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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
LOUISVILLE GAS AND ELECTRIC COMPANY
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
March 26, 1997
Dear Louisville Gas and Electric Company shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Louisville Gas and Electric Company, to be held May 8, 1997, at 10:00 a.m.,
E.D.T. at the Hyatt Regency Louisville, 320 W. Jefferson Street, Louisville,
Kentucky.
Business matters to be acted upon at the meeting are the election of four
directors to three-year terms expiring in 2000, the approval of the independent
auditors for 1997, and the transaction of any other business properly brought
before the meeting. We will also report on the progress of LG&E, and
shareholders will have the opportunity to present questions of general interest.
We encourage you to read the proxy statement carefully and complete, sign
and return your proxy in the envelope provided, even if you plan to attend the
meeting. Returning your proxy to us will not prevent you from voting in person
at the meeting, or from revoking your proxy and changing your vote at the
meeting, if you are present and choose to do so.
If you plan to attend the Annual Meeting, please check the box on the proxy
card indicating that you plan to attend the meeting. Please bring the Admission
Ticket, which forms the top portion of the form of proxy, to the meeting with
you. If you wish to attend the meeting but do not have an Admission Ticket, you
will be admitted to the meeting after presenting personal identification and
evidence of ownership.
The directors and officers of LG&E appreciate your continuing interest in
the business of LG&E. We hope you can join us at the meeting.
Sincerely,
[SIGNATURE]
Roger W. Hale
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
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[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Louisville Gas and Electric Company
("LG&E"), a Kentucky corporation, will be held at the Hyatt Regency Louisville,
320 West Jefferson Street, Louisville, Kentucky, on Thursday, May 8, 1997, at
10:00 a.m., E.D.T. At the Annual Meeting shareholders will be asked to consider
and vote upon the following matters, which are more fully described in the
accompanying proxy statement:
1. A proposal to elect four directors, each for a three-year term expiring
in 2000;
2. A proposal to approve and ratify the appointment of Arthur Andersen LLP
as independent auditors of LG&E for 1997; and
3. Such other business as may properly come before the meeting.
The close of business on February 28, 1997, has been fixed by the Board of
Directors as the record date for determination of shareholders entitled to
notice of and to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE
REPLY ENVELOPE AS SOON AS POSSIBLE. Your cooperation in signing and promptly
returning your proxy is greatly appreciated.
By Order of the Board of Directors,
John R. McCall, Secretary
Louisville Gas and Electric Company
220 West Main Street
Louisville, Kentucky 40202
March 26, 1997
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 8, 1997
----------------------
The Board of Directors of LG&E hereby solicits your proxy, and asks that you
vote, sign, date and promptly mail the enclosed proxy card for use at the Annual
Meeting of Shareholders to be held May 8, 1997, and at any adjournment of such
meeting. The meeting will be held at the Hyatt Regency Louisville, 320 West
Jefferson Street, Louisville, Kentucky. This proxy statement and the
accompanying proxy were first mailed to shareholders on or about March 26, 1997.
If you plan to attend the meeting, please check the box on the proxy card
indicating that you plan to attend the meeting. Please bring the Admission
Ticket, which forms the top portion of the form of proxy, to the meeting with
you. Shareholders who do not have an Admission Ticket, including beneficial
owners whose accounts are held by brokers or other institutions, will be
admitted to the meeting upon presentation of personal identification and, in the
case of beneficial owners, proof of ownership.
The outstanding stock of LG&E is divided into three classes: Common Stock,
Preferred Stock (without par value), and Preferred Stock, par value $25 per
share. At the close of business on February 28, 1997, the record date for the
Annual Meeting, the following shares of each were outstanding:
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Common Stock, without par value............................ 21,294,223 shares
Preferred Stock, par value $25 per share, 5% Series........ 860,287 shares
Preferred Stock, without par value $5.875 Series........... 250,000 shares
Auction Series A (stated value $100 per share)............. 500,000 shares
</TABLE>
All of the outstanding LG&E Common Stock is owned by LG&E Energy Corp.
("LG&E Energy"). No persons or groups are known by management to be beneficial
owners of more than five percent of LG&E's Preferred Stock. As of February 28,
1997, all directors, nominees for director and executive officers of LG&E as a
group beneficially owned 22 shares of LG&E Preferred Stock, which is less than
one-tenth of one percent of the total LG&E Preferred Stock outstanding on that
date.
Owners of record at the close of business on February 28, 1997, of the
Common Stock and the 5% Cumulative Preferred Stock, par value $25 per share (the
"5% Preferred Stock") are entitled to one vote per share for each matter
presented at the Annual Meeting or any adjournment thereof, and, in addition,
have cumulative voting rights with respect to the election of directors.
Accordingly, in electing directors, each shareholder is entitled to as many
votes as the number of shares of stock owned multiplied by the number of
directors to be elected, and may cast all such votes for a single nominee or may
distribute them among two or more nominees. The persons named as proxies reserve
the right to cumulate votes represented by proxies which they receive, and to
distribute such votes among one or more of the nominees at their discretion.
You may revoke your proxy at any time before it is voted by giving written
notice of its revocation to the Secretary of LG&E, by delivery of a later dated
proxy, or by attending the Annual Meeting and voting in person. Signing a proxy
does not preclude you from attending the meeting in person.
Directors are elected by a plurality of the votes cast by the holders of
LG&E's Common Stock and 5% Preferred Stock at a meeting at which a quorum is
present. "Plurality" means that the individuals who receive the largest number
of votes cast are elected as directors up to the maximum number of directors to
be chosen at the meeting. Consequently, any shares not voted (whether by
withholding authority, broker nonvote or otherwise) have no impact on the
election of directors except to the
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extent the failure to vote for an individual results in another individual
receiving a larger percentage of votes.
The affirmative vote of a majority of the shares of LG&E Common Stock and 5%
Preferred Stock represented at the Annual Meeting is required for the approval
of the independent auditors and any other matters that may properly come before
the meeting. Abstentions from voting on any such matter are treated as votes
against, while broker nonvotes are treated as shares not voted.
LG&E Energy owns all of the outstanding LG&E Common Stock, and intends to
vote this stock in favor of the nominees for directors as set forth below,
thereby ensuring their election to the Board. LG&E Energy also intends to vote
all of the outstanding LG&E Common Stock in favor of the appointment of Arthur
Andersen LLP as the independent auditors for LG&E as set forth in Proposal No. 2
herein. Nonetheless, the Board encourages you to vote on each of these matters,
and appreciates your interest.
The Annual Report to Shareholders of LG&E Energy (the "Annual Report"),
including its consolidated financial statements and information regarding LG&E,
is enclosed with this proxy statement. Of particular importance to shareholders
of LG&E are the following sections of the Annual Report: page 9 under the
caption "Powerful Producer," page 10 under the caption "Moving Beyond the
Meter," page 13 under the caption "Enhancing our Service" and page 56 under the
caption "Board of Directors and Executive Officers." The Annual Report is
supplemented by audited financial statements of LG&E and management's discussion
of such financial statements, which are included as an appendix to this proxy
statement (the "Appendix"), and are incorporated by reference herein. All
shareholders are urged to read the accompanying Annual Report and Appendix.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of members of the Board of Directors of LG&E has been fixed at
twelve, pursuant to the Company's bylaws and resolutions adopted by the Board of
Directors. However, the Board of Directors of LG&E presently consists of eleven
members. The directors are classified into three classes, as nearly equal in
number as possible, with respect to the time for which they are to hold office.
