan and to transfer it, effective January 2,
1997 or as soon thereafter as is practicable, to a separate trust established
under the Plan; and
WHEREAS, the Company desires the Trustee to serve as the trustee of such
separate trust and the Trustee is willing to do so pursuant to the terms of
this Trust Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto do hereby mutually declare and agree as
follows:
Section 1: Establishment of Trust.
(a) In order to carry out the purposes of the Plan, the Company hereby
creates and establishes a trust to be known as the "Kentucky Utilities Company
Employee Savings Plan Trust" (hereinafter called the "Trust"). The Trustee
accepts this Trust and agrees to act as Trustee hereunder, but only on the
terms and conditions set forth in this Trust Agreement. Subject to the terms
and conditions of this Trust Agreement, all right, title and interest in and
to the assets held under the Trust shall be vested exclusively in the Trustee.
This Trust shall be effective on January 2, 1997.
(b) The Trustee shall hold hereunder all contributions and other
property acceptable to it and received from or at the direction of the
Company. All assets so received, together with the income therefrom and any
other increment thereon, shall be held by the Trustee pursuant to the terms of
this Trust Agreement without distinction between principal and income. All
money and other property held under the Trust Agreement at any time of
reference is hereinafter called the "Trust Fund." The Trust Fund shall be
invested only through those investment vehicles or options as the Trustee
accepts in writing from time to time. The Company acknowledges and agrees
that it is responsible for effectuating the transfer to the Trustee of assets
held under the Master Trust that are attributable to the Plan.
-327-
<PAGE>
Section 2: General Duties of the Company and Plan Committee;
Indemnification.
(a) The Company, as Plan administrator and a named fiduciary under the
Plan for purposes of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), shall control and manage the operation of the Plan as
provided therein. The committee (hereinafter called the "Committee")
appointed pursuant to the provisions of the Plan, the members of which are
named fiduciaries for purposes of ERISA, shall be responsible for determining
benefit rights under the Plan, instructing the Trustee in the disbursement of
benefits, and performing those Plan administration functions specified in the
Plan.
(b) The Company shall act as custodian with respect to promissory
notes, mortgages and related documents given in connection with Plan loans, if
any, and the Company shall hold in safekeeping all such promissory notes,
mortgages and related documents.
(c) The Trustee shall be indemnified and saved harmless by the Company
from and against any and all claims, losses, damages, expenses (including
reasonable counsel fees) and liability to which the Trustee may be subjected
by reason of (i) any act done or omitted to be done in acting in reliance upon
the instructions or directions of the Company or the Committee, or any
delegate of the Company or the Committee, issued in accordance with the Trust
Agreement or on directions properly given by a Plan participant or
beneficiary, where the provisions of this Trust Agreement permit such
direction or (ii) the Company's or Committee's, or such delegate's or a Plan
participant's or beneficiary's, as the case may be, failure to instruct or
direct where authorized to do so pursuant to the terms of the Trust Agreement.
Any reference herein to directions or instructions from the Company or the
Committee shall include directions or instructions from any delegate of the
Company or the Committee, as the case may be.
(d) In addition to and in no way in limitation of the indemnification
of Section 2(c) above, the Company hereby agrees to indemnify and hold
harmless the Trustee from and against any claims, losses, damages, expenses
(including reasonable counsel fees) and liability to which the Trustee may be
subject by reason of any act or omission of any prior or subsequent trustee or
any other existing trustee of the Plan.
Section 3: General Duties of Trustee.
(a) The Trustee shall receive, hold, manage, invest and reinvest the
Trust Fund pursuant to the provisions of this Trust Agreement. The Trustee
shall have no duty to determine any facts or the propriety of any action taken
or omitted by it in good faith pursuant to instructions from persons issued in
accordance with this Trust Agreement.
(b) The Trustee shall be responsible only for all contributions as are
actually received by it as Trustee hereunder. The Trustee shall have no duty
or authority to ascertain whether any contributions should be made to it
pursuant to the Plan or to bring any action to enforce any obligation to make
any such contribution, nor shall it have any responsibility concerning the
amount of any contribution or the application of the Plan's contribution
formula.
