<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1997
Commission Registrant, State of Incorporation, IRS Employer
File Number Address, and Telephone Number Identification Number
- ------------ ------------------------------------ ----------------------
1-10568 LG&E ENERGY CORP. 61-1174555
(A Kentucky Corporation)
220 West Main Street
P. O. Box 32030
Louisville, Kentucky 40232
(502) 627-2000
2-26720 LOUISVILLE GAS AND ELECTRIC COMPANY 61-0264150
(A Kentucky Corporation)
220 West Main Street
P. O. Box 32010
Louisville, Kentucky 40232
(502) 627-2000
Securities registered pursuant to section 12(b) of the Act:
LG&E Energy Corp.
-----------------
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, without par value New York Stock Exchange
Rights to Purchase Series A Preferred and
Stock, without par value Chicago Stock Exchange
Louisville Gas and Electric Company
-----------------------------------
Name of each exchange on
Title of each class which registered
------------------- -----------------------
First Mortgage Bonds, Series due July 1, 2002, 7-1/2% New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
Louisville Gas and Electric Company
5% Cumulative Preferred Stock, $25 Par Value
$5.875 Cumulative Preferred Stock, Without Par Value
Auction Rate Series A Preferred Stock, Without Par Value
(Title of class)
<PAGE>
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 registrant's 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]
As of February 27, 1998, the aggregate market value of LG&E Energy Corp.'s
voting stock held by non-affiliates totaled $1,587,922,979 and it had
66,527,636 shares of common stock outstanding. As of February 27, 1998, the
aggregate market value of Louisville Gas and Electric Company's voting stock
held by non-affiliates totaled $16,560,101, and it had 21,294,223 shares of
common stock outstanding, all held by LG&E Energy Corp.
This combined Report on Form 10-K is separately filed by LG&E Energy Corp.
and Louisville Gas and Electric Company. Information contained herein related
to LG&E Energy Corp. or any of its direct or indirect subsidiaries other than
Louisville Gas and Electric Company is provided solely by LG&E Energy Corp.
and not Louisville Gas and Electric Company and shall be deemed not included
in the Report on Form 10-K of Louisville Gas and Electric Company.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
LG&E Energy Corp.'s proxy statement, filed with the Commission on March 20,
1998, and Louisville Gas and Electric Company's information statement, filed
with the Commission on March 27, 1998, are incorporated by reference into
Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Business........................................................ 1
Overview of Operations.......................................... 1
Proposed Merger with KU Energy Corporation...................... 1
Louisville Gas and Electric Company
General.................................................... 6
Electric Operations........................................ 7
Gas Operations............................................. 9
Regulation and Rates....................................... 10
Construction Program and Financing......................... 11
Coal Supply................................................ 12
Gas Supply................................................. 12
Environmental Matters...................................... 13
Competition................................................ 13
LG&E Capital Corp............................................... 13
Energy Marketing and Trading Division........................... 14
Power Generation Division....................................... 17
Argentine Gas Distribution Division............................. 19
Employees and Labor Relations................................... 19
Item 2. Properties...................................................... 20
Item 3. Legal Proceedings............................................... 23
Item 4. Submission of Matters to a Vote of Security Holders............. 25
Executive Officers of the Company.......................................... 26
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................ 29
Item 6. Selected Financial Data......................................... 31
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition:
LG&E Energy Corp....................................... 33
Louisville Gas and Electric Company.................... 44
Item 8. Financial Statements and Supplementary Data:
LG&E Energy Corp........................................... 52
Louisville Gas and Electric Company........................ 87
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 107
PART III
Item 10. Directors and Executive Officers of the Registrant (a).......... 107
Item 11. Executive Compensation (a)...................................... 107
Item 12. Security Ownership of Certain Beneficial Owners
and Management (a)......................................... 107
Item 13. Certain Relationships and Related Transactions (a).............. 107
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................... 107
Unaudited Pro Forma Combined Condensed Financial Information............... 128
Signatures ........................................................... 135
(a) Incorporated by reference.
</TABLE>
<PAGE>
Part I.
Item 1. Business.
OVERVIEW OF OPERATIONS
LG&E Energy Corp. (the Company or LG&E Energy) is a diversified
energy-services holding company with two direct subsidiaries: Louisville Gas
and Electric Company (LG&E) and LG&E Capital Corp. (Capital Corp.). The
Company's regulated operations are conducted by LG&E.
The Company and its subsidiaries currently are exempt from all provisions,
except Section 9(a)(2), of the Public Utility Holding Company Act of 1935
(the "Holding Company Act") on the basis that the Company and LG&E are
incorporated in the same state and their business is predominately intrastate
in character and carried on substantially in the state of incorporation. It
is necessary for the Company to file an annual exemption statement with the
Securities and Exchange Commission (SEC).
The Company is not a public utility under the laws of the Commonwealth of
Kentucky and is not subject to regulation as such by the Kentucky Public
Service Commission (Kentucky Commission). See Louisville Gas and Electric
Company -Regulation and Rates below for a description of the regulation of
LG&E by the Kentucky Commission, which includes the ability to regulate
certain intercompany transactions between LG&E and the Company, including the
Company's non-utility subsidiaries.
On June 9, 1997, certain subsidiaries of the Company entered into a
Participation Agreement with Big Rivers Electric Corporation (Big Rivers),
setting forth the detailed parameters of the proposed 25-year lease by
Company affiliates of the generation assets of Big Rivers as part of the
confirmation of Big Rivers' Plan of Reorganization by the U.S. Bankruptcy
Court. On March 18, 1998, the parties executed an Amended and Restated
Participation Agreement whereby, effective with the overall proposed
transaction, subsidiaries of the Company have agreed to assume responsibility
for certain unforeseen future environmental, legislative and regulatory costs
associated with the Big Rivers generating facilities and the loads of certain
industrial customers. This amendment addresses issues raised by the Kentucky
Commission in its November 1997 hearing on this transaction. Consummation of
this transaction is subject to a number of conditions, including receipt of
further bankruptcy court and federal and state regulatory approvals. The
Company made initial filings seeking regulatory approvals from the Kentucky
Commission on June 30, 1997. An order from the Commission is expected during
the second quarter of 1998. Approval of various elements of the transaction
is also required from the Federal Energy Regulatory Commission (FERC). See
Note 3 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
PROPOSED MERGER WITH KU ENERGY CORPORATION
Description of the Merger
As initially announced in the Company's Current Report on Form 8-K dated May
20, 1997, the Company and KU Energy Corporation, a Kentucky corporation
("KU"), entered into an Agreement and Plan of Merger dated May 20, 1997 (the
"Merger Agreement") providing for a merger of the Company and KU. Pursuant to
the Merger Agreement, among other things, KU will be merged with and into the
Company with the Company as the surviving corporation (the "Merger"). The
Merger was unanimously approved by the respective Boards of Directors. The
shareholders of the Company and KU have also approved the merger, which is
expected to close shortly after all of the conditions to consummation of the
Merger, including the receipt of all applicable regulatory approvals, are met
or waived. Such conditions are expected to be met before the end of 1998, but
could be met as early as the second quarter of 1998.
As a result of the Merger, the Company, which is the parent of LG&E, will
become the parent company of KU's principal operating subsidiary, Kentucky
Utilities Company ("Kentucky Utilities"). The operating utility subsidiaries
(LG&E and Kentucky Utilities) will maintain their separate corporate
identities and will continue to serve customers in Kentucky and Virginia
under their present names. LG&E Energy and KU expect more than
1
<PAGE>
$760 million in gross non-fuel savings over a ten-year period following the
Merger. Costs to achieve these synergies are estimated to be $77 million. The
preferred stock and debt securities of the operating utility subsidiaries
will not be affected by the Merger. The nonutility subsidiaries of KU will
become subsidiaries of the Company.
Incorporated herein as exhibits by reference are the press release issued in
connection with the Merger filed as an exhibit to the Company's Form 8-K
dated May 20, 1997 and the Merger Agreement, and the related Stock Option
Agreements (defined below) filed as exhibits to the Company's Form 8-K dated
May 30, 1997. The descriptions of the Merger Agreement and the Stock Option
Agreements set forth herein do not purport to be complete and are qualified
in their entirety by the provisions of the Merger Agreement and the Stock
Option Agreements, as the case may be, and other exhibits filed with the
Company's Form 8-K dated May 30, 1997.
Under the terms of the Merger Agreement, each outstanding share of the common
stock, without par value, of KU ("KU Common Stock") (other than shares with
respect to which dissenter's rights are perfected under applicable state
law), together with the associated KU stock purchase rights, will be
converted into the right to receive 1.67 shares of common stock, without par
value, of the Company ("LG&E Energy Common Stock"), together with the
associated LG&E Energy stock purchase rights. A holder of KU Common Stock who
would otherwise have been entitled to a fractional share of LG&E Energy
Common Stock will be entitled to receive a cash payment in lieu of such
fractional share. The outstanding shares of LG&E Energy Common Stock prior to
the Merger will remain unchanged and outstanding. As of March 1, 1998, there
were 66,527,636 shares of LG&E Energy Common Stock outstanding, and
37,817,517 shares of KU Common Stock outstanding. Based on such
capitalization, upon consummation of the Merger, 51.3% of the outstanding
LG&E Energy Common Stock will be owned by the shareholders of the Company
prior to the Merger and 48.7% will be owned by former KU shareholders.
Following the Merger, the Company's board is expected to continue the
Company's existing dividend payment policy. However, no assurance can be
given that such dividend rate will be in effect or will remain unchanged. The
amount, declaration and timing of dividends will be a business decision to be
made by the Company's Board from time to time based upon the results of
operations and financial condition of the Company and its subsidiaries and
such other business considerations as the Company's Board considers relevant
in accordance with applicable laws.
Conditions to Consummation of the Merger
The Merger is subject to customary closing conditions, including, without
limitation, the receipt of all necessary governmental approvals and the
making of all necessary governmental filings, including approvals of various
regulators in Kentucky and Virginia under state utility laws, the approval of
the Federal Energy Regulatory Commission under the Federal Power Act, the
approval of the Securities and Exchange Commission (the "SEC") under the
Public Utility Holding Company Act of 1935, and the filing of requisite
notifications with the Federal Trade Commission and the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the expiration of all applicable waiting periods thereunder. The Merger
is also subject to the receipt of opinions of counsel that the Merger will
qualify as a tax-free reorganization and assurances from the parties'
independent accountants that the Merger will qualify as a pooling of
interests for accounting purposes. In addition, the Merger is conditioned
upon the approval for listing of the LG&E Energy Common Stock to be issued in
the Merger on the New York Stock Exchange. It is anticipated that LG&E
Energy, as parent of LG&E and Kentucky Utilities, will continue to be an
exempt holding company under the Public Utility Holding Company Act of 1935.
2
<PAGE>
During 1997 and the first quarter of 1998, in addition to shareholder and
Board of Directors approval, the Company and KU took the following steps
toward fulfilling the conditions to closing:
- A registration statement filed by the Company with the SEC with
respect to the LG&E Energy Common Stock to be issued in the Merger
became effective.
- The Company and KU filed for regulatory approval of the Merger
Transaction with the FERC and state commissions.
- The Company and KU filed for SEC approval of the Merger under the
Public Utility Holding Company Act of 1935, as amended.
- Notification under the Hart-Scott-Rodino Act of 1976, as amended,
was filed in the first quarter of 1998 with the Department of
Justice and the Federal Trade Commission.
The Merger Agreement
The Merger Agreement contains certain covenants of the parties pending the
closing. Generally, the parties must carry on their business only as
specified in the Merger Agreement (subject to ordinary course exceptions,
certain negotiated dollar limitations and certain previously budgeted
amounts).
The Merger Agreement provides that after the effectiveness of the Merger (the
"Effective Time"), the principal executive offices of LG&E Energy will remain
in Louisville, Kentucky. LG&E will remain headquartered in Louisville.
Kentucky Utilities will remain headquartered in Lexington, Kentucky and
maintain a substantial presence elsewhere throughout its service territory in
order to conduct its state-wide operations. At the Effective Time, the
Company's Board of Directors will consist of a total of 15 directors, eight
of whom will be designated by the Company and seven of whom will be
designated by KU. Upon completion of the Merger, Mr. Roger W. Hale will
continue as Chairman and Chief Executive Officer of the Company and LG&E and
will become Chairman and Chief Executive Officer of Kentucky Utilities. Mr.
Michael R. Whitley, the Chairman and Chief Executive Officer of KU, will
become Vice Chairman, President and Chief Operating Officer of the Company
and Vice Chairman and Chief Operating Officer of each of LG&E and Kentucky
Utilities.
The Merger Agreement may be terminated in certain circumstances, including
(1) by mutual consent of the parties; (2) by either the Company or KU, if the
Merger has not been consummated before May 20, 1999 (plus an extension to
November 20, 1999 if all conditions to closing the Merger, other than receipt
of certain consents and/or statutory approvals by the Company or KU, have
been satisfied at May 20, 1999); (3) by either the Company or KU, if the
stockholders of either the Company or KU do not approve the Merger or if
certain legal requirements prohibit the Merger; (4) by either the Company or
KU, if the other party's directors withdraw or adversely modify their
recommendation of the Merger, fail to reaffirm such recommendation upon the
other party's request, or approve an alternative transaction with a third
party; (5) by either party if the other party has breached the Merger
Agreement or if the other party's representations and warranties are
inaccurate, and such breach or inaccuracy is reasonably likely to result in a
material adverse effect and is not cured within 20 days after receipt of
notice thereof, (6) by either party if a third party acquires more than 50%
of the other party's outstanding voting securities or if the other party's
directors on May 20, 1997 (together with new directors nominated by a
majority of such party's directors) cease to constitute a majority of such
party's directors then in office; or (7) by either party, under certain
circumstances, if there is a competing third-party offer and (i) the target
party's directors receive written advice from outside counsel that, as a
result of the competing proposal, the directors' fiduciary duties require
reconsideration of the target party's commitment to consummate the Merger,
(ii) such target party's directors determine in good faith that their
fiduciary duties require acceptance of
3
<PAGE>
the competing proposal and (iii) such target party is unable, prior to
termination, to negotiate adjustments to the Merger Agreement enabling the
Merger to proceed.
The Merger Agreement provides that if a breach or inaccuracy described in
clause (5) above occurs and if such breach or inaccuracy is not willful, the
non-breaching party is entitled to reimbursement of its out-of-pocket
expenses and fees (including, without limitation, fees and expenses payable
to all legal, accounting, financial, public relations and other professional
advisors arising out of, in connection with or related to the Merger or the
transactions contemplated by the Merger Agreement) not to exceed $10 million.
In the event of a willful breach, the non-breaching party will be entitled to
reimbursement of its actual out-of-pocket expenses (which will not be subject
to the $10 million limit) and any remedies it may have at law or in equity;
provided, further, that if, at the time of the breaching party's willful
breach, there shall have been a third party tender offer or business
combination proposal which shall not have been rejected by the breaching
party and withdrawn by the bidder, and within two and one-half years
following termination, the breaching party or an affiliate thereof becomes a
subsidiary of the bidder or a subsidiary of an affiliate of such bidder or
accepts a written offer to consummate or consummates a business combination
with such bidder or an affiliate thereof, then such breaching party (jointly
and severally with its affiliates), upon the signing of a definitive
agreement relating to such a business combination, or, if no such agreement
is signed, then at the closing (and as a condition to the closing) of such
breaching party becoming such a subsidiary or of such business combination,
is required to pay to the non-breaching party an additional fee equal to $50
million.
If the Merger Agreement is terminated by either the Company or KU due to (i)
the scenarios described in clauses (4) or (7) above, (ii) the failure of
either party to comply with certain covenants requiring it to call a meeting
of stockholders and recommend the Merger for approval, or (iii) the failure
of either party's stockholders to approve the Merger (provided the other
party's stockholders shall not have also failed to approve the Merger), and
if at the time of such event there is a pending third party offer or proposal
that is not rejected by the target directors and not withdrawn by the bidder,
and if the third party proposal is ultimately signed or consummated within
two and one-half years and the target party or an affiliate thereof becomes a
subsidiary of the bidder or a subsidiary of an affiliate of such bidder, or
accepts a written offer to consummate or consummates a business combination
with such bidder or an affiliate thereof, then the target party (jointly and
severally with its affiliates), upon the signing of a definitive agreement
relating to such a business combination, or, if no such agreement is signed,
then at the closing (and as a condition to the closing) of such target party
becoming such a subsidiary or of such business combination, is required to
pay to the other party an additional fee equal to $50 million in cash plus
out-of-pocket fees and expenses incurred by the other party.
Simultaneously with the execution and delivery of the Merger Agreement, the
Company and KU also entered into reciprocal stock option agreements (the
"Stock Option Agreements"). Pursuant to the Stock Option Agreements, the
Company and KU have each granted to the other an irrevocable option to
purchase up to 19.9% of the granting company's outstanding common stock, at
an exercise price per share equal to (i) in the case of LG&E Energy Common
Stock, the average of the daily closing sales price per share of LG&E Energy
Common Stock during the ten-day period ending May 12, 1997 or (ii) in the
case of KU Common Stock, the price per share of LG&E Energy Common Stock
determined pursuant to clause (i) above multiplied by an exchange ratio of
1.67. The option becomes exercisable if the Merger Agreement becomes
terminable by either the Company or KU in circumstances that could entitle
such party to receive termination fees, generally as a result of the other
party becoming the subject of a third party tender offer or business
combination proposal.
4
<PAGE>
If its option becomes exercisable, either the Company or KU may request the
other party to repurchase all or part of its option at a price per share
equal to the spread between the exercise price and the highest average
trading price or the offered price in any business combination proposal. The
aggregate amount of any termination fees and the transaction expenses
payable, plus any amounts payable as a result of the required repurchase of
options, is limited to a maximum amount of $70 million.
In connection with the Merger, the Company has amended the terms of the
Rights Agreement, dated as of December 5, 1990, as amended (the "LG&E Energy
Rights Agreement"), between LG&E Energy and LG&E, as rights agent, so that
the execution, delivery and performance of the Merger Agreement and the Stock
Option Agreements will not cause any "Rights" (as defined in the LG&E Energy
Rights Agreement) to become exercisable, cause KU or any of its affiliates to
become an "Acquiring Person" (as defined in the LG&E Energy Rights Agreement)
or give rise to a "Distribution Date" or "Triggering Event" (as each such
term is defined in the LG&E Energy Rights Agreement). Similarly, KU has
amended the terms of the Rights Agreement, dated as of January 27, 1992 (the
"KU Rights Agreement"), between KU and Illinois Stock Transfer Company, as
rights agent, so that the execution, delivery and performance of the Merger
Agreement and the Stock Option Agreements will not cause any "Rights" (as
defined in the KU Rights Agreement) to become exercisable, cause LG&E Energy
or any of its affiliates to become an "Acquiring Person" (as defined in the
KU Rights Agreement) or give rise to a "Distribution Date" or "Triggering
Event" (as each such term is defined in the KU Rights Agreement).