One class of directors is elected at each year's Annual Meeting to serve for
three-year terms and to continue in office until their successors are elected
and qualified.
In 1996, the Nominating and Development Committee of the Board of Directors
conducted a search for qualified candidates to fill the two open positions on
the Board of Directors created when the directors voted unanimously in mid-1996
to increase the size of the Board of Directors from ten to twelve members, in
accordance with the Company's bylaws. As a result of this search, in October,
1996, the Board of Directors unanimously appointed Ronald L. Bittner to fill one
of the newly-created vacancies. Despite the remaining vacancy on the Board of
Directors, shareholders may not vote for a number of nominees greater than the
number of nominees named in this Proxy Statement. Procedures for reviewing and
nominating candidates to the LG&E Board of Directors are discussed in more
detail in "Information Concerning the Board of Directors--Nominating and
Development Committee".
At this Annual Meeting, the following four persons are proposed for election
to the Board of Directors for three-year terms expiring at the 2000 Annual
Meeting: William C. Ballard, Jr., S. Gordon Dabney, T. Ballard Morton, Jr. and
Ronald L. Bittner. All of the nominees are presently directors of both LG&E and
LG&E Energy.
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The Board of Directors does not know of any nominee who will be unable to
stand for election or otherwise serve as a director. If for any reason any
nominee becomes unavailable for election, the Board of Directors may designate a
substitute nominee, in which event the shares represented on the proxy cards
returned to LG&E will be voted for such substitute nominee, unless an
instruction to the contrary is indicated on the proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION
OF THE FOUR NOMINEES FOR DIRECTOR.
INFORMATION ABOUT DIRECTORS AND NOMINEES
The following contains certain information as of February 28, 1997,
concerning the nominees for director, as well as the directors whose terms of
office continue after the 1997 Annual Meeting.
NOMINEES FOR DIRECTOR WITH TERMS EXPIRING AT 2000 ANNUAL MEETING OF SHAREHOLDERS
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WILLIAM C. BALLARD, JR. (AGE 56)
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll &
McDonald since May 1992. He served as Executive Vice President and
[PHOTO1] Chief Financial Officer from 1978 until May 1992, of Humana, Inc., a
healthcare services company. Mr. Ballard is a graduate of the
University of Notre Dame, and received his law degree, with honors,
from the University of Louisville School of Law. He also received a
Master of Law degree in taxation from Georgetown University. Mr.
Ballard has been a director of LG&E since May 1989 and of LG&E Energy
since August 1990. Mr. Ballard is also a member of the Board of
Directors of United Healthcare Corp., Health Care REIT, Inc.,
MidAmerica Bancorp, Vencor, Inc., American Safety Razor, Inc. and Atria
Communities, Inc.
RONALD L. BITTNER (AGE 55)
Mr. Bittner has been with Frontier Corporation (formerly Rochester
Telephone), a communications company, since 1963. He has been Chairman
[PHOTO2] of the Board and Chief Executive Officer of Frontier since 1993. Mr.
Bittner also served as Chief Executive Officer and President of
Frontier since 1992. Mr. Bittner is a graduate of Muhlenberg College,
and received his MBA from the Simon School of Business at the
University of Rochester. Mr. Bittner has been a director of LG&E and
LG&E Energy since October 1996. Mr. Bittner is also a member of the
Board of Directors of Dynatech Corporation.
S. GORDON DABNEY (AGE 68)
Mr. Dabney was President of Standard Foods, Inc., which is engaged in
the food processing business, from 1955 until he retired in 1995. Mr.
[PHOTO3] Dabney is currently a business consultant. He attended the University
of Florida. He has been a director of LG&E since January 1987 and of
LG&E Energy since August 1990.
</TABLE>
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T. BALLARD MORTON, JR. (AGE 64)
Mr. Morton has been Executive in Residence at the College of Business
and Public Administration of the University of Louisville since 1983.
[PHOTO3] Mr. Morton is a graduate of Yale University. Mr. Morton has been a
director of LG&E since May 1967 and of LG&E Energy since August 1990.
Mr. Morton is also a member of the Board of Directors of the Kroger
Company.
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DIRECTORS WHOSE TERMS EXPIRE AT 1998 ANNUAL MEETING OF SHAREHOLDERS
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OWSLEY BROWN II (AGE 54)
Mr. Brown has been the Chairman and Chief Executive Officer of Brown-
Forman Corporation, a consumer products company, since July 1995, and
[PHOTO1] was President of Brown-Forman Corporation from 1987 to 1995. Mr. Brown
was first named Chief Executive Officer of Brown-Forman Corporation in
July 1994. Mr. Brown is a graduate of Yale University, and received his
master's degree in business administration from Stanford University. He
has been a director of LG&E since May 1989 and of LG&E Energy since
August 1990. Mr. Brown is also a member of the Board of Directors of
Brown-Forman Corporation, Hilliard Lyons Trust Company and NACCO
Industries, Inc.
GENE P. GARDNER (AGE 67)
Mr. Gardner has been Chairman of Beaver Dam Coal Company, which is
engaged in the ownership and development of coal properties, since
[PHOTO1] April 1983. Mr. Gardner is a graduate of the University of Louisville
and of the Advanced Management Program of the University of Virginia,
Colgate-Darden Graduate School of Business. Mr. Gardner has been a
director of LG&E since July 1979 and of LG&E Energy since August 1990.
He is also a member of the Board of Directors of Commonwealth Bank and
Trust Company, Commonwealth Financial Corporation and Thomas
Industries, Inc.
J. DAVID GRISSOM (AGE 58)
Mr. Grissom has been Chairman of Mayfair Capital, Inc., a private
investment firm, since April 1989. He served as Chairman and Chief
[PHOTO1] Executive Officer of Citizens Fidelity Corporation from April 1977
until March 31, 1989. Upon the acquisition of Citizens Fidelity
Corporation by PNC Financial Corp. in February 1987, Mr. Grissom served
as Vice Chairman and as a Director of PNC Financial Corp. until March
1989. Mr. Grissom is a graduate of Centre College and the University of
Louisville School of Law. Mr. Grissom has been a director of LG&E since
January 1982 and of LG&E Energy since August 1990. He is also a member
of the Board of Directors of Providian Corporation, Churchill Downs,
Inc., and Regal Cinemas, Inc.
</TABLE>
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DIRECTORS WHOSE TERMS EXPIRE AT 1999 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
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ROGER W. HALE (AGE 53)
Mr. Hale has been a Director and Chairman of the Board, President and
Chief Executive Officer of LG&E Energy since August 1990. Mr. Hale has
[PHOTO1] also been Chief Executive Officer and a Director of LG&E since June
1989, Chairman of the Board of LG&E since February 1, 1990, and served
as President of LG&E from June 1989 until January 1, 1992. Prior to his
coming to LG&E, Mr. Hale served as Executive Vice President of Bell
South Enterprises, Inc. Mr. Hale is a graduate of the University of
Maryland, and received a master's degree in management from the
Massachusetts Institute of Technology, Sloan School of Management. Mr.
Hale is also a member of the Board of Directors of PNC Bank, Kentucky,
Inc., H&R Block, Inc. and CompuServe Incorporated.