-328-
<PAGE>
(c) The duties and obligations of the Trustee hereunder shall be
limited to those expressly imposed upon it by this Trust Agreement
notwithstanding (unless otherwise specifically provided herein) any reference
herein to the Plan, and no further duties or obligations of the Trustee shall
be implied. The Trustee shall not be liable in discharging its duties
hereunder if it acts in good faith and in accordance with the terms of this
Trust Agreement and in accordance with applicable Federal or state laws, rules
and regulations.
Section 4: Power and Duties of Trustee with Respect to Trust Fund. The
Trustee shall have the following powers and duties regarding the Trust Fund:
(a) To hold title to the assets of the Trust Fund, which may include
entering into depository or custodial arrangements for the safekeeping of
records relevant to the ownership of such assets with any bank or banks as the
Trustee may choose. Except as permitted by ERISA, the Trustee shall not
maintain the indicia of ownership of any assets of the Trust Fund outside the
jurisdiction of the district courts of the United States.
(b) Subject to provisions of Section 6, Section 7(c) and Section 8, to
invest and reinvest the assets of the Trust Fund in such investments or in
such investment vehicles, including annuity or insurance contracts issued by
affiliates of the Trustee, in accordance with directions received from the
Company and to agree to amendments to such annuity or insurance contracts as
directed by the Company. The Trustee shall have no duty or responsibility to
determine the appropriateness of any Plan investment, or to cause such
investments to be changed. Notwithstanding any other provisions of this Trust
Agreement, all notices, proposed contract amendments, rate or fee changes or
other communications regarding all group annuity contracts that are assets of
the Trust Fund, including any group annuity contract issued by Connecticut
General Life Insurance Company or other affiliate of the Trustee, will be sent
directly by the issuer of the contract to the Company or forwarded by the
Trustee to the Company, and the Trustee shall act on behalf of the Trust with
respect to any such notice, proposed amendment, change or other communication
only in accordance with the written direction of the Company. Any rights of a
contractholder, under any such group annuity contract to discontinue, amend or
otherwise modify the contract shall be exercised only upon the specific
written direction of the Company to the issuer of the contract or by the
Trustee at the Company's specific written direction.
(c) To make disbursements from the Trust Fund as directed by the
Committee or Company in accordance with this Trust Agreement. The Trustee
shall be entitled to rely on any such direction, and shall have no
responsibility to ascertain whether the Plan permits such a disbursement.
(d) To delegate to third parties, including affiliates of the Trustee,
any or all of its duties hereunder, including recordkeeping and reporting,
provided that such delegation does not result in a violation of any applicable
law (including, but not limited to, the Internal Revenue Code of 1986, as
amended (the "Code") or ERISA), rule or regulation. Also, the Trustee may
utilize the services of outside custodians to hold on the Trustee's behalf any
Plan assets. Without limiting the generality of the foregoing, the Trustee
hereby appoints the Company, and the Company hereby accepts appointment, to
act as custodian with respect to promissory notes, mortgages and related
documents given in connection with Plan loans, if any.
-329-
<PAGE>
(e) To make transfers among investment funds established under the
Plan as directed by the Committee or by a Plan participant in accordance with
Section 8. The Trustee shall be entitled to rely on any such direction and
shall have no responsibility to ascertain whether Plan permits such a
transfer.