On March 25, 1998, the Federal Energy Regulatory Commission (FERC) issued an
order approving the merger of LG&E Energy Corp. and KU Energy Corporation
without conditions. The companies had submitted a joint merger application
to FERC for approval on October 9, 1997.
Results of the Merger Transaction
A preliminary estimate indicates that the Merger will result in gross
non-fuel savings of more than $760 million over a ten-year period following
the Merger. Costs to achieve these synergies are estimated to be $77 million.
In regulatory filings associated with approval of the Merger, LG&E and
Kentucky Utilities committed not to seek increases in base rates and proposed
reductions in their retail customers' bills in amounts based on 50% of the
currently estimated cost savings to be achieved as a result of the Merger,
less 50% of the costs to achieve such savings, in each of the five years
following effectiveness of the Merger. These regulatory filings were approved
substantially as filed by the Kentucky Commission, see "Regulation and Rates"
and Note 2 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
The Virginia State Corporation Commission (the "Virginia Commission") entered
an Order (the "Virginia Order") on January 20, 1998 approving the merger of
KU Energy with the Company subject to certain conditions, including among
others, the following conditions: (i) that Kentucky Utilities reduce its
Virginia jurisdictional retail revenues over the first five years after the
merger is consummated by at least $4,122,185, provided that, any additional
merger savings shall be provided to Virginia jurisdictional customers
proportionately; and submit to the Virginia Commission a copy of any such
subsequent revisions together with a comparison showing how the rate
reduction is calculated; (ii) that should actual merger-related savings
exceed estimates provided to the Virginia Commission, such additional
merger-related savings may be at issue in any future filings or proceedings
addressing rates; (iii) that all merger-related savings shall be recorded
above the line for purposes of Kentucky Utilities' filings or other
proceedings addressing rates and in connection therewith the costs to achieve
the merger shall be amortized over five years; (iv) that, within 180 days
after consummation, Kentucky Utilities shall file a detailed report with the
Virginia Commission describing all actual merger-related costs; (v) that
commencing with 1998, the amortized balance of deferred costs to achieve the
merger shall be subject to write-off or write-down in the event of
over-earnings per an annual earnings test (a range of 12.0% through 13.0%
until Kentucky Utilities' next rate case) to be filed with each annual
filing; (vi) that no costs attributable to LG&E's regulatory assets or
potential stranded costs will be included in Virginia retail rates, without
prior approval of the Virginia Commission; (vii) that no merger-related costs
in excess of merger-related savings will be included in Virginia retail rates
in any year following the merger; (viii) that Kentucky Utilities shall
quantify, in accordance with GAAP, the merger-related costs attributable to
the test period used to
5
<PAGE>
establish Virginia retail rates and demonstrate that the merger-related
savings for the same period exceeds such merger-related costs; (ix) that
Kentucky Utilities will not terminate merger-related surcredits at the end of
the initial five years of the plan, without prior approval of the Virginia
Commission; and (x) that Kentucky Utilities shall file a general rate case
with the Virginia Commission no later than nine months prior to the end of
the fifth year of the merger to address the future sharing of merger savings
with ratepayers.
LOUISVILLE GAS AND ELECTRIC COMPANY
General
Incorporated on July 2, 1913, LG&E is a regulated public utility that
supplies natural gas to approximately 284,000 customers and electricity to
approximately 356,000 customers in Louisville and adjacent areas in Kentucky.
LG&E's service area covers approximately 700 square miles in 17 counties and
has an estimated population of one million. Included in this area is the Fort
Knox Military Reservation, to which LG&E transports gas and provides electric
service, but which maintains its own distribution systems. LG&E also provides
gas service in limited additional areas. LG&E's coal-fired electric
generating plants, which are all equipped with systems to reduce sulfur
dioxide emissions, produce most of LG&E's electricity. The remainder is
generated by a hydroelectric power plant and combustion turbines. Underground
natural gas storage fields help LG&E provide economical and reliable gas
service to customers. During 1997, the Company's financial condition and
results of operation depended to a large degree on the financial condition
and results of operations of LG&E.
LG&E's Trimble County Unit 1 (Trimble County), a 495-megawatt, coal-fired
electric generating unit, which LG&E began constructing in 1979, was placed
in commercial operation in December 1990. Trimble County had been subject to
numerous reviews by the Kentucky Commission. In December 1995, the Commission
approved a settlement agreement filed by LG&E and all intervenors in the
Trimble County proceedings, including various consumer interest groups and
government agencies, that in effect, resolved all of the regulatory and legal
issues related to the appropriate ratemaking treatment to exclude 25% of the
Trimble County costs from customer rates. LG&E owns a 75% undivided interest
in Trimble County. For a more detailed discussion of the proceedings relating
to Trimble County, see Electric Operations and Notes 17 and 18 of LG&E Energy
Corp.'s Notes to Financial Statements under Item 8.
With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E
already complied with the stringent sulfur dioxide emission limits required
by the year 2000, as it had previously installed scrubbers on all of its
coal-fired generating units. Since 1990, as part of its ongoing construction
program, LG&E has spent approximately $31 million through 1997 for measures
to meet applicable nitrogen oxide limits. While the overall financial impact
of the Act on LG&E has been minimal, LG&E is closely monitoring several
significant regulatory developments which may potentially impact LG&E
including efforts by local officials to address the "ozone nonattainment"
status of Jefferson County, Kentucky and implementation of new ozone and
particulate matter standards adopted by the United States Environmental
Protection Agency (USEPA) in June, 1997. LG&E is monitoring regulations
proposed by USEPA in October 1997, that could require numerous utilities
including LG&E to reduce nitrogen oxide emissions by approximately 85% from
1990 levels. LG&E has already reduced its nitrogen oxide emissions by
approximately 40% and the Company's independent power projects generally
operate at even lower emissions levels. However, if adopted as proposed, the
proposed regulations may require LG&E and the independent power projects to
incur significant capital expenditures, currently estimated as potentially in
excess of $100 million in the case of LG&E, and significantly increased
operation and maintenance costs. LG&E currently anticipates that a
significant portion of any such capital costs could be recoverable through
rates, although there can be no guarantee of such recovery. For a more
detailed discussion of the Clean Air Act and other environmental issues, see
Environmental Matters under this Item, Item 3, Item 7, and Note 12 of LG&E's
Notes to Financial Statements and Note 16 of LG&E Energy Corp.'s Notes to
Financial Statements
6
<PAGE>
under Item 8, respectively.
For the year ended December 31, 1997, 73% of total operating revenues was
derived from electric operations and 27% from gas operations. Electric and gas
operating revenues and the percentages by classes of service on a combined basis
for this period were as follows:
<TABLE>
<CAPTION>
(Thousands of $)
Electric Gas Combined % Combined
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Residential $205,137 $139,967 $345,104 46%
Commercial 162,900 52,440 215,340 28
Industrial 110,652 17,892 128,544 17
Public authorities 53,412 12,052 65,464 9
--------- --------- --------- -----
Total - ultimate consumers 532,101 222,351 754,452 100%
===
Wholesale sales 70,942 - 70,942
Gas transported - net - 6,997 6,997
Miscellaneous 11,489 1,663 13,152
---------- ----------- ----------
Total $614,532 $231,011 $845,543
======== ======== ========
</TABLE>
See Note 15 of LG&E's Notes to Financial Statements and Note 19 of LG&E
Energy Corp.'s Notes to Financial Statements under Item 8 for financial
information concerning segments of business for the three years ended
December 31, 1997.
Electric Operations
The sources of LG&E's electric operating revenues and the volumes of sales
for the three years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ELECTRIC OPERATING REVENUES (Thousands of $):
Residential $205,137 $202,318 $201,357
Small commercial and industrial 72,769 74,034 73,074
Large commercial 90,131 88,993 87,497
Large industrial 110,652 110,914 110,800
Public authorities 53,412 54,318 53,861
Refund - Trimble County settlement - - (28,300)
-------- -------- --------
Total - ultimate consumers 532,101 530,577 498,289
Wholesale sales 70,942 67,854 37,471
Miscellaneous 11,489 8,265 6,577
-------- -------- --------
Total $614,532 $606,696 $542,337
======== ======== ========
ELECTRIC SALES (Thousands of mwh):
Residential 3,302 3,382 3,415
Small commercial and industrial 1,108 1,131 1,112
Large commercial 1,880 1,850 1,802
Large industrial 3,054 3,059 3,024
Public authorities 1,105 1,122 1,113
-------- -------- --------
Total - ultimate consumers 10,449 10,544 10,466
Wholesale sales 3,800 3,589 2,001
-------- -------- --------
Total 14,249 14,133 12,467
======== ======== ========
</TABLE>
7
<PAGE>
At December 31, 1997, LG&E had 356,082 electric customers.
LG&E uses efficient coal-fired boilers that are fully equipped with sulfur
dioxide removal systems to generate electricity. LG&E's system wide emission
rate for sulfur dioxide in 1997 was approximately .98 lbs./MMBtu of heat
input, which is significantly below the Phase II limit of 1.2 lbs./MMBtu
established by the Clean Air Act Amendments of 1990 for the year 2000.
On Monday, July 21, 1997, LG&E set a record local peak load of 2,414 Mw, when
the temperature at the time of peak reached 93(degree)F (average for the day
was 83(degree)F). LG&E also set the record system peak of 3,536 Mw (which
included purchases from and short-term sales to other electric utilities) on
Thursday, June 25, 1997. The 1996 maximum local peak load of 2,282 Mw
occurred on Wednesday, August 7, when the temperature at the time of peak was
93(degree)F (average for the day was 84(degree)F). Prior to 1997, the record
local peak load was 2,357 Mw (set on August 17, 1995) and the record system
peak was 3,223 Mw (set on May 30, 1991).
LG&E's current reserve margin is 16%. At December 31, 1997, LG&E owned steam
and combustion turbine generating facilities with a capacity of 2,512 Mw and
an 80 Mw hydroelectric facility on the Ohio River. See Item 2, Properties.
LG&E is a participating owner with 14 other electric utilities of Ohio Valley
Electric Corporation whose primary customer is the Portsmouth Area
uranium-enrichment complex of the U.S. Department of Energy at Piketon, Ohio.
LG&E has direct interconnections with 11 utility companies in the area and
has agreements with each interconnected utility for the purchase and sale of
capacity and energy. LG&E also has agreements with an increasing number of
entities throughout the United States for the purchase and/or sale of
capacity and energy and for the utilization of their bulk transmission system.
The Illinois Municipal Electric Agency (IMEA), based in Springfield,
Illinois, which is an agency of 35 municipalities that own and operate their
own electric systems, has a 12.12% ownership interest in LG&E's Trimble
County Unit 1. The Indiana Municipal Power Agency (IMPA), based in Carmel,
Indiana, has a 12.88% interest in the Trimble County Unit. IMPA is composed
of 31 municipalities that have joined together to meet their long-term
electric power needs. Both IMEA and IMPA pay their proportionate share for
operation and maintenance expenses of Trimble County and for fuel and
reactant used. They are also responsible for their proportionate share of
incremental capital assets acquired. See Note 18 of LG&E Energy Corp.'s Notes
to Financial Statements under Item 8 for a further discussion.
8
<PAGE>
Gas Operations
The sources of LG&E's gas operating revenues and the volumes of sales for the
three years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GAS OPERATING REVENUES (Thousands of $):
Residential $139,967 $125,327 $107,762
Commercial 52,440 47,415 38,161
Industrial 17,892 21,229 17,430
Public authorities 12,052 11,731 8,679
---------- ---------- -----------
Total - ultimate consumers 222,351 205,702 172,032
Gas transported - net 6,997 6,850 7,821
Miscellaneous 1,663 1,867 1,273
----------- ----------- -----------
Total $231,011 $214,419 $181,126
======== ======== ========
GAS SALES (Millions of cu. ft.):
Residential 24,038 25,531 24,242
Commercial 10,212 10,656 9,885
Industrial 3,948 5,190 5,188
Public authorities 2,467 2,790 2,423
--------- --------- ---------
Total - ultimate consumers 40,665 44,167 41,738
Gas transported 13,452 12,540 12,241
-------- -------- --------
Total 54,117 56,707 53,979
======== ======== ========
</TABLE>
At December 31, 1997, LG&E had 283,690 gas customers.
LG&E has underground natural gas storage fields that help provide economical
and reliable gas service to ultimate consumers.
By using gas storage fields strategically, LG&E can buy gas when prices are
low, store it, and retrieve the gas when demand is high. Accessing least cost
gas was made easier in November 1993 when the Federal Energy Regulatory
Commission Order No. 636 went into effect. Previously, LG&E and other
utilities purchased most of their gas services from pipeline companies. The
order "unbundled" gas services, allowing utilities to purchase gas,
transportation, and storage services separately from many different sources.
Currently, LG&E buys competitively priced gas from several large producers
under contracts of varying duration. By purchasing from multiple suppliers
and storing any excess gas, LG&E is able to secure favorably priced gas for
its customers. Without storage capacity, LG&E would be forced to buy
additional gas when customer demand increases, which is usually when the
price is highest.
A number of industrial customers purchase their natural gas requirements
directly from alternate suppliers for delivery through LG&E's distribution
system. Generally, transportation of natural gas for LG&E's customers does
not have an adverse effect on earnings because of the offsetting decrease in
gas supply expenses. Transportation rates are designed to make LG&E
economically indifferent as to whether gas is sold or merely transported.
9
<PAGE>
The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday,
January 20, 1985, when the average temperature for the day was -11(degree)F.
During 1997, the maximum day gas sendout was 506,000 Mcf, occurring on
January 16, when the average temperature for the day was 12(degree)F. Supply
on that day consisted of 203,000 Mcf from purchases, 245,000 Mcf delivered
from underground storage, and 58,000 Mcf transported for industrial
customers. For a further discussion, see Gas Supply.
Regulation and Rates
The Kentucky Commission has regulatory jurisdiction over the rates and
service of LG&E and over the issuance of certain of its securities. The
Kentucky Commission has the ability to examine the rates LG&E charges its
retail customers at any time. LG&E is a "public utility" as defined in the
Federal Power Act, and is subject to the jurisdiction of the Department of
Energy and the FERC with respect to the matters covered in such Act,
including the sale of electric energy at wholesale in interstate commerce. In
addition, the FERC has sole jurisdiction over the issuance by LG&E of
short-term securities.
For a discussion of current regulatory matters, see Rates and Regulation
under Item 7 and Note 3 of LG&E's Notes to Financial Statements and Note 4 of
LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
Increases and decreases in the cost of fuel for electric generation are
reflected in the rates charged to all of LG&E's electric customers by means
of LG&E's fuel adjustment clause. The Kentucky Commission requires public
hearings at six-month intervals to examine past fuel adjustments, and at
two-year intervals for the purpose of additional examination and transfer of
the then current fuel adjustment charge or credit to the base charges. The
Commission also requires that electric utilities, including LG&E, file
certain documents relating to fuel procurement and the purchase of power and
energy from other utilities.
LG&E's gas rates contain a gas supply clause (GSC), whereby increases or
decreases in the cost of gas supply are reflected in LG&E's rates, subject to
approval of the Kentucky Commission. The GSC procedure prescribed by order of
the Commission provides for quarterly rate adjustments to reflect the
expected cost of gas supply in that quarter. In addition, the GSC contains a
mechanism whereby any over- or under-recoveries of gas supply cost from prior
quarters will be refunded to or recovered from customers through the
adjustment factor determined for subsequent quarters.
On December 8, 1995, the Commission approved a settlement agreement that, in
effect, resolved all the regulatory and legal issues related to the
appropriate ratemaking treatment to exclude 25% of the Trimble County plant
costs from customer rates. See Note 13 of LG&E's Notes to Financial
Statements and Note 17 of LG&E Energy Corp.'s Notes to Financial Statements
under Item 8 for a further discussion of this matter.
In April 1995, in response to an application filed by LG&E, the Commission
approved an environmental cost recovery surcharge that increased electric
revenues by $3.2 million in 1995, an additional $2.4 million in 1996, and an
additional $.4 million in 1997. An appeal of the Commission's April 1995
order by various intervenors in the proceeding (including the Kentucky
Attorney General) is currently pending in the Franklin Circuit Court of
Kentucky. LG&E is contesting the legal challenges to the surcharge, but
cannot predict the outcome of the appeal. In a similar proceeding involving
appeals from the Commission's order authorizing an environmental cost
recovery surcharge for Kentucky Utilities Company by the same intervenors,
the Kentucky Court of Appeals, in a decision issued on December 5, 1997,
upheld the constitutionality of the surcharge statute. The intervenors have
petitioned the Kentucky Supreme Court to review the decision of the Kentucky
Court of Appeals. The amount of refunds that may be ordered, if any, is not
expected to have a material adverse effect on LG&E's financial position or
results of operations. See Rates and Regulation under Item 7 for a further
discussion.
In January 1994, LG&E implemented a Commission approved demand side
management (DSM) program.
10
<PAGE>
The program contains a rate mechanism that provides for the recovery of DSM
program costs, allows LG&E to recover revenues due to lost sales associated
with the DSM programs and provides LG&E an incentive for implementing DSM
programs. See Rates and Regulation under Item 7 for a discussion of
Commission approved changes to the original program and requested revisions
pending before the Commission.
On September 30, 1997, the Commission issued an order approving LG&E's
request to implement an experimental performance-based ratemaking mechanism.
This mechanism is related to gas procurement activities and gas off-system
sales only and is approved for a three-year test period effective October 1,
1997. During the three-year experimental period, rate adjustments related to
this mechanism will be determined for each 12 month period beginning November
1 and ending October 31. This mechanism is not expected to have a material
effect on LG&E's financial position or results of operations.
In its September 12, 1997 order approving the merger of LG&E Energy and KU
Energy, the Kentucky Commission ordered LG&E to file by the later of the
consummation of the merger or September 14, 1998, detailed plans to address
the future rate regulation of LG&E. For a further discussion of this matter,
see Rates and Regulation under Item 7.