DAVID B. LEWIS (AGE 52)
Mr. Lewis is a founding partner of the law firm of Lewis, Clay &
Munday, a Professional Corporation, in Detroit, Michigan. Since 1972,
[PHOTO1] Mr. Lewis has served as Chairman of the Board and a Director of the
firm. Mr. Lewis is a graduate of Oakland University and received his
law degree from the University of Michigan Law School. He also received
a master's degree in business administration from the University of
Chicago Graduate School of Business. Mr. Lewis has been a director of
LG&E and LG&E Energy since November 1992. Mr. Lewis is also a member of
the Board of Directors of Conrail, Inc., TRW, Inc., and Comerica Bank,
a subsidiary of Comerica, Inc., and serves or has served as a board
member for numerous educational, cultural and civic organizations in
the Detroit and Washington, D.C. areas.
ANNE H. MCNAMARA (AGE 49)
Mrs. McNamara has been Senior Vice President and General Counsel of AMR
Corporation and its subsidiary, American Airlines, Inc., since June
[PHOTO1] 1988. Mrs. McNamara is a graduate of Vassar College, and received her
law degree from Cornell University. She has been a director of LG&E and
LG&E Energy since November 1991. Mrs. McNamara is also a member of the
Board of Directors of The SABRE Group Holdings, Inc.
DONALD C. SWAIN (AGE 65)
Dr. Swain served as President of the University of Louisville from
April 1981 to June 1995, and has served as President Emeritus since
[PHOTO1] July 1995. Dr. Swain is a graduate of the University of Dubuque. He
received his master's and doctoral degrees in history from the
University of California at Berkeley. He has been a director of LG&E
since May 1985 and of LG&E Energy since August 1990.
</TABLE>
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
Each member of the Board of Directors of LG&E is also a director of LG&E
Energy. The committees of the Board of Directors of LG&E include an Audit
Committee, a Compensation Committee and a Nominating and Development Committee.
The directors who are members of the various committees of LG&E serve in the
same capacity for purposes of the LG&E Energy Board of Directors.
During 1996, there were a total of twelve meetings of the LG&E Board. All
directors attended 75% or more of the total number of meetings of the Board of
Directors and Committees of the Board on which they served, with the exception
of William C. Ballard, Jr.
COMPENSATION OF DIRECTORS
Directors who are also officers of LG&E receive no compensation in their
capacities as directors. During 1996, directors received a retainer of
approximately $1,583 per month, or $19,000 annually ($20,100 annually for
committee chairmen), a fee for Board meetings of $1,100 per meeting and a fee
for each committee meeting of $800. Non-employee directors residing out of the
Louisville area received reimbursement for expenses incurred in traveling to
meetings, and received an additional $900 compensation for each Board meeting
they attended. The foregoing amounts represent the aggregate fees paid to
directors in their capacities as directors of LG&E and LG&E Energy during 1996.
Non-employee directors of LG&E may elect to defer all or a part of their
fees (including retainers, fees for attendance at regular and special meetings,
committee meetings and travel compensation) pursuant to the LG&E Energy Corp.
Deferred Stock Compensation Plan (the "Deferred Stock Plan"). Each deferred
amount is credited by LG&E Energy to a bookkeeping account and then is converted
into a stock equivalent on the date the amount is credited. The number of stock
equivalents credited to the director is based upon the average of the high and
the low sale price of LG&E Energy Common Stock on the New York Stock Exchange
for the five trading days prior to the conversion. Additional stock equivalents
will be added to stock accounts at the time that dividends are declared on LG&E
Energy Common Stock, in an amount equal to the amount of LG&E Energy Common
Stock that could be purchased with dividends that would be paid on the stock
equivalents if converted to LG&E Energy Common Stock. In the event that LG&E
Energy is a party to any consolidation, recapitalization, merger, share exchange
or other business combination in which all or a part of the outstanding LG&E
Energy Common Stock is changed into or exchanged for stock or other securities
of the other entity or LG&E Energy, or for cash or other property, the stock
account of a participating director shall be converted to such new securities or
consideration equal to the amount each share of LG&E Energy Common Stock
receives, multiplied by the number of share equivalents in the stock account.
A director will be eligible to receive a distribution from his or her
account only upon termination of service, death, retirement or otherwise.
Following departure from the Board, the distribution will occur, at the
director's election, either in one lump sum or in no more than five annual
installments. The distribution will be made, at the director's election, either
in LG&E Energy Common Stock or in cash equal to the then-market price of the
LG&E Energy Common Stock allocated to the director's stock account. At February
28, 1997, seven directors were participating in the Deferred Stock Plan.
Non-employee directors of LG&E who are also directors of LG&E Energy also
receive stock options pursuant to the LG&E Energy Corp. Stock Option Plan for
Non-Employee Directors (the "Directors' Option Plan"), which was approved by the
shareholders at the 1994 annual meeting. Under the terms of the Directors'
Option Plan, upon initial election or appointment to the Board, each new
director, who has not been an employee or officer of LG&E Energy or any of its
subsidiaries within the preceding three years, receives an option grant for
4,000 shares of LG&E Energy Common Stock. Following the initial grant, eligible
directors receive an annual option grant for 4,000 shares on the first Wednesday
of each February. Option grants for 1994-1996 were for 2,000 shares, all of
which
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were adjusted in April 1996 to reflect a two-for-one stock split. The option
exercise price per share for each share of LG&E Energy Common Stock is the fair
market value on the grant date. Options granted are not exercisable during the
first twelve months from the date of grant and will terminate 10 years from the
date of grant. In the event of a tender offer or an exchange offer for shares of
LG&E Energy Common Stock, all then exercisable, but unexercised options granted
under the Directors' Option Plan will continue to be exercisable for thirty days
following the first purchase of shares pursuant to such tender or exchange
offer.
The Directors' Option Plan authorizes the issuance of up to 500,000 shares
of LG&E Energy Common Stock, of which 152,000 are subject to existing options at
a weighted average per share price of $21.26. As of February 28, 1997, each
non-employee director held 12,000 exercisable options and 4,000 unexercisable
options to purchase LG&E Energy Common Stock, with the exception of Mr. Bittner
who held 8,000 unexercisable options. The number of shares subject to the
Directors' Option Plan and subject to awards outstanding under the plan will
adjust with any stock dividend or split, recapitalization, reclassification,
merger, consolidation, combination or exchange of shares, or any similar
corporate change.
AUDIT COMMITTEE
The Audit Committee of the Board is composed of Messrs. Ballard, Bittner,
Dabney, Brown, Gardner, Grissom and Lewis and Dr. Swain. During 1996, the Audit
Committee maintained direct contact with the independent auditors and LG&E's
Internal Auditor to review the following matters pertaining to LG&E, and to LG&E
Energy and its subsidiaries: the adequacy of accounting and financial reporting
procedures; the adequacy and effectiveness of internal accounting controls; the
scope and results of the annual audit and any other matters relative to the
audit of these companies' accounts and their financial affairs that the
Committee, the Internal Auditor, or the independent auditors deemed necessary.
The Audit Committee met three times during 1996.
COMPENSATION COMMITTEE
The Compensation Committee, composed of non-employee directors, approves the
compensation of the Chief Executive Officer and the executive officers of LG&E
Energy and LG&E. The Committee makes recommendations to the full Board regarding
benefits provided to executive officers and the establishment of various
employee benefit plans. The members of the Compensation Committee are Messrs.
Bittner, Dabney, Gardner, Grissom and Morton and Mrs. McNamara. The Compensation
Committee met three times during 1996.