(f) At the direction of the person authorized to direct such action as
referred to in Section 4(b) above and subject to the Trustee's acceptance in
accordance with Section 1(b) above:
(i) to invest and reinvest the Trust Fund, together with the
income therefrom, in stocks, including, but not limited to,
stock of the Company, KU Energy Corporation or other
affiliate of the Company (hereinafter called "Company
Stock"), bonds, debentures, convertible debentures and
bonds, mortgages, notes, commercial paper and other
evidences of indebtedness (including those issued by the
Trustee), shares of mutual funds (which funds may be
sponsored, managed or offered by an affiliate of the
Trustee), guaranteed investment contracts, bank investment
contracts, other securities, policies of life insurance or
annuity contracts (including those issued by an affiliate
of the Trustee), options, options to buy or sell
securities, or other assets, and all other property of any
type (personal, real or mixed, and tangible or intangible);
(ii) to deposit or invest all or any part of the assets of the
Trust in savings accounts or certificates of deposit or
other deposits in a bank or savings and loan association or
other depository institution;
(iii) to hold, manage, improve, repair and control all property,
real or personal, forming part of the Trust Fund; and to
sell, convey, transfer, exchange, partition, lease for any
term, even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time;
(iv) to have, respecting securities, all the rights, powers and
privileges of an owner, including the power to give
proxies, pay assessments and other sums necessary for the
protection of the Trust Fund; to vote any corporate stock
either in person or by proxy, with or without power of
substitution, for any purpose; to participate in voting
trusts, pooling agreements, foreclosure, reorganizations,
consolidations, mergers and liquidations, and in connection
therewith to deposit securities with or transfer title to
any protective or other committee; to exercise or sell
stock subscriptions or conversion rights; and, regardless
of any limitation elsewhere in this instrument relative to
investments by the Trustee, to accept and retain as an
investment any securities or other property received
through the exercise of any of the foregoing powers;
provided, however, that such voting and other rights in any
Company Stock held in the investment fund established under
the Plan designed to invest in Company Stock shall be voted
-330-
<PAGE>
or exercised in accordance with Section 10.10 of the Plan.
(v) to hold in cash, without liability for interest, such
portion of the Trust Fund which it is directed to so hold
in accordance with this Trust Agreement pending investment,
or payment of expenses, or the distribution of benefits;
(vi) to settle, compromise or abandon all claims and demands in
favor of or against the Trust Fund;
(vii) to invest in any common or collective trust fund of the
type referred to in Section 9 hereof maintained by the
Trustee or otherwise;
(viii) to exercise all of the further rights, powers, options and
privileges granted, provided for, or vested in trustees
generally under the laws of the state in which the Trustee
is incorporated so that the powers conferred upon the
Trustee herein shall not be in limitation of any authority
conferred by law, but shall be in addition thereto;
(ix) to maintain accounts at and execute transactions through
any brokerage or other firm, including any firm which is an
affiliate of the Trustee; and
(x) to lend money to a Plan participant as directed by the
Committee.
(g) To the extent necessary or which it deems appropriate to implement
its powers under this Section 4 or otherwise to fulfill any of its duties and
responsibilities as Trustee of the Trust Fund, the Trustee shall have the
following additional powers and authority:
(i) to register securities, or any other property, in its
name or in the name of any nominee, including the
name of any affiliate or the nominee name designated
by any affiliate, with or without indication of the
capacity in which property shall be held, or to hold
securities in bearer form and to deposit any
securities or other property in a depository or
clearing corporation;
(ii) to designate and engage the services of, and to
delegate powers and responsibilities to, such agents,
representatives, advisers, counsel and accountants as
the Trustee considers necessary or appropriate, any
of whom may be an affiliate of the Trustee or a
person who renders services to such an affiliate,
and, as a part of its expenses under this Trust
Agreement to the extent not prohibited under ERISA,
to pay their reasonable expenses and compensation;
(iii) to make, execute and deliver, as Trustee, any and all
deeds, leases, mortgages, conveyances, waivers,
-331-
<PAGE>
releases or other instruments in writing necessary or
appropriate for the accomplishment of any of the
powers listed in this Trust Agreement; and
(iv) generally to do all other acts which the Trustee
deems necessary or appropriate for the protection of
the Trust Fund.
(h) To establish a procedure for the timely dissemination to each
person entitled to direct the Trustee as to a voting or other decision called
for thereby or referred to therein of all proxy and other materials bearing on
the decision. In the case of Company Stock, at such times as proxy or other
materials bearing thereon are disseminated generally to owners of Company
Stock in accordance with applicable law, the Company shall cause a copy of
such proxy or other materials to be delivered directly to the Trustee and,
thereafter, shall promptly deliver to the Trustee or any other entity hired by
the Company or Committee to handle shareholder solicitions and tabulations
such number of additional copies of the proxy or other materials as the
Trustee or such other entity may request for dissemination to Plan
participants and beneficiaries.