As part of the corporate reorganization whereby LG&E became the subsidiary of
LG&E Energy Corp. (Energy Corp.), LG&E obtained the approval of the Kentucky
Commission. The order of the Kentucky Commission authorizing LG&E to
reorganize into a holding company structure contains certain provisions,
which, among other things, ensure the Kentucky Commission access to books and
records of Energy Corp. and its affiliates which relate to transactions with
LG&E; requires Energy Corp. and its subsidiaries to employ accounting and
other procedures and controls to protect against subsidization of non-utility
activities by LG&E's customers; and precludes LG&E from guaranteeing any
obligations of Energy Corp. without prior written consent from the Kentucky
Commission. In addition, the order provides that LG&E's Board of Directors
has the responsibility to use its dividend policy consistent with preserving
the financial strength of LG&E and that the Kentucky Commission, through its
authority over LG&E's capital structure, can protect LG&E's ratepayers from
the financial effects resulting from non-utility activities.
Construction Program and Financing
LG&E's construction program is designed to ensure that there will be adequate
capacity and reliability to meet the electric and gas needs of its service
area. These needs are continually being reassessed and appropriate revisions
are made, when necessary, in construction schedules. LG&E's estimates of its
construction expenditures can vary substantially due to numerous items beyond
LG&E's control, such as changes in rates, economic conditions, construction
costs, and new environmental or other governmental laws and regulations.
During the five years ended December 31, 1997, gross property additions
amounted to $506 million. Internally generated funds for the five-year period
were sufficient to provide for all of these gross additions. The gross
additions during this period amounted to approximately 18% of total utility
plant at December 31, 1997, and consisted of $373 million for electric
properties and $133 million for gas properties. Gross retirements during the
same period were $99 million, consisting of $81 million for electric
properties and $18 million for gas properties.
11
<PAGE>
Coal Supply
Over 90% of LG&E's present electric generating capacity is coal-fired, the
remainder being made up of a hydroelectric plant and combustion turbine
peaking units fueled by natural gas and oil. Coal will be the predominant
fuel used by LG&E in the foreseeable future, with natural gas and oil being
used for peaking capacity and flame stabilization in coal-fired boilers or in
emergencies. LG&E has no nuclear generating units and has no plans to build
any in the foreseeable future.
LG&E has entered into coal supply agreements with various suppliers for coal
deliveries for 1998 and beyond. LG&E normally augments its coal supply
agreements with spot market purchases which, during 1997, were about 14% of
total purchases. LG&E has a coal inventory policy, which is in compliance
with the Kentucky Commission's directives and which LG&E believes provides
adequate protection under most contingencies. LG&E had on hand at December
31, 1997, a coal inventory of approximately 802,000 tons, or a 43 day supply.
LG&E expects, for the foreseeable future, to continue purchasing most of its
coal, which has a sulfur content in the 2%-4.5% range, from western Kentucky
and southwest Indiana. The abundant supply of this relatively low priced
coal, combined with present and future desulfurization technologies, is
expected to enable LG&E to continue to provide adequate electric service in a
manner acceptable under existing environmental laws and regulations.
Coal for LG&E's Mill Creek plant is delivered by rail and barge. Deliveries
to the Cane Run and Trimble County plants are by rail and barge,
respectively. Starting in the second half of 1998, Cane Run will also have
the capability for barge delivery of coal.
The average delivered cost of coal purchased by LG&E, per ton and per million
Btu, for the periods shown were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Per ton $21.66 $21.73 $23.68
Per million Btu .94 .97 1.04
</TABLE>
The delivered cost of coal is expected to increase slightly during 1998.
Gas Supply
Prior to the implementation of FERC Order No. 636, LG&E had purchased natural
gas and pipeline transportation services from Texas Gas Transmission
Corporation (Texas Gas). LG&E now purchases only transportation services from
Texas Gas and, beginning in 1996, Tennessee Gas Pipeline Company (Tennessee).
In addition, LG&E purchases natural gas from many other sources under
contracts for varying periods of time.
During 1997, Texas Gas filed for a change in its rates with FERC as required
under the settlement in its last rate case with FERC. LG&E is participating
in that and other proceedings, as appropriate. Resolution of that rate case
is currently expected to take place sometime in 1998 and is expected to
reflect a minimal increase in LG&E's rates.
LG&E transports on the Texas Gas system under No-Notice Service (NNS) and
Firm Transportation (FT) rates. During the winter months, LG&E has 184,900
MMBtu per day in NNS. Effective November 1, 1997, LG&E modified its contract
levels with Texas Gas. LG&E's summer NNS levels were decreased from 111,000
MMBtu per day to 60,000 MMBtu per day and its summer FT levels were increased
from 24,000 MMBtu per day to 54,000 MMBtu per day. Each of these NNS and FT
agreements with Texas Gas expire in equal portions in 2000, 2001, and 2003.
LG&E also transports on the Tennessee system under Tennessee's Rate FT-A.
Effective
12
<PAGE>
November 1, 1997, LG&E increased its contract levels with Tennessee from
30,000 MMBtu per day annually to 51,000 MMBtu per day annually. The FT-A
agreement with Tennessee expires 2002. The result of the modifications on
both Texas Gas and Tennessee was a net increase in LG&E's total winter
pipeline capacity of 21,000 MMBtu per day and no change in LG&E's total
summer pipeline capacity. The net increase in winter pipeline capacity was
made to serve increased sales requirements by LG&E to its customers.
LG&E also has a portfolio of supply arrangements with various suppliers in
order to meet its firm sales obligations. These gas supply arrangements
include pricing provisions which are market-responsive. These firm supplies,
in tandem with pipeline transportation services, provide the reliability and
flexibility necessary to serve LG&E's customers.
LG&E operates five underground gas storage fields with a current working gas
capacity of 14.6 million Mcf. Gas is purchased and injected into storage
during the summer season and is then withdrawn to supplement pipeline
supplies to meet the gas-system load requirements during the winter heating
season.
The estimated maximum deliverability from storage during the early part of
the 1996-1997 heating season was approximately 373,000 Mcf per day.
Deliverability decreases during the latter portion of the heating season as
the storage inventory is reduced by seasonal withdrawals.
The average cost per Mcf of natural gas purchased by LG&E was $3.46 in 1997
and 1996, and $2.62 in 1995.
Environmental Matters
Protection of the environment is a major priority for LG&E. LG&E engages in a
variety of activities within the jurisdiction of federal, state, and local
regulatory agencies. Those agencies have issued LG&E permits for various
activities subject to air quality, water quality, and waste management laws
and regulations. For the five year period ending with 1997, expenditures for
pollution control facilities represented $104 million or 20% of total
construction expenditures. The cost of operating and maintaining
scrubber-related facilities amounted to $22 million in each of 1997 and 1996.
See Note 12 of LG&E's Notes to Financial Statements and Note 16 of LG&E
Energy Corp.'s Notes to Financial Statements under Item 8 for a discussion of
specific environmental proceedings affecting LG&E.
Competition
In the last several years, LG&E has taken many steps to prepare for the
expected increase in competition in its industry, including a reduction in
the number of employees; aggressive cost cutting; write-offs of previously
deferred expenses; an increase in focus on not only commercial and industrial
customers, but residential customers as well; an increase in employee
involvement and training; a major realignment and formation of new business
units, and continuous modifications of its organizational structure. LG&E
could take additional steps like these to better position itself for
competition in the future.
LG&E CAPITAL CORP.
The Company's non-regulated operations are conducted by LG&E Capital Corp.
(Capital Corp.), which was formed on September 5, 1997, when the Company
merged two of its former direct subsidiaries, LG&E Energy Systems Inc.
(Energy Systems) and LG&E Gas Systems Inc. (Gas Systems), and renamed the
surviving company LG&E Capital Corp.
Capital Corp. has two major subsidiaries: LG&E Power Inc. (LPI) and LG&E
International Inc. (LII). LPI, in turn, has two major subsidiaries: LG&E
Energy Marketing Inc. (LEM) and LG&E Power Operations Inc.
13
<PAGE>
(LPO). LEM, together with one subsidiary operating in the United States and
certain other direct subsidiaries of LPI operating in the United States, make
up the Company's Energy Marketing and Trading Division, which is involved in
the marketing and trading of electric power and the marketing, trading,
gathering, processing, storage and transportation of natural gas.
LPO, together with primary subsidiaries operating in the United States, owns,
operates and maintains domestic power generation facilities that sell energy
to local industries and utilities. These subsidiaries, together with the
subsidiaries that hold the investments in the foreign power generation
facilities mentioned in the next paragraph, make up the Company's Power
Generation Division.
LII, together with primary subsidiaries operating in the United States and
three operating in Argentina, holds investments in foreign power generation
facilities and in two Argentine natural gas distribution companies. In
February 1997, LII purchased a controlling interest in Distribuidora de Gas
del Centro (Centro) and acquired a minority interest in Distribuidora de Gas
Cuyana (Cuyana) for approximately $140 million. Centro serves approximately
372,000 customers in Cordoba Province, Argentina; Cuyana serves approximately
305,000 customers in Mendoza Province, Argentina. The subsidiaries that hold
the investments in Centro and Cuyana make up the Company's Argentine Gas
Distribution Division.
The Company operates an energy services company, LG&E Enertech Inc., which
assesses the energy and utility needs of large commercial and industrial
entities and develops energy-efficient solutions. The Company also offers
maintenance and repair services on customers' major household appliances
through its subsidiary, LG&E Home Services Inc. A subsidiary of the Company,
LG&E Credit Corp., also provides energy-related consumer financing services
in the Louisville, Kentucky area.
ENERGY MARKETING AND TRADING DIVISION
LPI conducts energy marketing activities through its subsidiary LEM (formerly
LG&E Natural Marketing Inc. and successor by merger to LG&E Power Marketing
Inc.). LEM engages in energy marketing services, including the marketing and
brokering of natural gas, wholesale power, emission allowances and coal, as
well as derivative products relating to such commodities. In anticipation of
the continuing convergence of the natural gas and electricity markets, the
Company has consolidated the trading, risk management and administrative
operations of its power marketing and gas marketing divisions into a single
unit in a state-of-the-art trading floor at its Louisville headquarters.
Recognizing the inherent risks of its trading activities (including those
associated with volatility in the markets and credit risk of its
counterparties), the Company has established trading controls, including a
written trading policy which contains trading limits for each trader and for
the organization as a whole. The controls include a segregation of the
trading and back office functions and regular reports of open positions to a
risk management committee comprised of senior management. In addition, a
credit function which reports to the Chief Financial Officer of the Company
reviews counterparty financial statements and establishes credit limits for
each counterparty. The Company has further engaged an outside consultant to
review periodically its trading controls.
14
<PAGE>
LEM's principal activities include the marketing and brokering of wholesale
power and natural gas. LEM was among the first utility-affiliated marketers
in the country to secure the approval of FERC to sell power at market-based
rates and engage in wholesale power marketing activities. During 1996, LEM
sold or brokered 17.4 million Mw hours of power in 35 states. The volume
growth has continued as LEM sold or brokered 53.3 million Mw hours in 45
states in 1997. The volume of gas marketed by LEM has increased from an
average of approximately 600 million cubic feet ("Mcf") per day in May 1995,
when the gas marketing business was acquired, to an average 2.95 billion
cubic feet ("Bcf") per day for 1996 and 2.61 Bcf per day for 1997.
In November 1996, LEM entered into a purchase and sale agreement with
Oglethorpe Power Corporation ("OPC") pursuant to which LEM has access to
approximately one-half of OPC's 5,000 Mw of generation resources. LEM is also
required to cover approximately half of the energy needs of OPC's member
cooperatives. Over the course of the anticipated fifteen-year agreement, it
is expected that LEM will provide more than 200 million Mw hours of
electricity to OPC.
In connection with the proposed lease by the Company of the operating assets
of Big Rivers, LEM is expected to market approximately 600 Mw of excess power
to be generated by operating assets of Big Rivers.
Pursuant to a recent agreement with New Energy Ventures, Inc. ("NEV"), LEM
will provide coordination of energy supplies for NEV, and administration,
scheduling and billing services for NEV's clients nationally. NEV was formed
in 1995 to provide commercial and industrial energy consumers with energy
buying and management services. NEV's customers comprise one of the nation's
largest retail electricity buyers group.
LEM uses financial instruments in its power and natural gas marketing
activities. These financial instruments are used to hedge price and
geographic basis risk for its purchase and sales commitments and to enhance
its overall portfolio of electric power and natural gas trading activities.
See Note 5 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8
for an overall discussion of these activities.
LPI's gas operations, conducted directly and through subsidiaries, include
gathering, processing, storage and transportation of natural gas. LPI
aggregates supplies of natural gas from gas producers and processors,
contracts for transportation services on both interstate and intrastate
pipelines, and provides a variety of re-bundled services to end-users and
local distribution companies.
The majority of gas purchased and sold by LPI is generally under spot
contracts of thirty days or less. As of December 31, 1997, LPI had
approximately 740 direct gas sales contracts with industrial firms, local gas
distribution companies, electric utilities, large commercial entities and
institutions such as hospitals, military bases and universities.
LPI's natural gas gathering and processing operations are concentrated in
southeastern New Mexico, the Louisiana Gulf Coast, and the Permian Basin of
West Texas. Assets employed either directly by LPI or through its
subsidiaries to conduct these operations include a 90-mile intrastate
pipeline in New Mexico (the Llano pipeline), twelve separate gathering
systems consisting of 1,363 miles of pipeline (of which LPI owns 100% of
seven and ownership interests ranging from 11% to 50% in the other five),
three active gas processing facilities, a gas treatment facility, an
underground storage facility with a current working capacity of approximately
6.0 Bcf of gas, and two gas transmission systems located in Texas which total
76 miles.
The Llano pipeline, which has a design capacity of approximately 180,000 Mcf
of gas per day, is capable of delivering gas to four different interstate
pipelines. LPI, through its various subsidiaries, purchases gas from over 100
producers connected to the Llano pipeline and sells the gas directly to
end-user customers or delivers the gas into one of the interstate pipelines
for sale. LPI, through its various subsidiaries, also transports natural gas
through the Llano pipeline for third parties and is paid a transportation fee
for such services. An average of
15
<PAGE>
approximately 82,600 Mcf of natural gas per day moved through the Llano
pipeline in 1997.
The twelve gathering systems owned during 1997 gathered approximately 106,000
Mcf (net to LPI's ownership interests) of natural gas per day during 1997.
Connected to the Llano pipeline are two operating natural gas processing
facilities capable of processing approximately 85,000 MMBtu of natural gas
per day. These facilities extract natural gas liquids, including propane,
ethane, butanes and natural gasoline, from the natural gas stream, at which
point the mixed stream of liquids is sold. Approximately 208,400 gallons per
day of natural gas liquids were extracted and sold from these facilities in
1997. Also connected to the Llano pipeline is a natural gas storage facility.
As noted above, this facility has current working capacity of approximately
6.0 Bcf. LPI, through a subsidiary, offers this storage capacity to third
parties on a fee basis. As of December 31, 1997, storage capacity of
approximately 2.5 Bcf was leased to other parties.
LPI (through a wholly-owned subsidiary) and Santa Fe Energy Resources Inc.
(Santa Fe) are parties to a Master Gas Purchase Contract (Gas Contract),
which was entered into in December 1993 and which expires on March 31, 2001.
The Gas Contract provides for the dedication by Santa Fe to LPI of all of its
domestic natural gas production from specified existing wells, which consist
of essentially all such entity's domestic natural gas production (except to
the extent such production is dedicated under pre-existing contracts) and
certain domestic development and exploration wells. LPI currently receives
about 80,000 MMBtu per day under the contract. Production of gas wells
acquired by Santa Fe may, by mutual agreement, be dedicated under the Gas
Contract. LPI is obligated to analyze and provide its recommendation
regarding the method of gathering and transporting production from
exploration wells, whether by Santa Fe, LPI or third parties.
LPI is required to release gas production dedicated under the Gas Contract
under certain circumstances, including if LPI's financial condition changes
materially and adversely and LPI does not provide financial assurances (such
as letters of credit) for the value of such gas acceptable to Santa Fe. To
date, Santa Fe has not elected to request any such financial assurances.
Pursuant to the Gas Contract, LPI is required to pay Santa Fe, for all
production delivered, the fair market price for such gas. LPI is obligated to
use its best efforts to receive gas from Santa Fe at delivery points so as to
maximize the set price received by Santa Fe for such production.
The term of the Gas Contract runs until March 31, 2001. However, either LPI
or Santa Fe has the right to terminate the contract upon a material breach of
the contract or the occurrence of certain events. In addition, Santa Fe has
the right to terminate the contract or suspend performance if (i) payments
are overdue by more than three working days, or (ii) LPI fails to purchase
specified percentages of available production from Santa Fe.
The production, transportation and certain sales of natural gas are subject
to federal, state or local regulations which have a significant impact upon
LEM's and LPI's energy products and services businesses. Regulation at the
federal level of domestically produced or transported natural gas is
administered primarily by the FERC pursuant to the Natural Gas Act (NGA) and
the Natural Gas Policy Act of 1978 (NGPA). Maximum selling prices of certain
categories of gas, whether sold in interstate or intrastate commerce,
previously were regulated pursuant to NGPA. The NGPA established various
categories of gas and provided for graduated deregulation of price controls
of several categories of gas and the deregulation of sales of certain
categories of gas. All price deregulation contemplated under the NGPA has
already taken place. Subsequently, the Natural Gas Wellhead Decontrol Act of
1989 terminated all NGA and NGPA regulation of "first sales" of domestic
natural gas on January 1, 1993. The sale for resale of certain natural gas in
interstate commerce is regulated, in part, pursuant to the NGA, which
requires certificate and abandonment authority to initiate and terminate such
sales. In addition, natural gas marketed by LEM is usually transported by
interstate pipeline companies that are subject to the jurisdiction of the
FERC. Similarly, some of the transportation and storage services provided by
Llano are
16
<PAGE>
subject to FERC regulation under section 311 of the NGPA. These services are
frequently sold to gas distribution companies that contract with interstate
pipeline companies for transportation from the Llano facility to their
respective service areas. Section 311 permits intrastate pipelines under
certain circumstances to sell gas to, transport gas for, or have gas
transported by, interstate pipeline companies, and assign contract rights to
purchase surplus gas from producers to interstate pipeline companies without
being regulated as interstate pipelines under the NGA.
For a discussion of lawsuits filed as a result of the Company's discovery in
the fourth quarter of 1996 that unauthorized transactions had occurred in its
gas trading business, see Note 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
POWER GENERATION DIVISION
The Power Generation Division (Power Generation) develops, owns, operates,
and maintains power generation facilities that sell electric and steam energy
to utility and industrial customers. It currently has ownership interests in
projects capable of generating nearly 600 megawatts of electric power in
North Carolina, Virginia, New York, California, Minnesota, and Texas. Power
Generation also has ownership interests in a windpower generating facility in
Tarifa, Spain, and recently sold its interest in a 114-megawatt natural
gas-fired power plant in North Central Argentina. See Item 2, Properties, for
a listing of the Power Generation Division's projects.