NOMINATING AND DEVELOPMENT COMMITTEE
The Nominating and Development Committee is composed of the Chairman of the
Board and certain other directors. The Committee reviews and recommends to the
Board of Directors nominees to serve on the Board and their compensation. The
Committee considers nominees suggested by other members of the Board, by members
of management and by shareholders. To be considered for inclusion in the slate
of nominees proposed by the Board of Directors at an annual meeting, shareholder
recommendations must be submitted in writing to the Secretary of LG&E not later
than 120 days prior to the Annual Meeting. In addition, the Articles of
Incorporation and Bylaws of LG&E contain procedures governing shareholder
nominations for election of directors at a shareholders' meeting. The Chairman
of the Annual Meeting may refuse to acknowledge the nomination of any person not
made in compliance with these procedures. The members of the Nominating and
Development Committee are Messrs. Ballard, Brown, Lewis, Hale (ex officio),
Morton and Dr. Swain and Mrs. McNamara. The Nominating and Development Committee
met one time during 1996.
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PROPOSAL NO. 2
APPROVAL OF INDEPENDENT AUDITORS FOR 1997
Based upon the recommendation of the Audit Committee, the Board of
Directors, subject to ratification by shareholders, has selected Arthur Andersen
LLP as independent auditors to audit the accounts of LG&E and LG&E Energy for
the fiscal year ending December 31, 1997. Arthur Andersen has audited the
accounts of LG&E for many years and LG&E Energy since its organization in 1990.
The shareholders previously approved the employment of the firm at the Annual
Meeting on April 23, 1996.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting. Such representatives will be given the opportunity to make a statement
if they so desire, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised wholly of
non-employee directors and makes all decisions regarding the compensation of
LG&E's executive officers, including the setting of base pay and the
administration of the Long-Term Plan and Short-Term Plan, each as described
herein. In 1996, the Compensation Committee made several significant changes to
LG&E's executive compensation based on recommendations of a
nationally-recognized executive compensation consultant. These changes included
the amendment of LG&E Energy's Long-Term Incentive Plan (the "Long-Term Plan")
and the adoption of a new Short-Term Incentive Plan (the "Short-Term Plan"). The
changes to the Long-Term Plan and the new Short-Term Plan were approved by LG&E
Energy's shareholders at its 1996 Annual Meeting and were implemented primarily
to ensure the deductibility of LG&E Energy's and LG&E's executive compensation
for federal income tax purposes. Also, at the recommendation of the compensation
consultant, the Compensation Committee implemented changes that were designed to
cause the executive compensation program and the target awards and opportunities
for executives to be competitive with the compensation and pay programs of
comparable companies, including utilities, utility holding companies and
companies in general industry nationwide. The Compensation Committee and the
Board of Directors have continued access to this compensation consultant and
other compensation consultants as desired, and are provided with independent
compensation data for their review.
LG&E is the principal subsidiary of LG&E Energy. As noted above, the members
of the Compensation Committee and Board of Directors of LG&E also serve in the
same capacity for LG&E Energy. Certain executive officers of LG&E are also
executive officers of LG&E Energy. For those individuals references below to the
Compensation Committee and Board of Directors refer to the Compensation
Committee and Board of Directors of both LG&E and LG&E Energy unless otherwise
indicated, and discussions of their compensation include compensation earned for
services to both LG&E and LG&E Energy. Set forth below is a report submitted by
the members of the Compensation Committee addressing LG&E Energy's compensation
policies during 1996 for officers of LG&E and LG&E Energy, including the
executive officers named in the following tables. The executive officers of LG&E
participate in the Long-Term Plan and Short-Term Plan of LG&E Energy. References
to stock, shareholder performance or shareholder return relate to LG&E Energy
Common Stock.
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<PAGE>
COMPENSATION PHILOSOPHY
There are three major components of executive compensation program: (1) base
salary; (2) short-term or annual incentives; and (3) long-term incentives. LG&E
developed its executive compensation program to focus on both short-term and
long-term business objectives that are designed to enhance overall shareholder
value. The short-term and long-term incentives are premised on the belief that
the interests of executives should be closely aligned with those of LG&E
Energy's shareholders. Based on this philosophy, these two portions of each
executive's total compensation package are placed at risk and are linked to the
accomplishment of specific results that are designed to benefit LG&E Energy's
shareholders in both the short-term and long-term. Under this
pay-for-performance approach, a highly competitive level of compensation can be
earned in years of strong performance; conversely, in years of below-average
performance, compensation may decline below competitive benchmarks.
The executive compensation program also recognizes that LG&E and LG&E
Energy's compensation practices must be competitive not only with utilities and
utility holding companies, but also companies in general industry to ensure that
a stable and successful management team can be recruited and retained. The
Compensation Committee believes that the Company's most direct competitors for
executive talent are not limited to the companies that would be included in the
utility industry index against which shareholder returns may be compared. For
this reason, the compensation peer group, as established below, is not the same
as the utility industry index in the Comparison of Five-Year Total Return graph
included on page 14 of this proxy statement.
In order to establish competitive compensation levels for all executive
positions for 1996, the Compensation Committee and the Board of Directors
approved a change in the competitive market positioning philosophy for base
salaries, short-term incentives and long-term incentives. Specifically the
Compensation Committee modified the competitive market positioning for
determining competitive compensation from the prior practice of targeting the
65th percentile of primarily utility and utility holding companies in 1995 to
the current practice of targeting the 50th percentile of general industry. The
Compensation Committee reviewed competitive compensation information for general
industry companies with revenue between $1.0 - $3.5 billion (the "Survey Group")
and established targeted total direct compensation (base salary plus short-term
incentives and long-term incentives) for each executive for 1996 to approach the
50th percentile of the competitive range from the Survey Group. Salaries,
short-term incentives and long-term incentives for 1996 are described below.
The 1996 compensation information set forth in other sections of this proxy
statement, particularly with respect to the tabular information presented,
reflects the considerations set forth in this report. The Base Salary,
Short-Term Incentives, and Long-Term Incentives sections that follow address the
compensation philosophy for 1996 for all executive officers except for Mr. Roger
W. Hale. Mr. Hale's compensation is determined in accordance with the terms of
his Employment Agreement (see Chief Executive Officer Compensation on page 11 of
this proxy statement for a description of his 1996 compensation).
BASE SALARY
The base salaries for LG&E executive officers for 1996 were designed to be
competitive with the Survey Group at approximately the 50th percentile of the
base salary range for executives in similar positions with companies in the
Survey Group. Actual base salaries were determined based on individual
performance and experience.
SHORT-TERM INCENTIVES
The short-term incentives for 1996 provided direct financial compensation to
executives and rewarded them for meeting performance goals that were established
at the beginning of the 1996 performance year. The Short-Term Plan provides for
Company Performance Awards and Individual Performance Awards, each of which is
expressed as a percentage of base salary and each of which is
9
<PAGE>
determined independent of the other. In 1996, payment of Company Performance
Awards for executive officers was based 100% on Net Income Available for Common
Stock (NIAC). Payment of Individual Performance Awards was based 100% on
Management Effectiveness, which included a Customer Satisfaction element. The
awards varied within the executive officer group based upon the nature of each
individual's functional responsibilities, with more senior officers having a
greater percentage of their short-term incentives based on Company Performance
Awards. This component of the 1996 executive compensation program focused
executives on the tasks most immediately at hand and were based upon priorities
tailored to the 1996 performance year.