Section 5: Payment of Taxes. The Trustee shall pay out of the Trust
Fund income taxes and other taxes of any and all kinds levied or assessed
under existing or future laws against the Trust Fund.
Section 6: Investment Managers. The Company may direct the Trustee to
segregate all or a portion of the Trust Fund in a separate investment account
or accounts and may appoint an investment manager, as defined in ERISA, to
direct the investment and reinvestment of such investment account or accounts
in respect of which an investment manager has been appointed. In such event,
the Company shall notify the Trustee of the appointment of such investment
manager. Thereafter, the Trustee shall make every sale or investment in
respect of such account or accounts only as directed in writing by the
investment manager or, with the Trustee's consent, sales or investments may be
communicated to and implemented by a broker/dealer designated by the
investment manager. Communication of any such direction to such a
broker/dealer shall conclusively be deemed an authorization to the
broker/dealer to implement the direction even though coming from a person
other than the Trustee. The Trustee shall, without question, comply with any
directions given to it by the investment manager appointed pursuant to the
preceding sentences of this Section 6 and shall not be accountable for any
losses sustained by reason of any action taken or omitted pursuant to the
provisions of the preceding sentences and no person dealing with the Trustee
need inquire whether or not these provisions have been complied with. The
Trustee shall be under no duty to question any such direction of the
investment manager, to review any securities or other property held in any
investment account or accounts in respect of which an investment manager has
been appointed or to make any recommendations to the investment manager with
respect to such securities or other property. The Trustee shall not be liable
or responsible for any loss resulting to the Trust Fund by reason of any sale
or investment made pursuant to the direction of an investment manager nor by
reason of the failure to take any action with such direction in the absence of
further directions of such investment manager. Notwithstanding anything in
the Trust Agreement to the contrary, the Trustee shall be indemnified and
-332-
<PAGE>
saved harmless by the Company from and against any and all personal liability
to which the Trustee may be subjected by carrying out any directions of an
investment manager issued pursuant hereto or for failure to act in the absence
of directions of the investment manager, including all expenses reasonably
incurred in its defense in the event the Company fails to provide such
defense; provided, however, the Trustee shall not be so indemnified if it
participates knowingly in, or knowingly undertakes to conceal, an act or
omission of an investment manager, having actual knowledge that such act or
omission was a breach of fiduciary duty; provided further, however, that the
Trustee shall not be deemed to have knowingly participated in or knowingly
undertaken to conceal an act or omission of an investment manager with
knowledge that such act or omission was a breach of fiduciary duty by merely
complying with directions of an investment manager or for failure to act in
the absence of directions of an investment manager or by reason of maintaining
accounting records. The Trustee shall not be charged with knowledge of the
termination of the appointment of any investment manager until it receives
written notice thereof from the Company.
Section 7: Disbursement of Trust Funds.
(a) Upon receipt of written direction of the Committee, the Trustee
shall make payments from the Trust Fund to such persons or direct that such
payments be made from any annuity contract held in the Trust Fund, in such
manner and in such amounts as the Committee shall direct in writing, and
amounts paid pursuant to such direction shall no longer constitute a part of
the Trust Fund. Notwithstanding the foregoing, in accordance with procedures
agreed to by the Company and the Trustee, the Committee may provide direction
directly to an insurance carrier regarding payments of Plan benefits or other
disbursements to be made from an annuity contract issued by such carrier,
which may include Connecticut General Life Insurance Company, that is held in
the Trust Fund.
(b) Except as provided in Section 15(n) or in the Plan, at no time
shall any part of the corpus or income of the Trust Fund be used for, or
diverted to, purposes other than for the exclusive purpose of providing
benefits to participants in the Plan and their beneficiaries, and defraying
reasonable expenses of administering the Plan and Trust, and the assets of the
Trust Fund shall never inure to the benefit of the Company or any other
employer participating in the Plan (hereinafter called an "Employer").
(c) Loans to participants as provided for in the Plan shall be granted
and administered by the Committee and may be initiated in accordance with
Section 8. The Trustee shall distribute cash to such participants who are
granted loans in such amount and at such times as the Committee shall from
time to time direct in writing. Loan payments collected by the Company shall
be forwarded to the Trustee identifying the principal and interest portions.