Except for its investments in wind power and its Roanoke Valley I facility
(ROVA I) (see Item 2, Properties), each of the projects Power Generation has
in operation within the United States is a qualifying cogeneration facility
(QF) under the Public Utility Regulatory Policy Act of 1978 (PURPA). See Item
3 and Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item
8 for a discussion of certain issues regarding past operations at certain of
these facilities. Certain partnerships, in which companies in the Power
Generation Division have ownership interests, are operating wind power
facilities which are qualifying small power production facilities under
PURPA. In addition, Power Generation has obtained exempt wholesale generator
(EWG) status for the entities which own the ROVA I and Roanoke Valley II
(ROVA II) projects in North Carolina, the Rensselaer facility in Rensselaer,
New York, and the Southampton, Altavista and Hopewell projects in Virginia.
Except for ROVA I, these projects continue to maintain QF status under PURPA.
Generally, QF status exempts projects from the application of the Holding
Company Act, many provisions of the Federal Power Act, and state laws and
regulations respecting rates and financial or organization regulation of
electric utilities. EWGs also are exempt from application of the Holding
Company Act and many provisions of the Federal Power Act, but once such an
entity files its electric generation rates with FERC, it becomes a
jurisdictional public utility under the Federal Power Act. As such a "public
utility," an EWG's rates and some of its corporate activities are subject to
FERC regulation. EWGs also are subject to non-rate regulation under state
laws governing electric utilities. While QF or EWG status entitles Power
Generation's projects to certain regulatory exceptions and benefits under
PURPA and the Holding Company Act, each project must still comply with other
federal, state and local laws, including those regarding siting,
construction, operation, licensing and pollution abatement.
For a discussion of the request for rehearing filed with FERC by
LG&E-Westmoreland Southampton, the partnership that owns the Southampton
facility, regarding the partnership's request for an order from FERC stating
that the Southampton facility remains a qualifying facility for 1992, see
Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
17
<PAGE>
The foreign power generation facilities that Power Generation has interests in
have obtained foreign utility company (FUCO) status under the Holding Company
Act. Generally, FUCO status exempts these facilities from application of the
Holding Company Act.
In December 1997, LG&E Power 15 Incorporated ("LG&E Power 15"), a subsidiary of
LPO, agreed to sell one-half of LG&E Power 15's interest in the partnership that
owns the Rensselaer facility, which resulted in a pre-tax gain of $4.8 million
in 1997. LG&E Power 15 will retain a 25% ownership interest in the partnership.
The purchase price for the partnership interest consists of an initial payment
of $9 million to be paid at closing. A subsequent payment is contingent upon the
consummation of certain transactions and related matters involving the
partnership. Accordingly, no amounts for these contingent payments have been
recorded in 1997. The effect of any subsequent contingent payment will be
recorded in 1998. See Notes 7, 12 and 16 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8.
Western Kentucky Energy Corp. (WKEC), a subsidiary of Capital Corp., is
expected to lease and operate for 25 years all of the generating assets owned
by Big Rivers, a Henderson, Kentucky-based power generation cooperative with
1,459 Mw of owned net generating capacity. The lease is subject to the
receipt of necessary regulatory approvals. Big Rivers owns and operates four
coal-fired plants and one combustion turbine. In addition, subject to
regulatory approval, WKEC is expected to operate a 312 Mw coal-fired facility
owned by the City of Henderson, Kentucky (the "Henderson Facility"), with
contractual rights to any surplus power generated by such facility, which
historically has been about 80% of the unit's capacity. Big Rivers provides
power to four distribution cooperatives, serving 91,000 customers in 22
western Kentucky counties, and two smelters. WKEC will pay Big Rivers a total
of $57 million for the first two years and $31.5 million a year for the
remaining 23 years. In addition, WKEC will purchase Big Rivers' inventory,
personal property and intangible assets, as well as make a one-time payment
to Big Rivers of $12.1 million. Big Rivers' operating assets are expected to
provide approximately 600 Mw of excess power to be marketed by LEM. The
Company anticipates that if this transaction closes, Capital Corp. would
incur additional indebtedness of approximately $100 million to finance the
initial required payments.
In February 1998, LG&E Power Argentina I Inc. ("LG&E Argentina"), a wholly-owned
indirect subsidiary of the Company, sold its one-third interest in the company
which owns and operates the San Miguel facility to Pluspetrol Resources
Corporation ("Pluspetrol") and ASTRA Compania Argentina de Petroleo S.A.
("Astra"), for a price of $16 million. The Company's net book value in the San
Miguel project as of December 31, 1997, was approximately $18.8 million.
In December 1996, Westmoreland Coal Company and its four first tier subsidiaries
filed for reorganization under Section 11 of the U.S. Bankruptcy Code. One of
these subsidiaries, Westmoreland Energy, Inc., is the direct parent of the
various entities that are partners in partnerships with LG&E Energy subsidiaries
which own six independent generating facilities. See Note 16 of LG&E Energy
Corp.'s Notes to Financial Statements under Item 8.
Westmoreland-LG&E Partners (WLP), the partnership that owns the Roanoke Valley I
and II facilities, is seeking the recovery of capacity payments withheld by
Virginia Electric and Power Company (Virginia Power). In March 1996, Virginia
Power filed a motion for summary judgment which was subsequently granted by the
court as to all counts. WLP appealed the court's ruling and in June 1997, the
Virginia Supreme Court reversed the lower court ruling and remanded the case for
a trial. A new trial date has not been set but is anticipated in late 1998. See
Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
In July 1997, LG&E Westmoreland-Rensselaer (LWR), in which the Company has a 25%
interest through an indirect subsidiary, executed a master restructuring
agreement with Niagara Mohawk Corporation (NIMO) and 15 other independent power
companies (IPPs). LWR is the owner of the Rensselaer cogeneration facility.
18
<PAGE>
Under this agreement, LWR has an obligation to negotiate towards a restructuring
of the Power Purchase Agreement between NIMO and LWR. In February 1998, the
Public Service Commission of New York approved, subject to certain conditions,
the NIMO restructuring proposals. See Note 16 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8.
In May 1996, Kenetech Windpower, Inc. (Kenetech) filed in the United States
Bankruptcy Court in the Northern District of California for protection under
Chapter 11 of the United States Bankruptcy Code seeking, among other things, to
restructure certain contractual commitments between Kenetech and its
subsidiaries, on one hand, and various windpower projects located in the U.S.
and abroad, on the other hand. Included in these projects are the Windpower
Partners 1993 (WPP 93), Windpower Partners 1994 (WPP 94) and KW Tarifa, S.A.
(Tarifa) wind projects in which Power Generation has invested, collectively,
approximately $31 million. See Note 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
WPP 94, in which the Company has a 25% interest through indirect subsidiaries,
did not make two semiannual payments, due September 2, 1997, and March 2, 1998,
to John Hancock Mutual Life Insurance Company (Hancock) under certain notes
issued by WPP94 to Hancock. The Company has offered WPP 94 financial support
with respect to the appropriate proportion of its debt obligations, but certain
of the three other investor groups are unable to offer funds to WPP94 in support
of the partnership. See Note 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
ARGENTINE GAS DISTRIBUTION DIVISION
In February 1997, the Company acquired interests in two Argentine natural gas
distribution companies through LII. LII purchased a controlling interest in
Distribuidora de Gas del Centro (Centro) and acquired a minority interest in
Distribuidora de Gas Cuyana (Cuyana). Centro serves approximately 372,000
customers in Cordoba Province, Argentina; Cuyana serves approximately 305,000
customers in Mendoza Province, Argentina. The investment in these companies
totaled approximately $140 million. Each of these companies has obtained foreign
utility company (FUCO) status under the Holding Company Act. Generally, FUCO
status exempts these facilities from application of the Holding Company Act.
EMPLOYEES AND LABOR RELATIONS
LG&E Energy and its subsidiaries had 3,398 full-time employees at December 31,
1997, including 2,446 full-time employees of LG&E at that date. LG&E's 1,462
operating, maintenance, and construction employees are members of the
International Brotherhood of Electrical Workers (IBEW) Local 2100. The current
three year contract will expire in November 1998.
19
<PAGE>
ITEM 2. Properties.
LG&E's power generating system consists of the coal-fired units operated at its
three steam generating stations. Combustion turbines supplement the system
during peak or emergency periods. At February 28, 1998, LG&E owned the following
electric generating stations:
<TABLE>
<CAPTION>
Year in Capability
Service Rating (Kw)
------- -----------
<S> <C> <C>
Steam Stations:
Mill Creek - Kosmosdale, KY.
Unit 1 1972 303,000
Unit 2 1974 301,000
Unit 3 1978 386,000
Unit 4 1982 480,000
----------
Total Mill Creek 1,470,000
Cane Run - near Louisville, KY.
Unit 4 1962 155,000
Unit 5 1966 168,000
Unit 6 1969 240,000
----------
Total Cane Run 563,000
Trimble County - Bedford, KY. (a)
Unit 1 1990 371,000
Combustion Turbine Generators (Peaking capability):
Zorn 1969 16,000
Paddy's Run 1968 43,000
Cane Run 1968 16,000
Waterside 1964 33,000
-----------
Total combustion turbine generators 108,000
-----------
Total capability rating 2,512,000
-----------
</TABLE>
(a) Amount shown represents LG&E's 75% interest in Trimble
County. LG&E is responsible for operation of Unit 1 and is
reimbursed by IMEA and IMPA for expenditures related to
Trimble County based on their proportionate share of
ownership interest. See Note 18 of LG&E Energy Corp.'s
Notes to Financial Statements, Jointly Owned Electric
Utility Plant, under Item 8 for further discussion on
ownership.
LG&E also owns an 80 Mw hydroelectric generating station located in
Louisville, operated under license issued by the FERC.
At December 31, 1997, LG&E's electric transmission system included 21
substations with a total capacity of approximately 11,071,700 Kva and
approximately 648 structure miles of lines. The electric distribution system
included 82 substations with a total capacity of approximately 3,313,730 Kva,
3,615 structure miles of overhead lines, 341 miles of underground conduit,
and 5,473 miles of underground conductors.
LG&E's gas transmission system includes 178 miles of transmission mains, and
the gas distribution system includes 3,616 miles of distribution mains.
LG&E operates underground gas storage facilities with a current working gas
capacity of approximately 14.6
20
<PAGE>
million Mcf. See Gas Supply under Item 1.
In 1990, LG&E entered into an operating lease for its corporate office
building located in downtown Louisville, Kentucky. The lease is for a period
of 15 years and is scheduled to expire June 2005. LG&E Energy Corp. has an
operating lease for its corporate office space with an expiration date of
2005. The Energy Marketing and Trading Division has operating lease
commitments related to office facilities that expire between 1998 and 2012.
Other properties owned by LG&E include office buildings, service centers,
warehouses, garages, and other structures and equipment, the use of which is
common to both the electric and gas departments.
The trust indenture securing LG&E's First Mortgage Bonds constitutes a direct
first mortgage lien upon much of the property owned by LG&E.
21
<PAGE>
At December 31, 1997, Power Generation owned the percentage indicated of the
following joint ventures:
<TABLE>
<CAPTION>
Net
Ownership Capability Year in
Name Interest % Fuel Rating (Mw) Service
- ---- ---------- ---- ----------- --------
<S> <C> <C> <C> <C>
LG&E Westmoreland-Southampton 50 Coal 63 1992
Franklin, Virginia
LG&E Westmoreland-Altavista 50 Coal 63 1992
Altavista, Virginia
LG&E Westmoreland-Hopewell 50 Coal 63 1992
Hopewell, Virginia
Westmoreland-LG&E Partners 50 Coal 165 1994
(Roanoke Valley I)
Weldon, North Carolina
LG&E Westmoreland-Rensselaer 25 (1) Natural 79 1994
Rensselaer, New York Gas
Windpower Partners 1993-Palm Springs 50 Wind 43 1994
Palm Springs, California
Windpower Partners 1993-Buffalo Ridge 50 Wind 25 1994
Buffalo Ridge, Minnesota
Windpower Partners 1994 25 Wind 25-35 1995
Culberson County, Texas
Westmoreland-LG&E Partners 50 Coal 44 1995
(Roanoke Valley II)
Weldon, North Carolina
K.W. Tarifa, S.A. 46 Wind 30 1995
Tarifa, Spain
Central Termica San Miguel 33 (2) Natural 114 1996
de Tucuman, S.A. (CTSMT) Gas
Tucuman Province, Argentina
</TABLE>
(1) Reflects the Company's sale of one-half of its interest in the
project. See Power Generation Division under Item 1 and Notes 7,
12, and 16 of LG&E Energy Corp.'s Notes to Financial Statements
under Item 8.
(2) The Company sold this interest in February 1998. See Power
Generation Division under Item 1 and Note 7 of LG&E Energy
Corp.'s Notes to Financial Statements under Item 8.
Except for CTSMT, Power Generation's ownership interests in these projects and
the revenues from the sale of electricity and steam from the projects are
pledged as security to the lenders who provided the financing for the project.
See Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8
for a discussion of the bankruptcy filing of an affiliate of Power Generation's
partner in the Southampton, Altavista, Hopewell, Rensselaer and Roanoke Valley
joint ventures. Also, see the same note for a discussion of the bankruptcy
filing of an affiliate of Power Generation's partner in the Windpower Partners
1993 and Windpower Partners 1994 joint ventures. In February 1998, the Company
sold its one-third interest in the entity which owns and operates
CTSMT. See Note 7 of LG&E Energy Corp.'s Notes to Financial Statements under
Item 8.
22
<PAGE>
LPI, through certain subsidiaries, owns or has an interest in twelve gas
gathering systems consisting of 1,363 miles of pipeline (of which LPI owns
100% of seven and ownership interests ranging from 11% to 50% in the other
five). These systems are located in Texas, New Mexico, Louisiana, Montana and
Oklahoma.
LPI, through a subsidiary, owns the Llano pipeline, a 90-mile intrastate
pipeline system in southeastern New Mexico with a throughput capacity of
180,000 MCF of gas per day. LPI, through subsidiaries, owns two gas
transmission systems located in Texas which total 76 miles. This system has a
design capacity of 90,000 MCF of gas per day. LPI, through certain
subsidiaries, also owns, or has interests in, and operates five natural gas
processing plants located in southeastern New Mexico and western Texas with a
total design capacity of 125,000 MCF of gas per day. LPI owns 100% interests
in three of these plants, and a majority of the two remaining plants. Only
three of the five plants are active currently. Through a subsidiary, it owns
and operates an underground natural gas storage facility adjacent to the
Llano pipeline in southeastern New Mexico with a current working capacity of
approximately six BCF of natural gas.
Centro's gas transmission and distribution system includes 5,963 miles of
transmission mains and distribution mains located in Cordoba, Argentina, and
neighboring provinces.
ITEM 3. Legal Proceedings.
Rates, Regulatory Matters, and Trimble County Generating Plant
For a discussion of current regulatory matters, including the status of
regulatory approvals for the Merger, and a detailed discussion of the Trimble
County Unit 1 settlement agreement, see Proposed Merger with KU Energy
Corporation under Item 1, Rates and Regulation under Item 7 and Notes 2, 4
and 17 of LG&E Energy Corp.'s Notes to Financial Statements and Notes 3 and
13 of LG&E's Notes to Financial Statements under Item 8, respectively.
Statewide Power Planning
In March 1995, the Commission staff issued its report on its review of LG&E's
1993 biennial Integrated Resource Plan. The Staff Report specifically found
that LG&E's plan contained some of the better analyses among those filed by
the electric utilities under the Commission's jurisdiction, and presented
several suggestions for LG&E's consideration when it develops its next plan.
In an order issued March 17, 1995, the Commission formally closed its
proceeding for the review of LG&E's plan. On May 5, 1995, the Commission
granted LG&E's request to waive the requirement that LG&E file an Integrated
Resource Plan during 1995. On July 21, 1995, the Kentucky Commission amended
its Integrated Resource Planning regulations to replace the biennial filing
requirement with a triennial requirement. The amended regulations also
specified that LG&E's next Integrated Resource Plan is to be filed 39 months
from the effective date of the amended regulation, or October 21, 1998.
Environmental
For a discussion of environmental issues concerning LG&E's Mill Creek and
Cane Run generating plants and its manufactured gas plant sites, and other
environmental issues affecting LG&E Energy and its subsidiaries, see Item 3,
Note 12 of LG&E's Notes to Financial Statements and Note 16 of LG&E Energy
Corp.'s Notes to Financial Statements under Item 8, respectively.
23
<PAGE>
Southampton
For a discussion of the request for rehearing filed with FERC by
LG&E-Westmoreland Southampton, the partnership that owns the Southampton
facility, regarding the partnership's request for an order from FERC stating
that the Southampton facility remains a qualifying facility for 1992, see
Item 1 and Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under
Item 8.
Roanoke Valley I
Westmoreland-LG&E Partners (WLP), the partnership that owns the Roanoke
Valley I and II facilities, is seeking the recovery of capacity payments
withheld by Virginia Electric and Power Company. In June 1997, the Virginia
Supreme Court reversed an adverse lower court ruling and remanded the case
for trial. See Item 1 and Note 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
Rensselaer
In July 1997, LG&E Westmoreland - Rensselaer (LWR), in which the Company has
a 25% interest through an indirect subsidiary, executed a master
restructuring agreement with Niagara Mohawk Corporation (NIMO) and 15 other
independent power companies (IPPs). LWR is the owner of the Rensselaer
cogeneration facility. Under this agreement, LWR has an obligation to
negotiate towards a restructuring of the Power Purchase Agreement between
NIMO and LWR. In February 1998, the Public Service Commission of New York
approved, subject to certain conditions, the NIMO restructuring proposals.
Further negotiations with NIMO, suppliers and lenders to the Rensselaer
Project are required to implement any restructuring. While discussions among
the projects and NIMO are continuing, the Company is not able to predict the
outcome of this event. Based upon the status of current negotiations, the
Company does not expect the ultimate resolution of this matter to have a
material effect on its results of operations or financial condition. See
Power Generation Division under Item 1, Properties under Item 2, and Notes 7
and 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
Kenetech Bankruptcy
In May 1996, Kenetech Windpower, Inc. (Kenetech) filed in the United States
Bankruptcy Court in the Northern District of California for protection under
Chapter 11 of the United States Bankruptcy Code seeking, among other things,
to restructure certain contractual commitments between Kenetech and its
subsidiaries, on one hand, and various windpower projects located in the U.S.
and abroad, on the other hand. Included in these projects are the Windpower
Partners 1993 (WPP 93), Windpower Partners 1994 (WPP 94) and KW Tarifa, S.A.
(Tarifa) wind projects in which the Company has invested, collectively,
approximately $31 million. See Note 16 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8 for a further discussion.