In 1996, the Company Performance Award targets for executive officers ranged
from 18% to 30% of Base Salary, and the Individual Performance Award targets for
executive officers ranged from 9% to 20% of Base Salary. Both awards were
established to be competitive with the 50th percentile of the level of such
awards granted to comparable executives employed by companies in the Survey
Group. The individual officers were eligible to receive from 0% to 150% of their
targeted amounts, dependent upon Company and individual performance during 1996
as measured by NIAC with regard to Company Performance Awards, and were eligible
to receive from 0% to 175% of their targeted amounts dependent upon individual
performance as measured by Management Effectiveness with regard to Individual
Performance Awards. Based on such performances, payouts of Company Performance
Awards for 1996 ranged from 17% to 37% of Base Salary, and payouts for the
Individual Performance Awards ranged from 13% to 35% of Base Salary.
LONG-TERM INCENTIVES
The Long-Term Plan is administered by a committee of not less than three
non-employee directors of LG&E who are appointed by the Board of Directors. At
this time, the Compensation Committee administers the Long-Term Plan. The
Long-Term Plan provides for the grant of any or all of the following types of
awards: stock options, stock appreciation rights, restricted stock, performance
units and performance shares. To date, the Compensation Committee has chosen to
award stock options, stock appreciation rights and performance units to
executive officers.
The Compensation Committee determined the competitive long-term grants to be
awarded for each executive based on the long-term awards for the 50th percentile
of the Survey Group. The aggregate expected value of the stock options and
performance units (delivered 50% in the form of performance units and 50% in the
form of nonqualified stock options in 1996) was intended to approach the
expected value of long-term incentives payable to executives in similar
positions with companies in the 50th percentile of the Survey Group, depending
upon achievement of targeted Company performance.
Stock options were granted to executive officers during the first quarter of
1996 at an exercise price equal to the fair market value at the date of the
grant and were subject to a one-year vesting requirement. Since options were
granted with an exercise price equal to the market value of the Common Stock at
the time of grant, they provide no value unless LG&E Energy's stock price
increases after the grants are awarded. Once the options vest, they are
exercisable over a nine-year term. These awards are thus tied to stock price
appreciation in excess of the stock's value at time of grant, rewarding
executives as if they shared in the ownership of LG&E Energy. The number of
shares subject to options was determined by taking the expected value to be
provided in options, as determined above, and dividing that amount by the
estimated current value of an option using a variation of the Black-Scholes
Option Pricing methodology provided by the outside compensation consultant.
Prior awards were not considered when making new grants.
The number of performance units granted was determined by taking the amount
of the executive's long-term award to be delivered in performance units
(adjusted on a present value basis), as determined above, and dividing that
amount by the fair market value of LG&E Energy Common Stock on the date of the
grant. The value of the performance units is substantially dependent upon the
10
<PAGE>
changing value of LG&E Energy's Common Stock in the marketplace. Each executive
officer is entitled to receive from 0% to 150% of the performance units
contingently awarded to the executive based on LG&E Energy's total shareholder
return over a three-year period (defined as share price increase plus dividends
paid, divided by share price at beginning of the period) measured against the
total shareholder return for such period ("TSR") by a peer group selected by the
Committee. The peer group for measuring LG&E Energy's TSR performance (the
"Long-Term Plan Peer Group") consists of approximately 90 utility holding
companies and gas and electric utilities(1). Performance units granted prior to
1996 included return on invested capital ("ROIC") over a three-year period
measured against a pre-established, internally set goal as a performance measure
in addition to TSR.
Payouts of long-term incentive awards in February 1997 were based on LG&E
Energy's performance during the 1994-1996 period. During such period, LG&E
Energy substantially exceeded the target level for TSR, and was slightly below
target in its ROIC performance. Performance was at the 85th percentile of its
comparison group with respect to TSR, and at 96% of targeted ROIC performance,
resulting in payouts of 123% of the contingent awards. The performance units are
payable 50% in LG&E Energy Common Stock and 50% in cash.
In February 1996, a special one-time stock option award through the
Long-Term Plan was granted to Mr. Walter Berger, now Group President - Energy
Marketing, to provide additional incentives for Mr. Berger to join the Company's
management team. Mr. Berger was granted 40,000 stock options in addition to his
regular grant under the Long-Term Plan. These additional options vest 50% in
1997 and 50% in 1999. All other terms of these one-time stock option grants
match the terms of the annual stock options granted to all LG&E Energy and LG&E
executives under the Long-Term Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer of LG&E and LG&E Energy, Mr.
Roger W. Hale, is governed by the terms of an employment agreement. Mr. Hale
originally entered into an employment agreement with LG&E in April 1989. That
agreement was developed to induce him to move to LG&E from another company, and
was updated by Board actions in 1990 and 1993. The term of Mr. Hale's 1993
employment agreement (the "1993 Agreement") was to expire by its terms on
December 31, 1998.
The 1993 Agreement dictates the level of Mr. Hale's minimum 1996
compensation, but the Compensation Committee retains discretion to increase such
compensation. For 1996, the Compensation Committee compared Mr. Hale's
compensation to that of chief executive officers of companies contained in the
Survey Group as well as electric and gas utilities and utility holding companies
with comparable revenues, market capitalization and asset size. In setting
long-term awards, LG&E Energy also considered survey data from various
compensation consulting firms. Details of Mr. Hale's 1996 compensation are set
forth below.
BASE SALARY. Mr. Hale was paid a base salary of $510,000 during 1996. The
1993 Agreement provides that his salary shall not be less than his 1993 salary
of $385,000 and is to be reviewed as of each January 1 by the Compensation
Committee. The Compensation Committee, in determining the annual salary increase
for 1996, focused on Mr. Hale's individual performance (including his management
effectiveness, as described below), the growth of LG&E Energy and the
compensation provided to other LG&E Energy and LG&E officers. The 1996 increase
was 16.8%.
- ------------------------
(1) While similar, the utilities and holding companies that are in the
Long-Term Plan Peer Group are not necessarily the same as those in the
Standard & Poor's Utility Index used in the Company Performance Graph on
page 14 of the proxy statement or the Survey Group. Nevertheless, in the
judgment of the Compensation Committee, the companies in the Long-Term Plan
Peer Group continue to represent the appropriate peer group for performance
unit compensation purposes.
11
<PAGE>
SHORT-TERM INCENTIVES. Mr. Hale's target short-term incentive award was 60%
of his 1996 base salary. Like all other executive officers receiving short-term
incentive awards, Mr. Hale was eligible to receive more or less than the
targeted amount, based on LG&E Energy's performance and individual performance.
His 1996 short-term incentive payouts were based 70% on Company Performance
Goals and 30% on Individual Performance Goals.
In 1996, the Company Performance Award payout for Mr. Hale was 40% of his
1996 base salary, and the Individual Performance Award payout for Mr. Hale was
32% of his 1996 base salary. The Compensation Committee considered Mr. Hale's
effectiveness in several areas in determining the final Individual Performance
Award. These included the financial performance of LG&E Energy, LG&E and other
LG&E Energy subsidiaries, company growth, customer satisfaction ratings and
other measures.
LONG-TERM INCENTIVE GRANT. In 1996, Mr. Hale received 55,000 options, and
24,350 performance units for the 1996-1998 performance period as adjusted for
the 1996 two-for-one stock split. These amounts were determined in accordance
with the terms of his 1993 Agreement and provide expected value representing
approximately 110% of his base salary. The terms of the options and performance
units (including the manner in which performance units are earned) for Mr. Hale
are the same as for other executive officers, as described under the heading
"Long-Term Incentives."