Section 8: Investment Fund Directions. Each Plan participant shall
provide directions as to which investment funds the amounts allocable to his
or her Plan accounts will be invested and may initiate a Plan loan from time
to time in accordance with the terms of the Plan. It shall be the
responsibility of the Committee to accumulate, aggregate and transmit to the
Trustee initial investment directions received in accordance with the Plan
from Plan participants. On and after the date as agreed upon by the Trustee
-333-
<PAGE>
or its affiliates and the Committee for the implementation of a telephone
response system under the Trust, each Plan participant shall make each and
every investment direction change as to which investment funds amounts
allocable to his or her Plan account shall be invested and may initiate Plan
loan requests by use of, and subject to the written rules of, the telephone
response system maintained for such purpose by the Trustee or its affiliate,
unless the Trustee has been directed by the Committee in writing not to accept
telephone directions from participants, in which event investment directions
by the participants shall be transmitted to the Trustee by the Committee. The
Trustee shall process directions made via the telephone response system only
after the identity of the Plan participant is verified by use of a personal
identification number ("PIN") and social security number.
Section 9: Common Trust Funds. The Trustee, or any bank or trust
company acting as an investment manager pursuant to Section 6, is specifically
authorized to invest and reinvest any part or all of the Trust Fund assets in
any common, collective or pooled trust fund, including any such fund of which
the Trustee or its affiliate or such bank or trust company is trustee, which
is now or hereafter maintained as a medium for the collective investment of
funds of pension, profit sharing or other employee benefit plans, and which
are qualified under Section 401(a) and exempt from taxation under Section
501(a) of the Code. Any assets deposited with the trustee of a collective
trust fund shall be held and invested by the trustee thereunder pursuant to
all the terms and conditions of the trust agreement or declaration of trust
establishing such trust fund, which agreement or declaration is hereby
incorporated herein by reference and shall prevail over any contrary
provisions of this Trust Agreement.
Section 10: Expenses of the Plan and Trust. The Trustee shall be
compensated in accordance with the fee schedule provided to and agreed upon by
the Company. If the Trustee sends the Company (to the attention of the
Company's Vice President of Human Resources) written notice of a proposed
amendment to its fee schedule and the Company fails to object thereto within
90 days of the Company's actual receipt of such notice, the amended fee
schedule shall be deemed accepted by the Company. In addition, the Trustee
shall be paid its reasonable expenses, including reasonable expenses of
counsel and other agents employed by the Trustee, incurred in conjunction with
the administration of the Trust Fund. The expenses incurred by the Trustee in
the administration of the Trust Fund, including fees for legal services
rendered to the Trustee, such compensation to the Trustee as may be agreed
upon from time to time between the Company and the Trustee, and all other
proper charges and expenses incurred by the Company, the Employers and
Committee in the administration of the Plan, including, but not limited to,
accounting, legal and actuarial expenses, shall be paid from the Trust Fund
except to the extent the Company or other Employers elect to pay such items.
Section 11: Accounts of the Trustee. The Trustee has accepted this
Trust on the condition that the Company has entered or is entering into a
service agreement with Connecticut General Life Insurance Company whereby
Connecticut General Life Insurance Company will provide recordkeeping services
for all Plan assets held pursuant to this Trust Agreement. Accordingly, the
Trustee shall maintain or cause to be maintained accurate and detailed
accounts of all investments, receipts, disbursements and other transactions
hereunder, and all accounts, books and records relating thereto shall be open
to inspection and audit at all reasonable times by any person designated by
-334-
<PAGE>
the Company. As of the close of each calendar year, or as of the close of
such other accounting period as the Company may from time to time designate,
and as of the date of the removal or resignation of the Trustee as provided in
Section 12 hereof, the Trustee shall file or cause to be filed with the
Company a written account setting forth all investments, receipts,
disbursements and other transactions effected during the period from the date
of its last such account and a list of the assets of the Trust Fund at the
close of such period. Such account may be in the form of monthly or quarterly
statements which taken together reflect the matters set forth in the preceding
sentence. It shall be the duty of the Company to review such written account
promptly within 90 days from the date of filing any such account and the
Trustee shall be forever released and discharged from all liability and
accountability to anyone with respect to the propriety of the acts and
transactions shown in such account except with respect to any such acts or
transactions as to which the Company shall within such 90-day period file
written objections with the Trustee. The approval of any accounting, act or
procedure by the Company shall be a full acquittance and discharge to the
Trustee with respect thereto. Nothing herein contained, however, shall be
deemed to preclude the Trustee's right to have its account judicially settled
by a court of competent jurisdiction.