Windpower Partners 1994
Windpower Partners 1994 (WPP 94), in which the Company has a 25% interest
through indirect subsidiaries, did not make semiannual payments, due
September 2, 1997, and March 2, 1998, to John Hancock Mutual Life Insurance
Company (Hancock) under certain Notes issued by WPP 94 to Hancock. The
Company has offered WPP 94 financial support with respect to the appropriate
proportion of its debt obligations, but certain of the three other investor
groups are unable to offer funds to WPP 94 in support of the partnership. See
Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8 for
a further discussion.
24
<PAGE>
Calgary
On November 22, 1996 LG&E Natural Canada Inc., a subsidiary of LEM, initiated
action in the Court of the Queens Bench of Alberta, Calgary against a former
employee. That action and an additional action, filed on the same date in the
General Division of the Calgary Court, also named a natural gas sales and
marketing company and the director, president and secretary of that company.
An amended statement of claim was filed in the Calgary action on December 23,
1996, naming additional parties. These lawsuits were filed as a result of
LEM's discovery in the fourth quarter of 1996 that the former employee had
engaged in unauthorized transactions. Counterclaims have been filed seeking
damages of approximately forty million dollars for, among other things,
defamation and breach of contract. In the second quarter of 1997, LG&E Energy
received an insurance settlement of $7.6 million (net of expenses) related to
the losses. See Note 8, Non-Recurring Charges, and Note 16, Commitments and
Contingencies, under Item 8. LG&E Energy does not expect the ultimate
resolution of this matter to have a material adverse effect on its results of
operations or financial condition.
Other
In the normal course of business, other lawsuits, claims, environmental
actions, and other governmental proceedings arise against LG&E Energy and
LG&E. To the extent that damages are assessed in any of these lawsuits, LG&E
Energy and LG&E believe that their insurance coverage is adequate.
Management, after consultation with legal counsel, does not anticipate that
liabilities arising out of other currently pending or threatened lawsuits and
claims will have a material adverse effect on LG&E's Energy or LG&E's
consolidated financial position or results of operations, respectively.
ITEM 4. Submission of Matters to a Vote of Security Holders.
a) A special meeting of the shareholders of LG&E Energy was held on October 14,
1997.
b) Not applicable.
c) The matters voted upon and the results of the voting at the Special Meeting
are set forth below:
1. The shareholders voted to approve the Agreement and Plan of Merger
between the Company and KU Energy and the transactions contemplated
therein, as follows:
51,148,571.327 common shares cast in favor of approval and 718,635.766
shares withheld.
Holders of 630,881.303 common shares abstained from voting on this matter.
2. The shareholders voted to approve the amendment to and restatement of the
Company's Amended and Restated Articles of Incorporation so as to
increase the amount of authorized common shares from 125,000,000 shares
to 300,000,000 shares, as follows:
49,738,586.696 common shares cast in favor of approval and 1,678,589.993
common shares withheld.
Holders of 1,082,378.707 common shares abstained from voting on this
matter.
d) Not applicable.
25
<PAGE>
EXECUTIVE OFFICERS OF LG&E ENERGY CORP.:
<TABLE>
<CAPTION>
Effective Date of
Election to Present
Name Age Position Position
---- --- -------- -------------------
<S> <C> <C> <C>
Roger W. Hale 54 Chairman of the Board, August 17, 1990
President and Chief
Executive Officer
Victor A. Staffieri 42 Chief Financial Officer May 15, 1997
Stephen R. Wood 55 President - Distribution May 15, 1997
Services Division
President - Louisville Gas
and Electric Company
Walter Z. Berger 42 Group President - January 3, 1997
Energy Marketing
Division
John R. McCall 54 Executive Vice President, July 1, 1994
General Counsel and
Corporate Secretary
R. Foster Duncan 44 Executive Vice President - January 12, 1998
Planning and Development
George W. Basinger 52 Senior Vice President - August 1, 1996
Power Operations
Wendy C. Heck 44 Vice President - Infor- February 3, 1998
mation Technology
Charles A. Markel III 50 Vice President - January 1, 1993
Finance and Treasurer
S. Bradford Rives 39 Vice President - March 15, 1996
Finance and Controller
</TABLE>
The present term of office of each of the above executive officers extends to
the meeting of the Board of Directors following the Annual Meeting of
Shareholders, scheduled to be held April 22, 1998.
There are no family relationships between executive officers of the Company
or executive officers of its subsidiaries.
Messrs. Hale, Staffieri, Wood, McCall, and Markel, and Ms. Heck are also
executive officers of LG&E Energy's principal subsidiary, LG&E. Mr. Hale is
Chairman of the Board and Chief Executive Officer of LG&E; Mr. Staffieri is
Chief Financial Officer of LG&E, Mr. Wood is President of LG&E; Mr. McCall is
Executive Vice President, General Counsel and Corporate Secretary of LG&E,
and Mr. Markel is Treasurer of LG&E. Ms. Heck is Vice President -
Information Technology of LG&E.
Before he was elected to his current position, Mr. Staffieri was Senior Vice
President, General Counsel and Corporate Secretary of LG&E Energy Corp. from
March 1992 to November 1992; Senior Vice President,
26
<PAGE>
Public Policy and General Counsel of LG&E Energy Corp. and LG&E from November
1992 to January 1994; President of LG&E from January 1994 to May 1997; and
President - Distribution Services of LG&E Energy Corp. from December 1995 to
May 1997.
Before he was elected to his current position, Mr. Wood was Senior Vice
President and Chief Administrative Officer of LG&E from December 1992 to
January 1994, and Executive Vice President and Chief Administrative Officer
of LG&E Energy Corp. from January 1994 to May 1997.
Before he was elected to his current position, Mr. Berger was Vice President,
Finance and Business Development of Enron Oil Trading and Transportation from
November 1992 to February 1996; and Executive Vice President and Chief
Financial Officer of LG&E Energy Corp. and of LG&E from February 1996 to
January 1997.
Before he was elected to his current position, Mr. McCall was Partner and
Litigation Chairman of Brown, Todd & Heyburn, a law firm.
Before he was elected to his current position, Mr. Duncan was Senior Vice
President, Corporate Finance and Business Development of Freeport-McMoRan
Resource Partners from March 1993 to May 1994; and Vice President and
Corporate Treasurer of Freeport-McMoRan, Inc. and Freeport-McMoRan Copper &
Gold Inc. and their affiliates from May 1994 to January 1998.
Before he was elected to his current position, Mr. Basinger was Partner of
National Power Company prior to November 1993; Vice President of Venture
Management of LG&E Power Inc. from December 1993 to November 1994; and Senior
Vice President of Operations of LG&E Power Inc. from November 1994 to August
1996.
Before she was elected to her current position, Ms. Heck was Vice President
- -Fuels and Information Services of LG&E from January 1993 to December 1993;
Vice President - Information Services of LG&E from January 1994 to May 1997;
and Vice President, Administration of LG&E Energy Corp. from May 1997 to
February 1998.
Before he was elected to his current position, Mr. Rives was Director -
Business Development of LG&E Energy Corp. from January 1993 to December 1993;
Associate General Counsel LG&E Energy Corp. from January 1994 to June 1994;
Vice President and Treasurer of LG&E Power Inc. from June 1994 to March 1995;
Vice President, Controller and Treasurer of LG&E Power Inc. from March 1995
to December 1995; and Vice President - Finance, Non-Utility Business of LG&E
Energy Corp. from January 1996 to March 1996.
27
<PAGE>
Executive Officers of LG&E:
<TABLE>
<CAPTION>
Effective Date of
Election to Present
Name Age Position Position
---- --- -------- -------------------
<S> <C> <C> <C>
Roger W. Hale 54 Chairman of the Board, January 1, 1992
and Chief Executive
Officer
Stephen R. Wood 55 President May 15, 1997
Victor A. Staffieri 42 Chief Financial Officer May 15, 1997
John R. McCall 54 Executive Vice President, July 1, 1994
General Counsel and
Corporate Secretary
Rebecca L. Farrar 38 Vice President, Gas February 15, 1995
Service Business
M. Lee Fowler 61 Vice President and September 1, 1988
Controller
Wendy C. Heck 44 Vice President - Infor- February 3, 1998
mation Technology
Chris Hermann 50 Vice President, June 9, 1997
Business Integration
Paul W. Thompson 41 Vice President, Retail September 15, 1996
Electric Business
Charles A. Markel III 50 Treasurer January 1, 1993
</TABLE>
The present term of office of each of the above executive officers extends to
the meeting of the Board of Directors following the Annual Meeting of
Stockholders, scheduled to be held April 22, 1998.
There are no family relationships between executive officers of LG&E.
Messrs. Hale, Staffieri, Wood, McCall, and Markel, and Ms. Heck are also
executive officers of LG&E's parent company, LG&E Energy Corp. Mr. Hale is
Chairman of the Board and Chief Executive Officer of LG&E Energy Corp.; Mr.
Staffieri is Chief Financial Officer of LG&E Energy Corp., Mr. Wood is
President - Distribution Services Division of LG&E Energy Corp.; Mr. McCall
is Executive Vice President, General Counsel and Corporate Secretary of LG&E
Energy Corp., and Mr. Markel is Vice President - Finance and Treasurer of
LG&E Energy Corp. Ms. Heck is Vice President - Information Technology of
LG&E Energy Corp.
Before he was elected to his current position, Mr. Wood was Senior Vice
President and Chief Administrative Officer of LG&E from December 1992 to
January 1994, and Executive Vice President and Chief Administrative Officer
of LG&E Energy Corp. from January 1994 to May 1997.
28
<PAGE>
Before he was elected to his current position, Mr. Staffieri was Senior Vice
President, Public Policy and General Counsel of LG&E Energy Corp. and LG&E
from November 1992 to January 1994; President of LG&E from January 1994 to
May 1997; and President Distribution Services of LG&E Energy Corp. from
December 1995 to May 1997.
Before he was elected to his current position, Mr. McCall was Partner and
Litigation Chairman of Brown, Todd & Heyburn, a law firm.
Before she was elected to her current position, Ms. Farrar was Division
Manager, Central Division-Gas Operations of South Carolina Electric and Gas
Company from February 1992 to July 1994; and General Manager, Gas Operations
of South Carolina Electric and Gas Company from July 1994 to February 1995.
Before she was elected to her current position, Ms. Heck was Vice President
- -Fuels and Information Services of LG&E from January 1993 to December 1993;
and Vice President - Information Services of LG&E from January 1994 to May
1997; and Vice President, Administration of LG&E Energy Corp. from May 1997
to February 1998.
Before he was elected to his current position, Mr. Hermann was Vice President
and General Manager, Wholesale Electric Business of LG&E from January 1993 to
June 1997.
Before he was elected to his current position, Mr. Thompson was
Director-Business Development for LG&E Energy Corp. prior to December 1993;
General Manager-Gas Operations for LG&E from December 1993 to July 1994; and
Vice President-Business Development for LG&E Energy Corp. from July 1994 to
September 1996.
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
LG&E ENERGY:
LG&E Energy 's Common Stock is listed on the New York and Chicago Stock
Exchanges. The ticker symbol is "LGE." The newspaper stock exchange listings
are "LGE Energy" or "LGE EN." The following table gives information with
respect to price ranges, as reported in The Wall Street Journal as New York
Stock Exchange Composite Transactions, and dividends paid for the periods
shown.
<TABLE>
<CAPTION>
1997 1996
---- ----
Dividend High Low Dividend High Low
Paid Price Price Paid Price Price
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First quarter $.2875 $25.8750 $23.5000 $.2775 $22.000 $20.750
Second quarter .2875 25.0000 21.8125 .2775 22.875 20.875
Third quarter .2875 23.4375 21.2500 .2775 23.625 21.625
Fourth quarter .2975 25.0625 21.2500 .2875 24.625 22.375
</TABLE>
The number of record holders of Common Stock at December 31, 1997, was 30,607.
The book value of the Company's Common Stock at December 31, 1997, was $12.55
per share.
29
<PAGE>
LG&E: All LG&E common stock, 21,294,223 shares, is held by LG&E Energy.
Therefore, there is no public market for LG&E's common stock.
The following table sets forth LG&E's cash distributions on common stock paid to
LG&E Energy (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
First quarter $19,000 $18,500
Second quarter - 18,500
Third quarter 19,000 18,500
Fourth quarter 20,000 19,200
</TABLE>
30
<PAGE>
ITEM 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended December 31
(Thousands of $ Except per Share Data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
LG&E Energy:
Revenues:
Revenues $4,263,820 $3,589,465 (a) $1,402,980 (a) $829,663 $900,027
Refund - Trimble County
settlement - - (28,300) - -
-------------- -------------- ------------- ------------- ---------
Revenues 4,263,820 3,589,465 1,374,680 829,663 900,027
=========== =========== =========== ========= =========
Operating income:
Before non-recurring items 209,161 237,771 205,357 189,087 189,122
Trimble County settlement - - (29,800) - -
Non-recurring charges 1,342 (26,330) - (48,743) -
-------------- ------------- ------------ --------- --------
Operating income 210,503 211,441 175,557 140,344 189,122
============ ============ ============ ========= =========
Net income:
Before non-recurring items 96,632 121,117 100,682 95,525 80,825
Trimble County settlement - - (17,852) - -
Non-recurring charges 1,185 (17,114) - (38,696) -
------------- ------------- -------------- ---------- ----------
Total continuing
operations 97,817 104,003 82,830 56,829 80,825
Discontinued operations - - - - 7,435
Gain on sale of
discontinued operations - - - 51,805 -
Cumulative effect of
accounting change - - - (3,369) -
-------------- -------------- -------------- ---------- ----------
Net income $ 97,817 $ 104,003 $ 82,830 $105,265 $ 88,260
=========== =========== =========== ======== =========
Average number of com-
mon shares outstanding 66,471,397 66,293,670 66,105,175 65,981,870 65,377,181
Earnings per share of common stock:
Before non-recurring items $1.45 $1.83 $1.52 $1.45 $1.24
Trimble County settlement - - (.27) - -
Non-recurring charges .02 (.26) - (.59) -
------- ------- --------- ------- ---------
Total continuing
operations 1.47 1.57 1.25 .86 1.24
Discontinued operations - - - - .11
Gain on sale of
discontinued operations - - - .79 -
Cumulative effect of
accounting change - - - (.05) -
-------- -------- -------- ------ ---------
Earnings per share
(basic and diluted) $1.47 $1.57 $1.25 $1.60 $1.35
===== ===== ===== ===== =====
Cash dividends declared per
share of common stock $1.17 $1.13 $1.0925 $1.0575 $1.023
Payout ratio 79.5%(b) 72.1%(b) 87.2%(b) 66.3%(b) 75.9%
Total assets $3,366,391 $3,011,892 $2,628,920 $2,217,464 $2,186,468
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31
(Thousands of $ Except per Share Data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-term obligations
(including amounts
due within one year) 684,339 646,800 662,800 662,800 662,800
</TABLE>
(a) The significant increases in revenues in 1996 and 1995 resulted
primarily from acquiring LG&E Natural in May 1995. See Note 2 of
LG&E Energy Corp.'s Notes to Financial Statements under Item 8 and
Management's Discussion and Analysis under Item 7.
(b) Excluding mark-to-market, the Trimble County settlement,
non-recurring charges, gain on sale of discontinued operations,
and cumulative effect of accounting change, the payout ratios
would have been 80.5%, 70.8%, 71.8% and 73.1% in 1997, 1996, 1995
and 1994, respectively.
LG&E Energy Corp.'s Management's Discussion and Analysis of Results of
Operations and Financial Condition and the Notes to Financial
Statements should be read in conjunction with the above information.
<TABLE>
<CAPTION>
Years Ended December 31
(Thousands of $)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
LG&E:
Operating revenues $845,543 $821,115 $723,463 $759,075 $775,125
======== ======== ========= ======== ========
Net operating income:
Before unusual items 148,186 147,263 138,203 134,393 136,118
Trimble County settlement - - (16,877) - -
Non-recurring charges - - - (23,353) -
--------------- --------------- --------------- ---------- ---------------
Total net operating income 148,186 147,263 121,326 111,040 136,118
========= ========= ========= ========= =========
Net income:
Before unusual items 113,273 107,941 100,061 94,423 90,535
Trimble County settlement - - (16,877) - -
Non-recurring charges - - (32,734) -
Cumulative effect of
accounting change - - - (3,369) -
-------------- --------------- ------------- --------- -------------
Total net income 113,273 107,941 83,184 58,320 90,535
========= ========= ======== ======== ========
Net income available
for common stock 108,688 103,373 76,873 52,492 84,554
========= ========= ======== ======== ========
Total assets 2,055,641 2,006,712 1,979,490 1,966,590 1,974,584
========= ========= ========= ========= =========
Long-term obligations
(including amounts
due within one year) $646,800 $646,800 $662,800 $662,800 $662,800
======== ======== ======== ======== ========
</TABLE>
LG&E's Management's Discussion and Analysis of Results of Operations and
Financial Condition and LG&E's Notes to Financial Statements should be read
in conjunction with the above information.
32
<PAGE>
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
LG&E ENERGY:
The following discussion and analysis by management focuses on those factors
that had a material effect on the Company's financial results of operations
and financial condition during 1997, 1996, and 1995 and should be read in
connection with the consolidated financial statements and notes thereto. The
Company's financial results and conditions have been largely dependent on the
financial results and conditions of its principal subsidiary, Louisville Gas
and Electric Company (LG&E), a regulated electric and gas utility. It is
anticipated that future financial results from the Company's operations will
become increasingly reflective of the results from its expanding portfolio of
investments in energy marketing and related services, electric generation,
and gas distribution in addition to the financial results provided by LG&E.
In May 1997, the Company entered into a Merger Agreement with KU Energy
Corporation, which provides for the combination of KU Energy Corporation into
LG&E Energy Corp. Completion of the merger remains subject to various
regulatory approvals and other conditions. The following discussion and
analysis and related financial statements do not reflect the impact of the
Company's proposed merger with KU Energy Corporation, with the exception of
the unaudited pro forma schedules included in Item 14. See Note 2 of LG&E
Energy Corp.'s Notes to Financial Statements under Item 8.
Some of the following discussion may contain forward-looking statements that
are subject to certain risks, uncertainties and assumptions. Such
forward-looking statements are intended to be identified in this document by
the words "anticipate," "expect," "estimate," "objective," "possible,"
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include: general
economic conditions; business and competitive conditions in the energy
industry; changes in federal or state legislation; unusual weather; actions
by state or federal regulatory agencies, including decisions regarding the
proposed combination of the Company and KU Energy Corporation and other
factors described from time to time in LG&E Energy Corp.'s reports to the
Securities and Exchange Commission, including Exhibit 99.01 to this Form 10-K.