LONG-TERM INCENTIVE PAYOUT. In the 1994-1996 period, LG&E Energy exceeded
the target for TSR, but was slightly below target in its ROIC performance.
Performance was at the 85th percentile of its comparison group in TSR, and at
96% of targeted ROIC performance. That resulted in a payout equal to 123% of the
approved target. In addition, the market value per share of LG&E Energy Common
Stock increased from $18.02 at grant to $24.50 during the performance period.
This further increased the value of the payout of the performance units
originally awarded to Mr. Hale in 1994.
OTHER BENEFITS. In addition to Mr. Hale's Short-Term Incentive award, the
Compensation Committee made a one-time bonus award to Mr. Hale of $50,000 in
recognition of an extraordinary year. Mr. Hale also receives LG&E Energy
contributions to thrift and savings plans, similar to those of other officers
and employees.
In recognition of Mr. Hale's continued importance to the performance of LG&E
and LG&E Energy and his significant contributions to LG&E and LG&E Energy,
including particularly his leadership role in transforming LG&E, a local utility
company, into LG&E Energy, a national and international diversified energy
services company, the Compensation Committee in late 1996 negotiated with Mr.
Hale to retain his services beyond the term of his 1993 Agreement. Consequently,
Mr. Hale entered into a new employment agreement with LG&E Energy, effective
January 1, 1997. The term of this new agreement (the "1997 Agreement") extends
through December 31, 2001. The 1997 Agreement had no effect on Mr. Hale's 1996
compensation as discussed in this report. See "Employment Contract and
Termination of Employment Arrangements and Change in Control Provisions" on page
19 of this proxy statement.
TAX MATTERS
Section 162(m) of the Code was enacted in 1993 and generally prohibits the
company from deducting executive compensation in excess of $1,000,000.
Qualifying "performance based compensation" is not subject to this deduction
limitation if certain requirements are satisfied. As a result of transition
rules adopted by the Internal Revenue Service, the new law did not impact the
company's executive compensation practices in 1996. It is the Compensation
Committee's intent to preserve the deductibility of executive compensation to
the extent reasonably practicable and to the extent consistent with its other
compensation objectives. To ensure that certain compensation payable under the
Long-Term Plan and Short-Term Plan remain deductible, the Compensation Committee
and the Board of Directors recommended, and the shareholders approved,
modification of the Long-Term Plan and adopted a new Short-Term Plan in 1996.
Although not all of the compensation paid to executive
12
<PAGE>
officers under these two plans constitutes "performance based compensation," the
Compensation Committee anticipates that, as a result of the modifications to the
Long-Term Plan and the adoption of the new Short-Term Plan, all compensation
paid to executive officers in 1997 will continue to be deductible under the
Code.
CONCLUSION
The Compensation Committee believes that the company's executive
compensation system served the interests of the company and its shareholders
effectively during 1996. The Compensation Committee takes very seriously its
responsibilities with respect to the company's executive compensation system,
and it will continue to monitor and revise the compensation policies as
necessary to ensure that the company's compensation system continues to meet the
needs of the company and its shareholders.
MEMBERS OF THE COMPENSATION COMMITTEE
J. David Grissom, Chairman
Ronald L. Bittner
S. Gordon Dabney
Gene P. Gardner
Anne H. McNamara
T. Ballard Morton, Jr.
13
<PAGE>
COMPANY PERFORMANCE
All of the outstanding Common Stock of LG&E is owned by LG&E Energy, and
accordingly, there are no trading prices for LG&E's Common Stock. The following
graph reflects a comparison of the cumulative total return (change in stock
price plus reinvested dividends) to shareholders of LG&E Energy Common Stock
from December 31, 1991, through December 31, 1996, with the Standard & Poor's
500 Composite Index and the Standard & Poor's Utility Index. The comparisons in
this table are required by the Securities and Exchange Commission and,
therefore, are not intended to forecast or be indicative of possible future
performance of LG&E Energy Common Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE
<S> <C> <C> <C>
TOTAL SHAREHOLDER RETURN (1)
LG&E Energy S&P 500 S&P Utilities
12/31/91 100 100 100
1992 117 108 108
1993 143 118 124
1994 138 120 114
1995 167 165 162
1996 203 203 167
</TABLE>
- ------------------------
(1) Total Shareholder Return assumes $100 invested on December 31, 1991, with
quarterly reinvestment of dividends.
14
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows the cash compensation paid or to be paid by LG&E,
LG&E Energy or any of its subsidiaries, as well as certain other compensation
paid or accrued for those years, to the Chief Executive Officer and the next
four highest compensated executive officers who were serving as such at December
31, 1996, of LG&E in all capacities in which they served (including service for
LG&E Energy) during 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------
OTHER SECURITIES PAYOUTS
ANNUAL UNDERLYING -------- ALL OTHER
COMPEN- OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#)(3) ($) ($)
- -------------------------------------------------- ---- ------------ -------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 1996 $ 510,000 $416,068 $11,010 55,000 $641,092 $ 26,909(1)
Chairman of the Board 1995 436,500 303,859 14,716 13,292 559,686 13,901
and CEO 1994 410,500 266,825 10,822 9,574 506,584 12,819
Victor A. Staffieri 1996 245,000 175,310 7,431 26,022 124,950 9,336(1)
President -- Louisville Gas 1995 230,764 134,695 6,215 6,394 49,137 7,149
and Electric Company 1994 213,000 120,750 4,771 46,000 35,515 2,947
Walter Z. Berger 1996 219,468(2) 144,232 5,445 62,834 0 1,012(1)
Former Executive Vice President,
and Chief Financial Officer (now President --
Energy Marketing Division of LG&E Energy)
John R. McCall 1996 231,000 112,303 7,230 15,098 35,868 11,029(1)
Executive Vice 1995 220,000 106,848 5,791 4,568 0 8,696
President, General Counsel and 1994 155,000(2) 48,891 1,961 2,380 0 4,340
Corporate Secretary
Charles A. Markel, III 1996 178,500 54,375 713 8,750 47,800 5,645(1)
Treasurer 1995 178,500 59,850 3,361 3,624 42,926 5,511(1)
1994 170,000 53,074 4,632 3,524 44,957 5,375
</TABLE>
- ------------------------
(1) Includes employer contributions to 401(k) plan, nonqualified thrift plan and
employer paid life insurance premiums in 1995 as follows: Mr. Hale $2,970,
$7,128 and $16,811, respectively; Mr. Staffieri $3,071, $4,447 and $1,818,
respectively; Mr. Berger $0, $177 and $835 respectively; Mr. McCall $2,970,
$3,719 and $4,340, respectively; and Mr. Markel $1,921, $2,798 and $926
respectively.
(2) Reported compensation is only for a portion of the year. Mr Berger joined
LG&E and LG&E Energy on Feburary 5, 1996, and Mr. McCall joined LG&E and
LG&E Energy on July 1, 1994.
(3) As adjusted for the 2 for 1 stock split effective in April 1996.