Section 12: Resignation, Removal and Substitution of Trustee.
(a) The Trustee may resign at any time by giving at least 30 days'
written notice to the Company (unless the Company deems notice of a shorter
duration to be adequate); except that in the event the Company terminates the
recordkeeping service agreement with Connecticut General Life Insurance
Company referred in Section 11, the Trustee shall be deemed to have resigned
as of the effective date of such termination without the necessity of
providing prior written notice to the Company. The Company, by action of its
Board of Directors, may remove the Trustee at any time by giving at least 30
days' written notice to the Trustee (unless the Trustee deems notice of a
shorter duration to be adequate). Upon such removal or resignation of the
Trustee, the Company shall appoint a successor trustee who shall have the same
powers and duties as those conferred upon the Trustee hereunder.
(b) Any successor trustee hereunder may be either a corporation
authorized and empowered to exercise trust powers or may be one or more
individuals.
(c) Upon the acceptance of the appointment of a successor trustee, the
resigning or removed Trustee shall execute, acknowledge and deliver all
documents and written instruments necessary to transfer and deliver the Trust
Fund and all rights and privileged therein to the successor trustee. No
successor Trustee shall be personally liable for any act or omission of any
predecessor. Upon the transfer and delivery of the Trust Fund to the
successor Trustee and the approval or settlement of the accounts of the
resigning or removed Trustee as provided in Section 11, the resigning or
removed Trustee shall be discharged from further accountability for the Trust
Fund with respect to the propriety of the acts and transactions shown in such
account and the resigning or removed Trustee shall be under no further duty,
obligation or responsibility for the disposition by such successor Trustee of
the Trust Fund or any part thereof.
-335-
<PAGE>
(d) In the event that any corporate Trustee hereunder shall be
converted into, shall merge or consolidate with, or shall sell or transfer
substantially all of its assets and business to, another corporation, state or
federal, the corporation resulting from such conversion, merger or
consolidation, or the corporation to which such sale or transfer shall be
made, shall thereupon become and be the Trustee of the Trust with the same
effect as through specifically so named.
Section 13: Amendment and Termination of Trust.
(a) The Company, by action of its Board of Directors, and the Trustee
may mutually agree at any time to amend this Trust Agreement and the Trust
created hereby to any extent deemed advisable. No amendment to this Trust
Agreement shall be effective unless mutually agreed to in writing by the
Company and the Trustee; provided, however, that the Trustee's fee schedule
may be amended as provided in Section 10.
(b) The Company, by action of its Board of Directors, may at any time
revoke this Trust Agreement and terminate the Trust hereby created. Such
revocation and termination shall become effective upon receipt by the Trustee
or its delegate of a written instrument of such revocation and termination
executed by the Company. Upon any such termination being implemented in
connection with the termination of the Plan, disposition of the assets of the
Trust Fund shall be governed by the terms of the Plan; provided, however, that
the Trustee shall not distribute any portion of the Trust Fund after such
termination unless the Company first obtains a determination from the Internal
Revenue Service that such termination will not affect adversely the qualified
status of the Plan. In lieu of an Internal Revenue Service determination,
assets of the Trust Fund may be distributed if the Company agrees in writing
with the Trustee to indemnify the Trust Fund for any taxes or other penalties
which may be assessed against it as a result of such termination or agrees to
provide a bond to secure payment of any such taxes or penalties.
(c) This Trust Agreement shall terminate in its entirety when there is
no asset included in the Trust Fund.
Section 14: Action of Company and Plan Committee.