RESULTS OF OPERATIONS
Earnings per Share
Earnings per share of common stock for 1997 were $1.47, a decrease of 10(cent)
per share from the $1.57 earned in 1996. The 1996 reported earnings of $1.57
included a one-time charge of 26(cent), which resulted from unauthorized trading
transactions in the Company's Canadian office. See Note 8 of LG&E Energy Corp.'s
Notes to Financial Statements under Item 8. Excluding this charge, earnings per
share for 1996 were $1.83; thus, 1997 earnings decreased 36(cent). The 36(cent)
per share decrease resulted from lower earnings in the non-regulated energy
marketing business of 52(cent), and an increase in corporate and other expenses,
including interest expense on debt incurred to acquire non-regulated businesses,
of 5(cent); partially offset by an increase in core business earnings at LG&E of
8(cent) (from $1.56 to $1.64), first year earnings related to the acquisition of
an interest in two Argentine gas distribution units of 7(cent), and an increase
in the non-utility power generation business of 6(cent). The decline in the
energy marketing business was due primarily to abnormal weather, price
volatility in the energy market and narrowing margins in the natural gas
business. The 8(cent) increase in earnings at LG&E was primarily due to higher
contributions from wholesale electric sales and lower maintenance expenses.
Earnings per share of common stock for 1996 of $1.57 increased 32(cent) over the
$1.25 per share reported for 1995. Earnings per share for 1995 included a
one-time charge of 27(cent) to recognize the settlement of the long-standing
issues surrounding LG&E's Trimble County electric generating plant. Excluding
the Trimble County settlement
33
<PAGE>
LG&E ENERGY (CONT.):
in 1995 and the one-time non-recurring charge as discussed in the preceding
paragraph for 1996, earnings per share were $1.83 in 1996, or 31(cent) more
than comparable 1995 earnings of $1.52. The 31(cent) increase resulted from
higher earnings at LG&E of 14(cent) and higher energy marketing and other
earnings of 27(cent), partially offset by an increase in corporate and other
expenses, including interest expense on debt incurred to acquire
non-regulated businesses, of 10(cent). The LG&E increase of 14(cent) (from
$1.42 to $1.56) is primarily the result of a significantly higher level of
wholesale electric sales and increased retail sales of electricity and
natural gas, partially offset by increased operation and maintenance
expenses. The increase in non-utility earnings reflects growth in the
Company's energy marketing and trading business and strong performance by the
independent power ventures. Also, earnings attributable to energy marketing
and trading for 1996 include the impact of adopting the mark-to-market method
of accounting of 23(cent) per share.
LG&E (Utility) Results
Revenues
A comparison of LG&E's revenues for the years 1997 and 1996 with the immediately
preceding year reflects both increases and decreases, which have been segregated
by the following principal causes (in thousands of $):
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Period
Electric Revenues Gas Revenues
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales to ultimate consumers:
Fuel and gas supply adjustments, etc. $ (2,155) $ (4,652) $27,192 $21,176
Demand side management/decoupling 8,041 5,429 4,348 (1,989)
Environmental cost recovery surcharge 448 2,410 - -
Variation in sales volumes (4,810) 801 (14,891) 14,483
--------- ---------- -------- ---------
Total 1,524 3,988 16,649 33,670
Wholesale sales 3,088 30,383 - -
Gas transportation-net - - 147 (971)
Other 3,387 1,703 (204) 594
---------- ---------- ---------- -----------
Total $ 7,999 $ 36,074 $ 16,592 $ 33,293
========= ======== ======== ========
</TABLE>
Electric revenues increased in 1997 due to a slightly higher level of wholesale
sales and other revenues. Gas revenues increased primarily as a result of higher
gas supply costs billed to customers through the gas supply clause, partially
offset by decreased gas sales due mainly to warmer weather.
Electric revenues increased in 1996 compared with 1995 primarily because of an
increase in wholesale sales of electricity which resulted from aggressive
marketing efforts. Gas revenues increased as a result of the higher cost of
natural gas in 1996 and because of increased sales to ultimate consumers (6%)
caused mainly by colder weather experienced in the first quarter of the year.
Expenses
Fuel for electric generation and gas supply expenses comprise a large segment of
the Company's total operating costs. LG&E's electric and gas rates contain a
fuel adjustment clause and a gas supply clause, respectively, whereby increases
or decreases in the cost of fuel and gas supply are reflected in LG&E's rates,
subject to approval by the Public Service Commission of Kentucky (Kentucky
Commission or Commission).
34
<PAGE>
LG&E ENERGY (CONT.):
Fuel expenses incurred in 1997 were approximately the same as in 1996. Fuel
expenses increased $11.7 million (8%) in 1996 primarily because of a 12%
increase in generation ($16 million), partially offset by a decrease in the
cost of coal burned ($4.3 million). The average delivered cost per ton of
coal purchased was $21.66 in 1997, $21.73 in 1996, and $23.68 in 1995.
Gas supply expenses for 1997 increased $18.4 million (13%) because of the
higher cost of net gas supply ($29.3 million), partially offset by a decrease
in the volume of gas delivered to the distribution system ($10.9 million).
Gas supply expenses increased $29.7 million (27%) in 1996 mainly because of
the higher cost of net gas supply ($21.8 million) and an increase in the
volume of gas delivered to the distribution system ($7.9 million). The
average unit cost per Mcf of purchased gas was $3.46 in 1997 and 1996, and
$2.62 in 1995.
Operation and maintenance expenses for 1997 were approximately the same as
1996. Maintenance decreased in 1997 due mainly to decreased repairs at the
electric generating plants caused by fewer outages and a lower level of storm
damage repairs. These decreases were offset by an increase in costs to
operate the power plants and a write-off of certain previously deferred items
that amounted to approximately $3 million. Items written off include expenses
associated with the hydro-electric plant and a management audit fee. Even
though LG&E believes it could have reasonably expected to recover these costs
in future rate proceedings, it decided not to seek recovery and expensed
these costs because of increasing competitive pressures in the industry.
Operation and maintenance expenses increased $11.5 million (6%) in 1996 over
1995 primarily because of increased costs to operate LG&E's electric power
plants ($2.9 million), the electric and gas transmission and distribution
systems ($1.9 million), increased storm damage expenses ($2.2 million) and
the recognition of proceeds in 1995 for the settlement of a commercial
dispute. Pursuant to a study to determine when the settlement should be
recorded, LG&E recognized $6 million as a reduction of 1995 operation expense
and $2 million as a reduction of 1996 operation expense.
Depreciation and amortization increased in both 1997 and 1996 primarily
because of additional plant in service. In addition, 1997 reflects the
accelerated write-off of losses on early retirements of facilities.
Other income for 1997 increased by $3.4 million primarily because of interest
income recorded as a result of a favorable tax settlement and the sale of
stock options which LG&E had acquired in a commercial transaction. Other
income for 1996 decreased about $3 million because of a decrease in income
earned from investments and lower gains realized from the sale of property as
compared to 1995. See Note 12 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
Interest charges for 1997 decreased $1 million (3%) due to favorable refinancing
activities in 1996. Interest charges for 1996 decreased $1.7 million (4%)
primarily because of the retirement of outstanding debt. LG&E's embedded cost of
long-term debt at December 31, 1997, was 5.68%; and at December 31, 1996, 6.05%.
See Note 14 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8
for further discussion.
Preferred dividends decreased $1.7 million (28%) in 1996 as compared to 1995 due
primarily to the redemption of the 7.45% Series Cumulative Preferred Stock in
December 1995.
Variations in income tax expenses are largely attributable to changes in pre-tax
income.
35
<PAGE>
LG&E ENERGY (CONT.):
The rate of inflation may have a significant impact on LG&E's operations, its
ability to control costs and the need to seek timely and adequate rate
adjustments. However, relatively low rates of inflation in the past few years
have moderated the impact on current operating results.
Energy Marketing and Trading
Energy marketing and trading results include the operations of the Company's
gas marketing and trading division, gas gathering and processing operations,
power marketing and trading, and project development activities. Total
revenues for energy marketing and trading increased $517.9 million (19%) in
1997 due primarily to higher volumes. Gross margin decreased $62.9 million,
primarily due to abrupt changes in electric load demand, substantially
greater price changes in certain regions of the country during the third
quarter, and competitive pressure on margins experienced in both the electric
and gas trading sectors and other market changes.
The 1997 results also include $11.6 million in revenues from development
activities associated with an independent power project in the Northeast.
During 1996, $7.6 million of associated development revenues was recognized.
Revenues and cost of revenues increased substantially in 1996 compared to
1995 primarily due to volume increases and higher prices associated with both
the power and natural gas marketing and trading activities. Revenues also
increased by $26.2 million during 1996 due to adoption of the mark-to-market
method of accounting for the Company's energy marketing and trading
activities. See Note 1 of LG&E Energy Corp.'s Notes to Financial Statements
under Item 8.
Operation and maintenance expenses remained flat between 1996 and 1997.
Operation and maintenance expenses increased $23.7 million in 1996 compared to
1995 primarily due to the acquisition of Hadson Corporation and higher overall
levels of power marketing and trading. Depreciation and amortization increased
by $6 million in 1996 primarily due to the acquisition of Hadson Corporation.
Non-recurring charges in 1997 included a net insurance settlement of $7.6
million related to losses incurred in the Company's Canadian office during
1996 partially offset by a charge of $6.3 million to reflect the costs of
consolidating the trading, risk management and administrative operations of
the Company's power and gas marketing divisions into a single energy
marketing unit, located in its Louisville headquarters. Non-recurring charges
in 1996 resulted from losses recognized when an internal investigation
uncovered unauthorized transactions by a marketer in the Company's Canadian
office. See Notes 8 and 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
Argentine Gas Distribution and Other
In February 1997, the Company acquired interests in two Argentine gas
distribution companies: Distribuidora de Gas del Centro (Centro) and
Distribuidora de Gas Cuyana (Cuyana). Revenues and operating expenses
increased $127.2 million and $29.3 million, respectively, due to the
incorporation of results from Centro. Equity in earnings of joint ventures
increased by $2.4 million due to the acquisition of an interest in Cuyana.
Interest charges and preferred dividends increased by $10.5 million and
minority interest increased by $9 million due to these acquisitions.
36
<PAGE>
LG&E ENERGY (CONT.):
Equity in earnings of joint ventures from the Company's power generation
projects were essentially flat between 1996 and 1997.
The decrease in equity in earnings of joint ventures in 1996 of $9.3 million
compared to 1995 mainly resulted from the sale of power purchase contracts by
two partnerships in June 1995. These sales resulted in gains totaling $9.7
million in 1995. Also, earnings from the three windpower joint ventures
formerly managed by Kenetech Windpower, Inc. (Kenetech) decreased $1.1
million. This was primarily due to an increased level of expense incurred
because of a change in operations management at the ventures during 1996
after Kenetech filed for Chapter 11 bankruptcy protection. The Company now
manages operations at two of the projects, and another venture partner
manages the third. See Notes 7 and 16 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8.
Other income and deductions increased by $4.8 million in 1997 due to the sale
of one-half of the Company's interest in the Rensselaer cogeneration
facility. See Notes 7 and 12 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for capital funds is primarily related to the construction
of plant and equipment necessary to meet the needs of electric and gas
utility customers and equity investments in connection with independent power
production projects and other energy-related growth or acquisition
opportunities among the non-utility businesses. Fluctuations in the Company's
energy marketing and trading activities also affect liquidity throughout the
year. Lines of credit are maintained to fund these temporary capital
requirements.
Construction Expenditures and Equity Investments
Utility construction expenditures for 1997 were $111 million compared with
$108 million for 1996 and $93 million for 1995. Non-utility construction
expenditures (other than generating plant expenditures incurred by joint
ventures) were approximately $27 million in 1997, $8 million in 1996, and $11
million in 1995. In 1995, the Company invested equity of $34 million in
several domestic and international power projects and in the redemption of
its interest in the partnership that operated many of its power plants.
Past Financing Activities
During 1997, 1996, and 1995, the Company's primary sources of capital were
internally generated funds from operating cash flows and debt financing.
Internally generated funds provided financing for 100% of the Company's
utility construction expenditures for 1997, 1996, and 1995. The Company
acquired interests in two Argentine natural gas distribution companies in
1997 for $140 million, plus transaction related fees and expenses. It also
acquired Hadson Corporation in 1995 for $143 million, plus
acquisition-related fees and expenses. These acquisitions were financed with
cash and lines of credit. The Company also provides its energy marketing
business with additional cash to meet general working capital needs,
including margin calls. Margin calls are generally required on certain of the
Company's hedge and trading financial instruments to address changes in
market prices. The Company had approximately $4.1 million of net margin
deposits as of December 31, 1997.
The Company's combined cash and marketable securities balance increased by $6.2
million in 1997 and $11.3 million in 1996. The increase for 1997 reflects cash
flows from operations and an increase in borrowings, partially offset by capital
expenditures and dividends paid. The 1996 increase reflects cash flows from
37
<PAGE>
LG&E ENERGY (CONT.):
operations, partially offset by capital expenditures, dividends paid, and a
net decrease in borrowings. In 1995, combined cash and marketable securities
decreased $79.6 million compared to 1994, which primarily resulted from the
acquisition of Hadson Corporation and related working capital needs,
additional investments in affiliates and dividends paid; offset by cash flows
from operations, an increase in borrowings and changes in classification of
investments from noncurrent to current assets.
The decreases in accounts receivable and accounts payable during 1997
resulted primarily from lower gas marketing trading volumes over the last 60
days of the year. The increases in accounts receivable and accounts payable
during 1996 resulted from increased energy marketing volumes. The increases
in price risk management assets and liabilities in 1996 resulted from
adopting the mark-to-market method of accounting for the Company's energy
marketing and trading activities. Variations in accounts receivable and
accounts payable are not generally significant indicators of the Company's
liquidity, as such variations are primarily attributable to fluctuations in
weather in LG&E's service territory, and as it relates to LG&E Energy
Marketing Inc., throughout the United States, which has a direct effect on
sales of electricity and natural gas.
In November 1997, LG&E issued $35 million of Jefferson County, Kentucky and
$35 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due November 1, 2027. The interest rates for these bonds were
3.90% and 3.85%, respectively, at December 31, 1997. The proceeds from these
bonds were used to redeem the outstanding 7.75% Series of Jefferson County,
Kentucky and Trimble County, Kentucky, Pollution Control Bonds due February
1, 2019.
In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.79%
and 3.82%, respectively, at December 31, 1997. The proceeds from these bonds
were applied in December 1996 to redeem the outstanding 7.25% Series of
Jefferson County, Kentucky and Trimble County, Kentucky, Pollution Control
Bonds due December 1, 2016.
On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by LG&E. The bonds were redeemed with available
funds.
In April 1995, LG&E issued $40 million of Jefferson County, Kentucky,
Pollution Control Bonds, 5.90% Series, due April 15, 2023. The proceeds from
these bonds were used to redeem the outstanding 9.25% Series of Pollution
Control Bonds due July 1, 2015.
In December 1995, LG&E redeemed the outstanding shares of its 7.45% Cumulative
Preferred Stock with a par value of $25 per share at a redemption price of
$25.75 per share. LG&E funded the $22 million redemption with cash generated
internally.
The Company's equity investments in non-utility projects and non-utility
construction expenditures were financed through internally generated funds and
short-term borrowings. Construction expenditures for new generating projects
were funded through project debt.
The Company had non-utility short-term borrowings outstanding of $360.2 million
as of December 31, 1997. These borrowings consisted of commercial paper which
had maturity dates ranging between one and 270 days. Because of the roll-over of
these maturity dates, total short-term borrowings during the year were
approximately $1.2 billion and total repayments of short-term borrowings during
the year were approximately $1 billion. Short-term borrowings were $158 million
as of December 31, 1996, and $173 million as of December 31, 1995. The increase
in 1997 was primarily due to the acquisition of the interests in the Argentine
natural gas
38
<PAGE>
LG&E ENERGY (CONT.):
distribution companies and the funding of working capital requirements.
The Company issued $4 million of new common stock in 1997 and $2 million in
1996, under various employee plans. The Company announced a program on
October 14, 1997, authorizing the repurchase of up to 1,000,000 shares of its
common stock to be used for, among other things, benefit and compensation
plans. See Note 13 of LG&E Energy Corp.'s Notes to Financial Statements under
Item 8.
Future Capital Requirements
Future utility financing requirements may be affected in varying degrees by
factors such as load growth, changes in construction expenditure levels, rate
actions allowed by regulatory agencies, new legislation, market entry of
competing electric power generators, changes in environmental regulations and
other regulatory requirements. The Company estimates that LG&E's construction
expenditures will total $260 million for 1998 and 1999. In addition, LG&E's
capital requirements for 1998 include $20 million to retire long-term debt
that is scheduled to mature on June 1, 1998. Capital expenditures for the
non-utility businesses are anticipated to total $55 million for 1998 and
1999. Other future capital funding requirements are dependent upon the
identification of suitable investment opportunities to enhance shareholder
returns and achieve long-term financial objectives through business
acquisitions.
Future Sources of Financing
Internally generated funds from operations are expected to fund substantially
all of LG&E's anticipated construction expenditures in 1998 and 1999. Similarly,
the Company anticipates having sufficient internal cash generation, borrowing
capacity and access to securities markets to meet anticipated equity investments
and non-utility capital expenditures in 1998 and 1999.
On September 5, 1997, LG&E Energy Systems Inc. (Energy Systems) and LG&E Gas
Systems Inc. (Gas Systems) merged to form LG&E Capital Corp. (Capital Corp.).
At the same time, Capital Corp. implemented a $600 million commercial paper
facility backed by new lines of credit totaling $700 million. The Company
terminated the previous lines of credit which totaled $460 million.
At December 31, 1997, loan agreements and lines of credit were in place totaling
$900 million ($200 million for LG&E and $700 million for Capital Corp.) for
which the companies pay commitment or facility fees. The LG&E credit facility
provides for short-term borrowing. The Capital Corp. facilities provide for
short-term borrowing, letter of credit issuance, and support of commercial-paper
borrowings. Unused capacity under these lines totaled $481.7 million after
considering the commercial paper support and approximately $58.1 million in
letters of credit securing on- and off-balance sheet commitments. The credit
lines will expire at various times from 1998 through 2002. Management expects to
renegotiate the lines when they expire.
On February 6, 1998, Capital Corp. issued $150 million of medium-term notes due
in January 2008. The securities were issued pursuant to an unregistered Rule
144A offering. The stated interest rate on the notes was 6.46%. After taking
into account the effects of an interest rate swap entered into in 1997 to hedge
the interest rate on $100 million of such medium-term notes and other issuance
costs, the effective rate will be 6.82%. See Note 5 of LG&E Energy Corp.'s Notes
to Financial Statements under Item 8. The proceeds were used to repay
outstanding notes payable.