15
<PAGE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN 1996 FISCAL YEAR
The following table contains information at December 31, 1996, with respect
to grants of stock options and stock appreciation rights (SARs) to the named
executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------- REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL
SECURITIES TOTAL EXERCISE RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION
OPTIONS/SARS GRANTED TO PRICE FOR OPTION TERM
GRANTED EMPLOYEES IN ($/ EXPIRATION ------------------------------
NAME (#) (1) FISCAL YEAR SHARE) DATE 0%($) 5%($) 10%($)
- ---------------------------------------- ------------ ------------ -------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 55,000 14.5% $ 21.22 02/14/2006 0 $ 733,983 $1,860,057
Victor A. Staffieri 26,022 6.9 21.22 02/14/2006 0 347,267 880,044
Walter Z. Berger 40,000(2) 10.5 21.22 02/14/2006 0 533,806 1,352,769
Walter Z. Berger 22,834 6.1 21.22 02/14/2006 0 304,723 772,228
John R. McCall 15,098 4.0 21.22 02/14/2006 0 201,485 510,603
Charles A. Markel, III 8,750 2.3 21.22 02/14/2006 0 116,770 295,918
</TABLE>
- ------------------------
(1) Options are awarded at fair market value at time of grant; unless otherwise
indicated, options vest in one year and are exercisable over a ten-year
term.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN 1996 FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options and/or SARs during 1996
and the value of unexercised options and SARs held by them as of December 31,
1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
SHARES UNEXERCISED THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS AT
ON VALUE AT FY-END (#) FY-END ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Roger W. Hale 0 N/A 43,214/55,000 $274,834/$180,400
Victor A. Staffieri 0 N/A 36,568/46,022 205,137/201,552
Walter Z. Berger 0 N/A 0/62,834 0/206,096
John R. McCall 0 N/A 6,948/15,098 37,196/49,521
Charles A. Markel, III 0 N/A 20,204/8,750 157,136/28,700
</TABLE>
- ------------------------
(1) Dollar amounts reflect market value of LG&E Energy Common Stock at year-end,
minus the exercise price.
16
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN 1996 FISCAL YEAR
The following table provides information concerning awards made in 1996 to
the named executive officers under the Long-Term Plan.
<TABLE>
<CAPTION>
NUMBER PERFORMANCE
OF OR ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OTHER PERIOD NON-STOCK PRICE BASED PLANS
UNITS OR UNTIL (NUMBER OF SHARES) (1)
OTHER MATURATION -------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
- ------------------------------------------------------------ --------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Roger W. Hale 24,350 12/31/98 9,740 24,350 36,525
Victor A. Staffieri 4,938 12/31/98 1,975 4,938 7,407
Walter Z. Berger 4,332 12/31/98 1,733 4,332 6,498
John R. McCall 2,864 12/31/98 1,145 2,864 4,296
Charles A. Markel, III 1,660 12/31/98 664 1,660 2,490
</TABLE>
- ------------------------
(1) The table indicates the number of performance units which are paid 50% in
stock and 50% in cash at maturation.
Each performance unit awarded represents the right to receive an amount
payable 50% in LG&E Energy Common Stock and 50% in cash on the date of payout,
the latter portion being payable in cash in order to facilitate the payment of
taxes by the recipient. For awards made in 1996, the amount of the payout is
determined by the then-fair market value of LG&E Energy Common Stock. The
Long-Term Plan rewards executives on a three-year rolling basis dependent upon
the total shareholder return for LG&E Energy shareholders. The target for award
eligibility requires that LG&E Energy shareholders earn a total return at a
preset level in comparison to that of the utility holding companies and gas and
electric utilities in the Long-Term Plan Peer Group. The Committee sets a
contingent award for each management level selected to participate in the Plan
and such amount is the basis upon which incentive compensation is determined.
Depending on the level of achievement, the participant can receive from zero to
150% of the contingent award amount. Payments made under the Long-Term Plan in
1996 are reported in the summary compensation table for the year of payout.
PENSION PLANS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under LG&E's qualified defined
benefit pension plans, as well as non-qualified supplemental pension plans that
provide benefits that would otherwise be denied participants by reason of
certain Internal Revenue Code limitations for qualified plan benefits, based on
the remuneration that is covered under the plan and years of service with LG&E,
LG&E Energy and its subsidiaries:
17
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 $ 49,024 $ 49,024 $ 49,024 $ 56,091
$150,000 $ 81,024 $ 81,024 $ 81,024 $ 85,791
$200,000 $ 113,024 $ 113,024 $ 113,024 $ 113,024
$250,000 $ 145,024 $ 145,024 $ 145,024 $ 145,024
$300,000 $ 177,024 $ 177,024 $ 177,024 $ 177,024
$350,000 $ 209,024 $ 209,024 $ 209,024 $ 209,024
$400,000 $ 241,024 $ 241,024 $ 241,024 $ 241,024
$450,000 $ 273,024 $ 273,024 $ 273,024 $ 273,024
$500,000 $ 305,024 $ 305,024 $ 305,024 $ 305,024
$550,000 $ 337,024 $ 337,024 $ 337,024 $ 337,024
$600,000 $ 369,024 $ 369,024 $ 369,024 $ 369,024
$650,000 $ 401,024 $ 401,024 $ 401,024 $ 401,024
$700,000 $ 433,024 $ 433,024 $ 433,024 $ 433,024
$750,000 $ 465,024 $ 465,024 $ 465,024 $ 465,024
$800,000 $ 497,024 $ 497,024 $ 497,024 $ 497,024
$850,000 $ 529,024 $ 529,024 $ 529,024 $ 529,024
$900,000 $ 561,024 $ 561,024 $ 561,024 $ 561,024
</TABLE>
A participant's remuneration covered by the Retirement Income Plan (the
"Retirement Income Plan") is his or her average base salary and short-term
incentive payment (as reported in the Summary Compensation Table) for the five
calendar plan years during the last ten years of the participant's career for
which such average is the highest. The estimated years of service for each named
executive is as follows: 30 years for Mr. Hale; 1 year for Mr Berger; 2 years
for Mr. McCall; 12 years for Mr. Markel; and 4 years for Mr. Staffieri. Benefits
shown are computed as a straight life single annuity beginning at age 65.
Current Federal law prohibits paying benefits under the Retirement Income
Plan in excess of $120,000 per year. Officers of LG&E and LG&E Energy with at
least one year of service with either company are eligible to participate in
LG&E's Supplemental Executive Retirement Plan (the "Supplemental Executive
Retirement Plan"), which is an unfunded supplemental plan that is not subject to
the $120,000 limit. Presently, participants in the Supplemental Executive
Retirement Plan consist of all of the eligible officers of LG&E and LG&E Energy.
This plan provides generally for retirement benefits equal to 64% of average
current earnings during the final 36 months prior to retirement, reduced by
Social Security benefits, by amounts received under the Retirement Income Plan
and by benefits from other employers. As part of its employment agreement with
Mr. Hale, LG&E established a separate Supplemental Executive Retirement Plan.
The special plan generally provides for a retirement benefit for Mr. Hale of 2%
for each of his first 20 years of service with LG&E, LG&E Energy or with certain
prior employers, 1.5% for each of the next 10 years of service and 1% for each
remaining year of service completed prior to age 65, all multiplied by Mr.
Hale's final 60 months average compensation, less benefits payable from the
Retirement Income Plan, benefits payable from any other qualified or
non-qualified plan sponsored by LG&E, LG&E Energy or certain prior employers,
and primary Social Security benefits. Under Mr. Hale's employment agreement (see
page 19 of this proxy statement), he may elect to commence payment of his
retirement benefits at age 50. If he retires prior to age 65, Mr. Hale's
benefits will be reduced by factors set forth in the employment agreement.
The estimated annual benefits to be received under the Retirement Income
Plan and the Supplemental Executive Retirement Plans upon normal retirement at
age 65 and after deduction of Social Security benefits will be $543,624 for Mr.