(a) Any action by the Company, pursuant to any of the provisions of
this Trust Agreement, except as provided in Section 12(a), 13(a) or 13(b)
hereof, shall be by written instruction signed by its President or one of its
Vice Presidents, or by written instrument executed by any person authorized by
any one of the above to take such action; and the Trustee shall be fully
protected in acting in accordance with any such written instrument received by
it.
(b) All notices, orders, requests and instructions of the Committee
under the Plan to the Trustee shall be in writing signed by any one of its
members or by its Secretary and the Trustee shall act and shall be fully
indemnified and saved harmless by the Company pursuant to Section 2(c) of this
Trust Agreement in acting in reliance upon and in accordance with such
notices, orders, requests and instructions, and shall have no duty to see to
the application of any funds paid in accordance therewith. The Company by any
one of its officers will certify to the Trustee the appointment and
termination of office of members of the Committee and the Committee's
-336-
<PAGE>
Secretary and the Trustee shall not be charged with knowledge thereof until it
receives such notice.
Section 15: Miscellaneous Provisions.
(a) This Trust Agreement and the Trust hereby created shall be
governed, construed, administered and regulated in all respects under the laws
of the State of Illinois insofar as such laws are not preempted by the laws of
the United States.
(b) The titles of the Sections in this Trust Agreement are for
convenience of reference only and, in case of any conflict, the text of this
instrument, rather than such titles, shall control.
(c) In case any provisions of this Trust Agreement shall be held
illegal or invalid for any reason, their illegality or invalidity shall not
affect the remaining parts of this Trust Agreement, and this Trust Agreement
shall be construed and enforced as if the illegal and invalid provisions had
never been a part of the Trust Agreement.
(d) This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. The counterparts
shall constitute one and the same instrument and may be sufficiently evidenced
by any one counterpart.
(e) This Trust Agreement shall be binding upon the respective
successors and assigns of the Company and the Trustee.
(f) Neither the gender nor the number (singular or plural) of any word
shall be construed to exclude another gender or number when a different gender
or number would be appropriate.
(g) In the event of any conflict between provisions of the Plan and
those of this Trust Agreement, this Trust Agreement shall prevail.
(h) Communications to the Trustee shall be sent to the Trustee's
principal offices or such address as the Trustee may specify in writing.
Communications to the Company shall be sent to the Company's principal offices
or such address as the Company may specify in writing. No communication shall
be binding upon the Trustee or the Company until it is received by the Trustee
or the Company, as the case may be, or its delegate.
(i) In the event of the merger or consolidation of the Company or any
Employer or other circumstances whereby a successor person, firm or company
shall continue to carry on all or a substantial part of its business, and such
successor shall elect to carry on the provisions of the Plan as therein
provided, such successor, subject to the consent of the Company with respect
to an Employer other than the Company, shall be substituted for the Company or
such Employer, as the case may be, hereunder, upon the filing in writing of
its election so to do with the Trustee. The Trustee may, but need not, rely
on the certification of an officer of the Company, and a certified copy of a
resolution of the Board of Directors of such successor, reciting the facts,
circumstances and consummation of such succession and the election of such
successor to continue the Plan as conclusive evidence thereof, without
requiring any additional evidence.
-337-
<PAGE>
(j) Subject to the provisions if ERISA relating to parties entitled to
participate in proceedings relating to the Plan and Trust, necessary parties
to any accounting, litigation or other proceedings shall include only the
Trustee and the Company and the settlement or judgment in any such case in
which the Company is duly served or cited shall be binding upon all Plan
participants, and their beneficiaries and estates, and upon all persons
claiming by, through or under them.
(k) The right to distributions directed to be made hereunder may not,
except as provided in the Plan, be voluntarily or involuntarily sold,
transferred or assigned by any Plan participant, or by any beneficiary, nor
shall distributions be in any way liable to the claim of any creditor of any
such person. The foregoing sentence shall not preclude the creation,
assignment or recognition of a right to any benefit under the Plan or Trust,
pursuant to the provision of a "qualified domestic relations order" as defined
in Section 414(p)(1)(A) of the Code.