The lenders under the credit facilities, commercial paper facility, and the
medium-term notes for Capital Corp. are entitled to the benefits of Support
Agreements with LG&E Energy
39
<PAGE>
LG&E ENERGY (CONT.):
Corp. See Note 15 of LG&E Energy Corp.'s Notes to Financial Statements under
Item 8.
Year 2000 Computer Software Issue
The Company began its project regarding the year 2000 issue in 1996. The
board of directors approved the general year 2000 plan and receives, along
with management, regular updates. Project teams are continuing to evaluate
risks and to plan and implement appropriate sources of corrective action.
Corrective action, including replacement or modification of certain software
systems, for major applications such as customer information, financial and
trading systems are in process, and in certain cases completed. Regarding the
smaller, more isolated systems, the Company anticipates moving from the
evaluative stage to the corrective stage during 1998. The Company has also
communicated with its suppliers, customers and key business partners
regarding year 2000 compliance and intends to continue monitoring their
progress on this issue.
The amount that has been expensed through December 31, 1997, is approximately
$2 million. Based on studies and progress made to date, the Company expects
to spend approximately $10 million in 1998 and 1999 for significant
modification of its computer information systems to enable proper processing
of transactions relating to the year 2000 and beyond. Accordingly, the
Company does not expect the amounts required to be expensed over the next two
years to have a material effect on its financial position or results of
operations.
LG&E Energy Corp. - KU Energy Corporation Merger
On May 20, 1997, the Company and KU Energy Corporation (KU) entered into an
agreement and Plan of Merger providing for a merger of LG&E Energy and KU.
Pursuant to the Merger Agreement, KU will be merged with and into LG&E
Energy, with LG&E Energy as the surviving corporation effective with the
receipt of all required approvals. The merger has been approved by the
Kentucky Commission and the Virginia State Corporation Commission. For a more
detailed and descriptive discussion of the merger and the additional
approvals needed, see Note 2 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
Rates and Regulation
LG&E is subject to the jurisdiction of the Kentucky Commission in virtually
all matters related to electric and gas utility regulation, and as such, its
accounting is subject to Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of Regulation (SFAS No. 71).
Given LG&E's competitive position in the market and the status of regulation
in the state of Kentucky, LG&E has no plans or intentions to discontinue its
application of SFAS No. 71. See Note 4 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8.
On December 8, 1995, the Commission approved a settlement agreement filed by
LG&E and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolved
all of the regulatory and legal issues related to the appropriate ratemaking
treatment to exclude 25% of the Trimble County plant costs from customer
rates. Under the settlement, ratepayers are receiving $22 million in refunds,
most of which is being refunded over the five-year period, 1996 through 2000,
based on a per-kilowatt-hour credit. In addition, LG&E is providing $900,000
annually for five years, beginning in 1996, to fund low-income energy
assistance programs. The Company also revised the decoupling methodology in a
manner that reduced revenues collected from residential customers during 1996
and 1997 by a total of approximately $1.8 million.
The overall effect of the settlement, which the Company recognized in its
entirety in the fourth quarter of 1995,
40
<PAGE>
LG&E ENERGY (CONT.):
was to reduce electric revenues by $28.3 million and increase operating
expenses by $1.5 million. Thus, the settlement reduced 1995 net income by
$17.9 million, and earnings per share by 27(cent). See Note 17 of LG&E Energy
Corp.'s Notes to Financial Statements under Item 8.
In May 1995, LG&E implemented a Commission approved environmental cost
recovery (ECR) surcharge to recover certain costs required to comply with the
Federal Clean Air Act, as amended, and those federal, state, and local
environmental requirements which apply to coal combustion wastes and
by-products from facilities utilized for production of energy from coal. As a
result of this surcharge, LG&E's electric revenues increased $3.2 million in
1995, an additional $2.4 million in 1996 and an additional $.4 million in
1997. The Kentucky Attorney General (KAG), and the Kentucky Industrial
Utility Customers filed an appeal in Franklin Circuit Court on various issues
related to the Commission's order in this proceeding, including the
constitutionality of the Kentucky statute that authorizes the surcharge. In
an order dated April 10, 1996, associated with the first six-month review of
the operation of the surcharge, the Commission stated that all environmental
surcharge revenues collected from the date of the April 10 order will be
subject to refund, pending the outcome of the legal proceedings. LG&E is
contesting the legal challenges but cannot predict the outcome of this
litigation. In a similar proceeding involving appeals from the Commission's
order authorizing an environmental cost recovery surcharge for Kentucky
Utilities Company by the same intervenors, the Kentucky Court of Appeals, in
a decision issued on December 5, 1997, upheld the constitutionality of the
surcharge statute. The intervenors have petitioned the Kentucky Supreme Court
to review the decision of the Kentucky Court of Appeals. Any refunds that may
ultimately be ordered, are not expected to have a material adverse effect on
LG&E's financial position or results of operation.
In January 1994, LG&E implemented a Commission approved demand side
management (DSM) program that LG&E, KAG, the Jefferson County Attorney, and
representatives of several customer-interest groups had filed with the
Commission. The approved program included a formal collaborative process to
develop future DSM programs and also contained a rate mechanism that (1)
provided LG&E concurrent recovery of DSM costs, (2) provided an incentive for
implementing DSM programs, and (3) allowed LG&E to recover revenues from lost
sales associated with the DSM programs.
Subsequent to the original filing, LG&E requested three significant revisions
to the DSM program. In 1996, the Commission approved the addition of five new
programs that increased LG&E's commitment to DSM by approximately $4 million
over the next two years. In 1997, LG&E requested a change in the methodology
used in determining revenues from lost sales associated with DSM programs.
This change replaces the decoupling mechanism approved in the original
program, with a methodology based on engineering estimates. Also in 1997,
LG&E requested approval to implement a 1998 program budget in the amount of
$2.5 million. The revisions requested in 1997 are currently pending before
the Commission.
On September 30, 1997, the Commission issued an order approving LG&E's
request to implement an experimental performance-based ratemaking mechanism.
This mechanism is related to gas procurement activities and gas off-system
sales only and is approved for a three-year test period effective October 1,
1997. During the three-year experimental period, rate adjustments related to
this mechanism will be determined for each 12-month period beginning November
1 and ending October 31. This mechanism is not expected to have a material
effect on LG&E's financial position or results of operations.
In its September 12, 1997 order approving the merger of LG&E Energy and KU,
the Kentucky Commission ordered LG&E to file by the later of the consummation
of the merger or September 14, 1998, detailed plans to address the future
rate regulation of the Company. The Commission directed LG&E to indicate in
its filing whether it desired to remain under traditional rate of return
regulation or commence non-traditional regulation.
41
<PAGE>
LG&E ENERGY (CONT.):
LG&E was further ordered to explain the reasons for its election, and in the
case of traditional regulation, include an analysis and proposals relative to
its earnings at that time. If non-traditional regulation is elected, LG&E
must explain the reasons for its choice and how its plan will achieve the
Commission's goals of providing incentives to utilities and a sharing of the
resulting benefits with customers. The Commission stated that it will fully
investigate LG&E's filing and determine whether changes should be made to the
existing regulation of the Company. LG&E cannot presently predict the outcome
of this matter.
LG&E last filed for a rate increase with the Commission in June 1990 based on
the test year ended April 30, 1990. The Commission issued a final order in
September 1991 that effectively granted LG&E an annual increase in rates of
$6.8 million ($6.1 million electric and $.7 million gas).
Environmental Matters
With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E
already complied with the stringent sulfur dioxide emission limits required
by the year 2000, as it had previously installed scrubbers on all of its
coal-fired generating units. Since 1990, as part of its ongoing construction
program, LG&E has spent $31 million for measures to meet applicable nitrogen
oxide limits. While the overall financial impact of the Act on LG&E has been
minimal, LG&E is closely monitoring several significant regulatory
developments which may potentially impact the Company including regulations
proposed by the United States Environmental Protection Agency (USEPA) in
October 1997. These regulations address long-range ozone transport from
Midwest emissions sources that allegedly contribute to ozone problems in the
Northeast. If finally adopted, the proposed regulations may require numerous
utilities including LG&E, and possibly independent power producers (including
projects in which the Company has an interest), to incur significant capital
expenditures, currently estimated as potentially in excess of $100 million in
the case of LG&E, and significantly increased operation and maintenance costs
required to achieve additional reductions in emissions of nitrogen oxides.
See Note 16 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8
for a complete discussion of the Company's environmental issues concerning the
proposed USEPA ozone transport regulations, LG&E's Cane Run and Mill Creek
electric generating plants, manufactured gas plant sites, and certain other
environmental issues.
Public Utility Regulatory Policies Act
Proposals also have been introduced in Congress to repeal all or portions of
the Public Utility Regulatory Policies Act (PURPA). PURPA and its
implementing regulations require, among other things, that electric utilities
purchase electricity generated by qualifying cogeneration facilities at a
price based on the purchasing utility's avoided costs. The Company is the
partial owner of several qualifying cogeneration facilities and it is the
operator of several qualifying cogeneration facilities pursuant to contracts.
While the Company supports the repeal of PURPA, the Company intends to oppose
any efforts to nullify existing contracts between electric utilities and
qualifying cogeneration facilities. The Company is involved in proceedings
before the Federal Energy Regulatory Commission (FERC) regarding its
Southampton cogeneration facility and in litigation with the purchasing
utility of the energy from its Roanoke Valley I cogeneration facility. The
Rensselaer cogeneration facility, in which the Company has a 25% interest
through an indirect subsidiary, is one of a group of 16 independent power
producers which have entered into an agreement with Niagara Mohawk Power
Corporation, as purchasing utility, to negotiate towards restructurings of
their power sales contracts. As proceedings and negotiations concerning these
events are continuing, the Company is currently unable to predict the outcome
of these matters. See Note 16 of LG&E Energy Corp.'s Notes to Financial
Statements under Item 8.
42
<PAGE>
LG&E ENERGY (CONT.):
Impact of Nonregulated Businesses
The Company expects to continue investing in nonregulated projects, including
domestic and international power production and gas distribution projects, as
described under Future Capital Requirements. The nonregulated projects in
which the Company has invested carry a higher level of risk than LG&E's
traditional utility businesses. Current investments in nonregulated projects
are subject to competition, operating risks, dependence on certain suppliers
and customers, and domestic and foreign environmental and energy regulations
as well as political and currency risks. In addition, significant expenses
may be incurred for projects pursued by the Company that do not materialize.
Also, in the energy marketing business, the Company, through its
subsidiaries, trades natural gas, wholesale power, emission allowances and
coal, as well as derivative products relating to such commodities, in which
net open positions may exist. See Note 5 of LG&E Energy Corp.'s Notes to
Financial Statements under Item 8. The aggregate effect of these factors is
to create the potential for more volatility in the nonregulated component of
the Company's earnings. Accordingly, the historical operating results of the
Company's nonregulated businesses may not necessarily be indicative of future
operating results.
FUTURE OUTLOOK
Big Rivers Electric Corporation
The Company is awaiting a decision from the Kentucky Commission regarding the
outcome of the Company's proposal to lease the generating assets of Big
Rivers Electric Corporation (Big Rivers). The proposal has been approved by
the creditors of Big Rivers as part of the confirmation of Big Rivers' plan
of reorganization by the U.S. Bankruptcy Court. The Kentucky Commission
expressed concerns following hearings in November 1997 regarding the
potential for future environmental, regulatory and legislative costs and
whether those costs, should they materialize, would be shared equitably among
all rate classes involved. On February 3, 1998, the Company, Big Rivers, and
certain other parties filed with the Commission a Term Sheet describing an
agreement for resolving the issue identified by the Commission. The
Commission has scheduled a hearing on March 18, 1998 for consideration of the
agreement. The Commission has until April 30, 1998 to make a ruling.
Approvals from FERC on various elements of the transaction are also pending.
See Note 3 of LG&E Energy Corp.'s Notes to Financial Statements under Item 8.
Competition and Customer Choice
LG&E Energy Corp. has moved aggressively over the past decade to be
positioned for, and to help promote, the energy industry's shift to customer
choice and a competitive market for energy services. Specifically, the
Company has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated energy services businesses,
including aggressive cost reduction activities; strategic acquisitions and
growth initiatives; write-offs of previously deferred expenses; an increase
in focus on commercial and industrial customers; an increase in employee
training; and necessary corporate and business unit realignments. The Company
continues to be active in the national debate surrounding the restructuring
of the electric industry and the move toward a competitive, market-based
environment. LG&E Energy Corp. has urged Congress and federal regulatory
agencies to set a specific date for a complete transition to a competitive
market, one that will quickly and efficiently bring the benefits associated
with customer choice. LG&E Energy Corp. has repeatedly advocated the
implementation of this transition by January 1, 2001.
The Kentucky Commission has held a series of meetings with representatives of
utilities, consumers, state agencies, state legislators and other groups in
Kentucky to discuss the possible effects of electric industry restructuring
in Kentucky. In December 1997, the Kentucky Commission issued a set of
principles which are
43
<PAGE>
LG&E ENERGY (CONT.):
intended to serve as its guide in consideration of issues relating to
industry restructuring. Among these principles were: consumer protection and
benefit, system reliability, universal service, environmental responsibility,
cost allocation, stranded costs and codes of conduct.
At the time of this report, neither the Kentucky General Assembly nor the
Kentucky Commission has adopted or approved a plan or timetable for retail
electric industry competition in Kentucky. The nature or timing of future
legislative or regulatory actions regarding industry restructuring and their
impact on the Company, which may be significant, cannot be predicted
currently.
LG&E:
The following discussion and analysis by management focuses on those factors
that had a material effect on LG&E's financial results of operations and
financial condition during 1997, 1996, and 1995 and should be read in
connection with LG&E's financial statements and notes thereto.
In May 1997, LG&E Energy Corp. (LG&E Energy) entered into a Merger Agreement
with KU Energy Corporation (KU), which provides for the combination of KU
into LG&E Energy. Completion of the merger remains subject to various
regulatory approvals and other conditions. The following discussion and
analysis and related financial statements do not reflect the impact of LG&E's
proposed merger with Kentucky Utilities Company (Kentucky Utilities). See
Note 2 of LG&E's Notes to Financial Statements under Item 8.
Some of the following discussion may contain forward-looking statements that
are subject to certain risks, uncertainties and assumptions. Such forward
looking statements are intended to be identified in this document by the
words "anticipate," "expect," "estimate," "objective," "possible,"
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include: general
economic conditions; business and competitive conditions in the energy
industry; changes in federal or state legislation; unusual weather; actions
by state or federal regulatory agencies, including decisions regarding the
proposed combination of LG&E and Kentucky Utilities; and other factors
described from time to time in Louisville Gas and Electric Company's reports
to the Securities and Exchange Commission, including Exhibit No. 99.01 to
this Form 10-K.
RESULTS OF OPERATIONS
Net Income
LG&E's net income increased $5.3 million for 1997 over 1996. This improvement
was mainly due to increased sales of electricity to wholesale customers, a
lower level of maintenance expenses and increased investment and interest
income. These items were partially offset by reduced gas sales volumes due to
warmer winter weather and a write-off of certain expenses deferred in prior
periods.
Net income for 1996 increased $7.9 million over 1995 excluding a $16.9
million charge against net income in 1995 to recognize the effects of a
settlement of the long-standing issues surrounding LG&E's Trimble County
electric generating plant. Without excluding the Trimble County charge-off,
net income increased $24.8 million over 1995. The $7.9 million increase in
net income was primarily the result of a significantly higher level of
wholesale electric sales and increased retail sales of electricity and
natural gas, partially offset by increased operation and maintenance expenses.
44
<PAGE>
LG&E (CONT.):
Revenues
A comparison of LG&E's revenues for the years 1997 and 1996, with the
immediately preceding year reflects both increases and decreases, which have
been segregated by the following principal causes (in thousands of $):
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Period
Electric Revenues Gas Revenues
Cause 1997 1996 1997 1996
- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales to ultimate consumers:
Fuel and gas supply adjustments, etc. $ (2,155) $ (4,652) $27,192 $21,176
Demand side management/decoupling 8,041 5,429 4,348 (1,989)
Environmental cost recovery surcharge 448 2,410 - -
Variation in sales volumes (4,810) 801 (14,891) 14,483
--------- ---------- -------- ---------
Total 1,524 3,988 16,649 33,670
Wholesale sales 3,088 30,383 - -
Gas transportation-net - - 147 (971)
Other 3,224 1,688 (204) 594
---------- ---------- ---------- -----------
Total $ 7,836 $ 36,059 $ 16,592 $ 33,293
========= ======== ======== ========
</TABLE>
Electric revenues increased in 1997 due to a slightly higher level of
wholesale sales and other revenues. Gas revenues increased primarily as a
result of higher gas supply costs billed to customers through the gas supply
clause, partially offset by decreased gas sales due mainly to warmer weather.
Electric revenues increased in 1996 compared with 1995 primarily because of
an increase in wholesale sales of electricity which resulted from aggressive
marketing efforts. Gas revenues increased as a result of the higher cost of
natural gas in 1996 and because of increased sales to ultimate consumers (6%)
caused mainly by colder weather experienced in the first quarter of the year.
Expenses
Fuel for electric generation and gas supply expenses comprise a large segment
of LG&E's total operating costs. LG&E's electric and gas rates contain a fuel
adjustment clause and a gas supply clause, respectively, whereby increases or
decreases in the cost of fuel and gas supply are reflected in LG&E's rates,
subject to approval by the Public Service Commission of Kentucky (Kentucky
Commission or Commission).
Fuel expenses incurred in 1997 were approximately the same as in 1996. Fuel
expenses increased $11.7 million (8%) in 1996 primarily because of a 12%
increase in generation ($16 million), partially offset by a decrease in the
cost of coal burned ($4.3 million). The average delivered cost per ton of
coal purchased was $21.66 in 1997, $21.73 in 1996, and $23.68 in 1995.
Power purchased expense increased $.6 million (4%) in 1997 over 1996 due to
an increase in the amount of purchased power needed to support native load
requirements. Power purchased expense in 1996 of $16.6 million was
approximately the same as in 1995. Power was purchased in 1996 primarily to
supplement generation requirements related to wholesale electric power sales.
Gas supply expenses for 1997 increased $18.4 million (13%) because of the
higher cost of net gas supply ($29.3 million), partially offset by a decrease
in the volume of gas delivered to the distribution system ($10.9 million).