Hale; $232,236 for Mr. Berger; $201,096 for Mr. McCall; $136,596 for Mr. Markel;
and $268,128 for Mr. Staffieri.
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Ballard, Dabney, Gardner, Grissom and Morton, and Mrs. McNamara
served as members of the Compensation Committee during 1996. None of the members
of the Compensation Committee are or were officers or employees of LG&E or its
affiliates. Mr. Ballard is of counsel to the law firm of Greenebaum Doll &
McDonald, which provides legal services to LG&E from time to time, but Mr.
Ballard resigned as a member of the Compensation Committee in September, 1996.
EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS
Effective January 1, 1997, Mr. Hale entered into a new employment agreement
with LG&E Energy superseding the 1993 Agreement for services to be provided to
LG&E and LG&E Energy. The new agreement extends through December 31, 2001. Under
the new agreement, Mr. Hale is entitled to an annual base salary of not less
than $580,000, subject to annual review by the Compensation Committee, and to
participate in the Short-Term Plan and the Long-Term Plan. Mr. Hale's
arrangement with LG&E Energy provides for a short-term incentive target award of
not less than 60% of base salary and long-term incentive grants with a present
value of not less than 110% of base salary to be delivered two-thirds in the
form of performance units/shares and one-third in the form of non-qualified
stock options. In addition, the 1997 Agreement provides that an insurance policy
in the amount of not less than $2 million shall be provided to Mr. Hale at the
Company's expense. LG&E Energy's Board of Directors may terminate the agreement
at any time and, if it does so for reasons other than cause, LG&E Energy must
pay Mr. Hale's base salary plus his target short-term incentive award for the
remaining term of his employment contract, but not less than two years.
In the event of a change in control, all officers of LG&E and LG&E Energy
shall be entitled to the following payments if, within twenty-four months after
such change in control, they are terminated for reasons other than cause or
disability, or their employment responsibilities are altered: (i) all accrued
compensation; (ii) a severance amount equal to 2.99 times the sum of (a) his or
her annual base salary and (b) his or her "target" award pursuant to the
Short-Term Plan. However, except for Mr. Hale, in no event is the payment to the
executive to equal or exceed an amount which would constitute a nondeductible
payment pursuant to Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or be subject to an excise tax imposed by Section 4999 of
the Code. The executive is entitled to receive such amounts in a lump-sum
payment within thirty days of termination. A change in control encompasses
certain mergers and acquisitions, changes in Board membership and acquisitions
of voting securities of LG&E Energy.
Also upon a change in control of LG&E Energy, all stock-based awards shall
vest 100%, and all performance-based awards, such as performance units and
performance shares, shall immediately be paid out in cash, based upon the extent
to which the performance goals have been met through the effective date of the
change in control or based upon the assumed achievement of such goals, whichever
amount is higher.
SHAREHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any shareholder may submit a proposal for consideration at the 1998 Annual
Meeting. Any shareholder desiring to submit a proposal for inclusion in the
proxy statement for consideration at the 1998 Annual Meeting should forward the
proposal so that it will be received at LG&E's principal executive offices no
later than November 26, 1997. Proposals received by that date that are proper
for consideration at the Annual Meeting and otherwise conforming to the rules of
the Securities and Exchange Commission will be included in the 1998 proxy
statement.
19
<PAGE>
OTHER MATTERS
At the Annual Meeting, it is intended that the first two items set forth in
the accompanying notice and described in this proxy statement will be presented.
Should any other matter be properly presented at the Annual Meeting, the persons
named in the accompanying proxy will vote upon them in accordance with their
best judgment. The Board of Directors knows of no other matters which may be
presented at the meeting.
LG&E will bear the costs of this proxy solicitation. LG&E will provide
copies of this proxy statement, the accompanying proxy and the Annual Report to
brokers, dealers, banks and voting trustees, and their nominees, for mailing to
beneficial owners, and upon request therefor, will reimburse such record holders
for their reasonable expenses in forwarding solicitation materials. In addition
to using the mails, proxies may be solicited by directors, officers and regular
employees of LG&E or its subsidiaries, in person or by telephone. LG&E and LG&E
Energy have retained D.F. King & Co., Inc., a firm of professional proxy
solicitors, to assist in the solicitations at an estimated fee of $5,000 plus
reimbursement of reasonable expenses.
ANY SHAREHOLDER MAY OBTAIN WITHOUT CHARGE A COPY OF LG&E'S ANNUAL REPORT ON
FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR
1996, BY SUBMITTING A REQUEST IN WRITING TO: JOHN R. MCCALL, SECRETARY,
LOUISVILLE GAS AND ELECTRIC COMPANY, P.O. BOX 32010, 220 WEST MAIN STREET,
LOUISVILLE, KENTUCKY 40232.
20
<PAGE>
[LGE LOGO]
-------------------------
ADMISSION TICKET
LOUISVILLE GAS AND ELECTRIC COMPANY
ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 8, 1997
10:00 a.m., EDT
Hyatt Regency Louisville
320 West Jefferson Street
Louisville, Kentucky
If you plan to attend the meeting, please check the box on the proxy card
indicating that you plan to attend. Please bring this Admission Ticket to
the meeting with you.
THE BOTTOM PORTION OF THIS FORM IS THE PROXY CARD. Each proposal is fully
explained in the enclosed Notice of Annual Meeting of Shareholders and Proxy
Statement. To vote your proxy, please MARK by placing an "X" in the
appropriate box, SIGN and DATE the proxy. Then please DETACH and RETURN the
completed proxy promptly in the enclosed envelope.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH
PROPOSAL
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below (except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME)
WILLIAM C. BALLARD, JR.
RONALD L. BITTNER
S. GORDON DABNEY
T. BALLARD MORTON, JR.
2.APPROVAL OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
/ / FOR / / AGAINST / / ABSTAIN
/ / I plan to attend the Annual Meeting, and I will bring ___
guest(s).
- ----------------------------------------
SIGNATURE
- ------------------------------------------
DATE
[LGE LOGO]
PREFERRED
PROXY
- ----------------------------------------
SIGNATURE
SIGNATURE(S) SHOULD CORRESPOND
TO THE NAME(S) APPEARING IN
THIS PROXY. IF EXECUTOR,
TRUSTEE, GUARDIAN, ETC. PLEASE
INDICATE.
<PAGE>
Complimentary parking will be available
at the Hyatt Regency and the Cowger
Parking Garage. Please visit the
[MAP] registration table to receive your
parking voucher, which you will give to
the parking attendant upon leaving.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
LOUISVILLE GAS AND ELECTRIC COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 8, 1997
Roger W. Hale, Victor A. Staffieri and John R. McCall are hereby appointed
as proxies, with full power of substitution, to vote the shares of the
shareholder(s) named on the reverse side hereof, at the Annual Meeting of
Shareholders of Louisville Gas and Electric Company to be held on May 8, 1997,
and at any adjournment thereof, as directed on the reverse side hereof, and in
their discretion to act upon any other matters that may properly come before the
meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS YOU SPECIFY. IF NOT SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL OF THE
PROPOSALS. A VOTE FOR PROPOSAL 1 INCLUDES DISCRETIONARY AUTHORITY TO CUMULATE
VOTES SELECTIVELY AMONG THE NOMINEES AS TO WHOM AUTHORITY TO VOTE HAS NOT BEEN
WITHHELD.
Please mark, sign and date this proxy on the reverse side and return the
completed proxy promptly in the enclosed envelope.