(l) If any payment of a benefit hereunder has been mailed by U.S. Mail
to the last address of the payee furnished the Trustee by the Committee is
returned and unclaimed, the Trustee shall notify the Committee or the Company
and shall discontinue further payments to such payee until it receives the
further instructions of the Committee.
(m) Notwithstanding any provision in this Trust Agreement to the
contrary, contributions made by the Company or any Employer shall be returned
to the Company or said Employer if the Company certifies that such return is
in compliance with Section 403(c) of ERISA.
(n) The Company intends that the Trust herein created shall qualify as
an "Exempt Organization" with the meaning of Section 501(a) of the Code or
under any comparable section of any future legislation which amends,
supplements or supersedes said Section, and until advised to the contrary, the
Trustee may assume that the Trust is so qualified and is entitled to tax
exemption.
IN WITNESS WHEREOF, this Trust Agreement has been executed on the dates
indicated below to be effective January 2, 1997. The persons executing this
Trust Agreement represent that they are duly authorized to do so.
-338-
<PAGE>
Attest KENTUCKY UTILITIES COMPANY
/s/ George S. Brooks II By /s/ Michael R. Whitley
Its Chairman, President and CEO
Date November 26, 1996
Attest CG TRUST COMPANY
/s/ Sharon Grigas By /s/ Jeananne G. Digan
Its Trust Officer
Date January 6, 1997
-339-
EXHIBIT 99.06
CAUTIONARY STATEMENTS - KU ENERGY AND KU
The following are cautionary statements, assumptions and other factors
that could cause the Company's or KU's actual results to differ materially
from those contemplated in any forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
1. Increased competition in the utility industry including effects of:
decreasing margins as a result of competitive pressures; industry
restructuring initiatives; inability to recover in rates a return on
investments made under regulation; legislation or regulatory
initiatives (such as retail wheeling or open access) designed to
increase competition and the presence of new competitors entering
KU's service territory, including other traditional utilities,
nonutility generators, power marketers, power brokers and others.
These factors could result in lower revenues and earnings.
2. Economic conditions affecting customers businesses producing changes
in demand for their products or services or changes in their cost
structures causing fluctuations in the amount of energy purchased
from KU. These factors could have a significant impact on the
economic health of KU's service territory, which (in turn) could have
an adverse impact on revenues and earnings.
3. Increased capital and other costs of providing for increased customer
demand (through addition of peaking capacity or purchased power).
Increased costs not recovered from customers could result in lower
earnings.
4. Financial or regulatory accounting principles or policies imposed by
the Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and applicable
state utility regulatory bodies. These could adversely affect
reported results.
5. Availability or cost of capital, which may be affected by, or may
affect, interest rates, market perceptions of the utility and energy-
related industries, the Company or any of its subsidiaries or changes
in security ratings of the Company or KU. Increases in capital
costs, without corresponding increases in revenues, would adversely
affect earnings.
6. Unusual weather conditions; catastrophic weather-related events;
unscheduled generation outages; unanticipated changes in the cost or
availability of fuel or gas supply due to higher demand, shortages or
transportation problems; or electric transmission system or gas
pipeline constraints. The foregoing could adversely affect operating
results.
7. Economic conditions including significant fluctuations in the rate of
inflation. Increased costs caused by inflation, without
corresponding increases in revenues would adversely affect earnings.
-340-
<PAGE>
8. Changes in monetary, fiscal, tax or environmental policies of
governments or governmental agencies, which may significantly affect
costs of capital, expense levels or costs of compliance with existing
or future environmental requirements. Such increases in costs,
without corresponding increases in revenues, would adversely affect
earnings.
9. Employee workforce factors including changes in collective bargaining
agreements with union employees, or work stoppages, which may
increase costs or reduce revenues.
10. Significant changes in policies of regulatory agencies with
jurisdiction over KU's rates, which may adversely affect revenues and
earnings.
11. Costs and other effects of legal and administrative proceedings,
settlements, investigations and claims, including but not limited to
those described in Notes 4 and 9 of the Notes to Consolidated
Financial Statements in the Company's and KU's Annual Report on
Form 10-K for the year ended December 31, 1996.
Neither the Company nor KU undertakes any obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
-341-