Gas supply expenses increased $29.7 million (27%) in 1996 mainly because of
the higher cost of net gas supply
45
<PAGE>
($21.8 million) and an increase in the volume of gas delivered to the
distribution system ($7.9 million). The average unit cost per Mcf of
purchased gas was $3.46 in 1997 and 1996, and $2.62 in 1995.
Other operation expenses increased $7.4 million (5%) over 1996 primarily
because of increased costs to operate the electric generating plants ($5.1
million) and a write-off of certain previously deferred items ($3.2 million).
Items written off include expenses associated with the hydro-electric plant
and a management audit fee. Even though LG&E believes it could have
reasonably expected to recover these costs in future rate proceedings, it
decided not to seek recovery and expensed these costs because of increasing
competitive pressures in the industry.
Other operation expenses in 1996 increased $8.7 million (6%) over 1995
primarily because of increased costs to operate LG&E's electric power plants
($2.9 million), the electric and gas transmission and distribution systems
($1.9 million), and the recognition of proceeds in 1995 for the settlement of
a commercial dispute. Pursuant to a study to determine when the settlement
should be recorded, LG&E recognized $6 million as a reduction of 1995
operation expense and $2 million as a reduction of 1996 operation expense.
Maintenance expenses decreased $7.2 million (13%) from 1996 due to decreased
repairs at the electric generating plants resulting from fewer scheduled
outages ($5 million) and a lower level of storm damage repairs ($1.8
million). Maintenance expenses in 1996 increased $2.7 million (5%) over 1995
primarily due to increased storm damage repairs ($1.8 million) and an
increase in electric power plant expenses ($.9 million).
Depreciation and amortization increased $4 million (4.5%) over 1996 because
of additional utility plant in service. In addition, 1997 reflects the
accelerated write-off of losses on early retirements of facilities.
Depreciation and amortization increased in 1996 primarily because of
additional depreciable plant in service.
Variations in income tax expenses are largely attributable to changes in
pre-tax income.
Other income for 1997 increased by $3.4 million primarily because of interest
income recorded as a result of a favorable tax settlement and the sale of
stock options which LG&E had acquired in a commercial transaction. Other
income for 1996 decreased about $2.9 million because of a decrease in income
earned from investments and lower gains realized from the sale of property as
compared to 1995. See Note 9 of LG&E's Notes to Financial Statements under
Item 8.
Interest charges for 1997 decreased $1.1 million (3%) due to favorable
refinancing activities in 1996. Interest charges for 1996 decreased $1.7
million (4%) primarily because of the retirement of outstanding debt. The
embedded cost of long-term debt at December 31, 1997, was 5.68% and at
December 31, 1996, 6.05%. See Note 10 of LG&E's Notes to Financial Statements
under Item 8 for further discussion.
Preferred dividends decreased $1.7 million (28%) for 1996 as compared to 1995
due primarily to the redemption of the 7.45% Series Cumulative Preferred
Stock in December 1995.
The rate of inflation may have a significant impact on LG&E's operations, its
ability to control costs and the need to seek timely and adequate rate
adjustments. However, relatively low rates of inflation in the past few years
have moderated the impact on current operating results.
LIQUIDITY AND CAPITAL RESOURCES
LG&E's need for capital funds is primarily related to the construction of
plant and equipment necessary to meet the
46
<PAGE>
LG&E (CONT.):
needs of electric and gas utility customers and protection of the environment.
Construction Expenditures
New construction expenditures for 1997 were $111 million compared with $108
million for 1996 and $93 million for 1995.
Past Financing Activities
During 1997, 1996, and 1995, LG&E's primary source of capital was internally
generated funds from operating cash flows. Internally generated funds provided
financing for 100% of LG&E's construction expenditures for 1997, 1996, and 1995.
Variations in accounts receivable and accounts payable are not generally
significant indicators of LG&E's liquidity, as such variations are primarily
attributable to fluctuations in weather in LG&E's service territory, which has a
direct affect on sales of electricity and natural gas.
In November 1997, LG&E issued $35 million of Jefferson County, Kentucky and
$35 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due November 1, 2027. The interest rates for these bonds were
3.90% and 3.85%, respectively, at December 31, 1997. The proceeds from these
bonds were used to redeem the outstanding 7.75% Series of Jefferson County,
Kentucky and Trimble County, Kentucky, Pollution Control Bonds due February
1, 2019.
In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.79%
and 3.82%, respectively, at December 31, 1997. The proceeds from these bonds
were applied in December 1996 to redeem the outstanding 7.25% Series of
Jefferson County, Kentucky and Trimble County, Kentucky, Pollution Control
Bonds due December 1, 2016.
On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by LG&E. The bonds were redeemed with available
funds.
In April 1995, LG&E issued $40 million of Jefferson County, Kentucky,
Pollution Control Bonds, 5.90% Series, due April 15, 2023. The proceeds from
these bonds were used to redeem the outstanding 9.25% Series of Pollution
Control Bonds due July 1, 2015.
In December 1995, LG&E redeemed the outstanding shares of its 7.45%
Cumulative Preferred Stock with a par value of $25 per share at a redemption
price of $25.75 per share. LG&E funded the $22 million redemption with cash
generated internally.
Future Capital Requirements
Future financing requirements may be affected in varying degrees by factors
such as load growth, changes in construction expenditure levels, rate actions
allowed by regulatory agencies, new legislation, market entry of competing
electric power generators, changes in environmental regulations and other
regulatory requirements. LG&E estimates construction expenditures will total
$260 million for 1998 and 1999. In addition, capital requirements for 1998
include $20 million to retire long-term debt that is scheduled to mature on
June 1, 1998.
47
<PAGE>
Future Sources of Financing
Internally generated funds from operations are expected to fund substantially
all anticipated construction expenditures in 1998 and 1999.
At December 31, 1997, LG&E had unused lines of credit of $200 million for
which it pays commitment fees. These credit facilities are scheduled to
expire in 2001. Management expects to renegotiate them when they expire.
To the extent permanent financings are needed in 1998 and 1999, LG&E expects
that it will have ready access to the securities markets to raise needed
funds.
Year 2000 Computer Software Issue
LG&E began its project regarding the year 2000 issue in 1996. The board of
directors approved the general year 2000 plan and receives, along with
management, regular updates. Project teams are continuing to evaluate risks
and to plan and implement appropriate sources of corrective action.
Corrective action, including replacement or modification of certain software
systems, for major applications such as customer information and financial
systems are in process, and in certain cases completed. Regarding the
smaller, more isolated systems, LG&E anticipates moving from the evaluative
stage to the corrective stage during 1998. LG&E has also communicated with
its suppliers, customers and key business partners regarding year 2000
compliance and intends to continue monitoring their progress on this issue.
The amount that has been expensed through December 31, 1997, is approximately
$2 million. Based on studies and progress made to date, LG&E expects to spend
approximately $10 million in 1998 and 1999 for significant modification of
its computer information systems to enable proper processing of transactions
relating to the year 2000 and beyond. Accordingly, LG&E does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations.
LG&E Energy Corp. - KU Energy Corporation Merger
On May 20, 1997, LG&E Energy and KU entered into an agreement and Plan of
Merger providing for a merger of LG&E Energy and KU. Pursuant to the Merger
Agreement, KU will be merged with and into LG&E Energy, with LG&E Energy as
the surviving corporation effective with the receipt of all required
approvals. The merger has been approved by the Kentucky Commission and the
Virginia State Corporation Commission. See Note 2 of LG&E's Notes to
Financial Statements under Item 8.
Rates and Regulation
LG&E is subject to the jurisdiction of the Kentucky Commission in virtually
all matters related to electric and gas utility regulation, and as such, its
accounting is subject to Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of Regulation (SFAS No. 71).
Given LG&E's competitive position in the market and the status of regulation
in the state of Kentucky, LG&E has no plans or intentions to discontinue its
application of SFAS No. 71. See Note 3 of LG&E's Notes to Financial
Statements under Item 8.
On December 8, 1995, the Commission approved a settlement agreement filed by
LG&E and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolved
all of the regulatory and legal issues related to the appropriate ratemaking
treatment to exclude 25% of the Trimble County plant costs from customer
rates. Under the settlement, ratepayers are receiving $22 million in
48
<PAGE>
refunds, most of which is being refunded over the five-year period, 1996
through 2000, based on a per kilowatt-hour credit. In addition, LG&E also is
providing $900,000 annually for five years, beginning in 1996, to fund
low-income energy assistance programs. LG&E also revised the decoupling
methodology in a manner that reduced revenues collected from residential
customers during 1996 and 1997 by a total of approximately $1.8 million.
The overall effect of the settlement, which LG&E recognized in its entirety
in the fourth quarter of 1995, was to reduce electric revenues by $28.3
million and net income by $16.9 million. See Note 13 of LG&E's Notes to
Financial Statements under Item 8.
In May 1995, LG&E implemented a Commission approved environmental cost
recovery (ECR) surcharge to recover certain costs required to comply with the
Federal Clean Air Act, as amended, and those federal, state, and local
environmental requirements which apply to coal combustion wastes and
by-products from facilities utilized for production of energy from coal. As a
result of this surcharge, LG&E's electric revenues increased $3.2 million in
1995, an additional $2.4 million in 1996 and an additional $.4 million in
1997. The Kentucky Attorney General (KAG), and the Kentucky Industrial
Utility Customers filed an appeal in Franklin Circuit Court on various issues
related to the Commission's order in this proceeding, including the
constitutionality of the Kentucky statute that authorizes the surcharge. In
an order dated April 10, 1996, associated with the first six-month review of
the operation of the surcharge, the Commission stated that all environmental
surcharge revenues collected from the date of the April 10 order will be
subject to refund, pending the outcome of the legal proceedings. LG&E is
contesting the legal challenges but cannot predict the outcome of this
litigation. In a similar proceeding involving appeals from the Commission's
order authorizing an environmental cost recovery surcharge for Kentucky
Utilities Company by the same intervenors, the Kentucky Court of Appeals, in
a decision issued on December 5, 1997, upheld the constitutionality of the
surcharge statute. The intervenors have petitioned the Kentucky Supreme Court
to review the decision of the Kentucky Court of Appeals. Any refunds that may
ultimately be ordered, are not expected to have a material adverse effect on
LG&E's financial position or results of operation.
In January 1994, LG&E implemented a Commission approved demand side
management (DSM) program that LG&E, KAG, the Jefferson County Attorney, and
representatives of several customer-interest groups had filed with the
Commission. The approved program included a formal collaborative process to
develop future DSM programs and also contained a rate mechanism that (1)
provided LG&E concurrent recovery of DSM costs, (2) provided an incentive for
implementing DSM programs, and (3) allowed LG&E to recover revenues from lost
sales associated with the DSM.
Subsequent to the original filing, LG&E requested three significant revisions
to the DSM program. In 1996, the Commission approved the addition of five new
programs that increased LG&E's commitment to DSM by approximately $4 million
over the next two years. In 1997, LG&E requested a change in the methodology
used in determining revenues from lost sales associated with DSM programs.
This change would replace the decoupling mechanism approved in the original
program with a methodology based on engineering estimates. Also in 1997, LG&E
requested approval to implement a 1998 program budget in the amount of $2.5
million. The revisions requested in 1997 are currently pending before the
Commission.
On September 30, 1997, the Commission issued an order approving LG&E's
request to implement an experimental performance-based ratemaking mechanism.
This mechanism is related to gas procurement activities and gas off-system
sales only and is approved for a three-year test period effective October 1,
1997. During the three year experimental period, rate adjustments related to
this mechanism will be determined for each 12 month period beginning November
1 and ending October 31. This mechanism is not expected to have a material
effect on LG&E's financial position or results of operations.
49
<PAGE>
LG&E (CONT.):
In its September 12, 1997 order approving the merger of LG&E Energy and KU,
the Kentucky Commission ordered LG&E to file by the later of the consummation
of the merger or September 14, 1998, detailed plans to address the future
rate regulation of LG&E. The Commission directed LG&E to indicate in its
filing whether it desired to remain under traditional rate of return
regulation or commence non-traditional regulation. LG&E was further ordered
to explain the reasons for its election, and in the case of traditional
regulation, include an analysis and proposals relative to its earnings at
that time. If non-traditional regulation is elected, LG&E must explain the
reasons for its choice and how its plan will achieve the Commission's goals
of providing incentives to utilities and a sharing of the resulting benefits
with customers. The Commission stated that it will fully investigate the
filing and determine whether changes should be made to the existing
regulation of LG&E. LG&E cannot presently predict the outcome of this matter.
LG&E last filed for a rate increase with the Commission in June 1990 based on
the test year ended April 30, 1990. The Commission issued a final order in
September 1991 that effectively granted LG&E an annual increase in rates of
$6.8 million ($6.1 million electric and $.7 million gas).
Environmental Matters
With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E
already complied with the stringent sulfur dioxide emission limits required
by the year 2000, as it had previously installed scrubbers on all of its
coal-fired generating units. Since 1990, as part of its ongoing construction
program, LG&E has spent $31 million for measures to meet applicable nitrogen
oxide limits. While the overall financial impact of the Act on LG&E has been
minimal, LG&E is closely monitoring several significant regulatory
developments which may potentially impact LG&E including regulations proposed
by the United States Environmental Protection Agency (USEPA) in October 1997.
These regulations address long-range ozone transport from Midwest emissions
sources that allegedly contribute to ozone problems in the Northeast. If
finally adopted, the proposed regulations may require numerous utilities
including LG&E to incur significant capital expenditures, currently estimated
as potentially in excess of $100 million, and significantly increased
operation and maintenance costs required to achieve additional reductions in
emissions of nitrogen oxides.
See Note 12 of LG&E's Notes to Financial Statements under Item 8 for a
complete discussion of LG&E's environmental issues concerning the proposed
USEPA ozone transport regulations, its Mill Creek and Cane Run electric
generating plants, manufactured gas plant sites, and certain other
environmental issues.
FUTURE OUTLOOK
Competition and Customer Choice
LG&E Energy Corp. has moved aggressively over the past decade to be
positioned for, and to help promote, the energy industry's shift to customer
choice and a competitive market for energy services. Specifically, LG&E
Energy has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated energy services businesses,
including aggressive cost reduction activities; strategic acquisitions and
growth initiatives; write-offs of previously deferred expenses; an increase
in focus on commercial and industrial customers; an increase in employee
training; and necessary corporate and business unit realignments. LG&E Energy
continues to be active in the national debate surrounding the restructuring
of the electric industry and the move toward a competitive, market-based
environment. LG&E Energy has urged Congress and federal regulatory agencies
to set a specific date for a complete transition to a competitive market, one
that will quickly and efficiently bring the benefits associated with customer
choice. LG&E Energy has repeatedly advocated the implementation of this
transition by January 1, 2001.
50
<PAGE>
LG&E (CONT.):
The Kentucky Commission has held a series of meetings with representatives of
utilities, consumers, state agencies, state legislators and other groups in
Kentucky to discuss the possible effects of electric industry restructuring
in Kentucky. In December 1997, the Kentucky Commission issued a set of
principles which are intended to serve as its guide in consideration of
issues relating to industry restructuring. Among these principles were:
consumer protection and benefit, system reliability, universal service,
environmental responsibility, cost allocation, stranded costs and codes of
conduct.
At the time of this report, neither the Kentucky General Assembly nor the
Kentucky Commission has adopted or approved a plan or timetable for retail
electric industry competition in Kentucky. The nature or timing of future
legislative or regulatory actions regarding industry restructuring and their
impact on LG&E, which may be significant, cannot be predicted currently.
51
<PAGE>
ITEM 8. Financial Statements and Supplementary Data.
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income
(Thousands of $ Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Energy marketing and trading........................... $3,266,811 $2,748,873 $ 630,249
Electric utility....................................... 615,159 607,160 571,086
Refund - Trimble County settlement (Note 17)........... - - (28,300)
Gas utility............................................ 231,011 214,419 181,126
Argentine gas distribution and other................... 150,839 19,013 20,519
---------- ---------- ----------
Total revenues (Note 1)............................. 4,263,820 3,589,465 1,374,680
---------- ---------- ----------
COST OF REVENUES:
Energy marketing and trading........................... 3,245,234 2,664,399 604,302
Fuel and power purchased............................... 166,692 166,323 154,832
Gas supply expenses.................................... 158,929 140,482 110,738
Argentine gas distribution and other................... 84,873 13,059 19,858
---------- ---------- ----------
Total cost of revenues.............................. 3,655,728 2,984,263 889,730
---------- ---------- ----------
Gross profit............................................... 608,092 605,202 484,950
OPERATING EXPENSES:
Operation and maintenance:
Energy marketing and trading........................ 40,012 41,916 18,177
Utility............................................. 214,635 214,786 203,284
Argentine gas distribution and other................ 49,562 25,991 21,697
Depreciation and amortization.......................... 115,736 103,556 94,393
Non-recurring charges (Note 8)......................... (1,342) 26,330 -
---------- ---------- ----------
Total operating expenses............................ 418,603 412,579 337,551
---------- ---------- ----------
Equity in earnings of joint ventures (Note 7).............. 21,014 18,818 28,158
---------- ---------- ----------
OPERATING INCOME........................................... 210,503 211,441 175,557
Other income and (deductions) (Note 12).................... 15,476 3,808 5,389
Interest charges and preferred dividends................... 63,865 53,887 53,822
Minority interest.......................................... 9,035 - -
---------- ---------- ----------
Income before income taxes................................. 153,079 161,362 127,124
Income taxes (Note 11)..................................... 55,262 57,359 44,294
---------- ---------- ----------
NET INCOME................................................. $ 97,817 $ 104,003 $ 82,830
========== ========== ==========
Average common shares outstanding.......................... 66,471 66,294 66,105
Earnings per share of common stock - basic and diluted..... $1.47 $1.57 $1.25
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(Thousands of $)
<TABLE>
<CAPTION>
December 31
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash investments......................................... $ 104,366 $ 114,669
Marketable securities (Note 9).............................................. 22,300 5,815
Accounts receivable - less reserve of $9,667 in 1997 and $6,601 in 1996..... 521,166 545,729
Materials and supplies - primarily at average cost:
Fuel (predominantly coal)................................................ 17,651 14,576
Gas stored underground................................................... 49,396 43,258
Other.................................................................... 31,866 32,426
Price risk management assets (Note 5)....................................... 120,341 86,844
Prepayments and other....................................................... 10,599 14,255
---------- ----------
Total current assets..................................................... 877,685 857,572
---------- ----------
Utility plant:
At original cost (Note 1)................................................... 2,779,234 2,685,209
Less: reserve for depreciation............................................. 1,072,842 999,987
---------- ----------
Net utility plant........................................................ 1,706,392 1,685,222
---------- ----------
Other property and investments - less reserve:
Investments in affiliates (Note 7).......................................... 168,276 126,099
Non-utility property and plant, net (Notes 1 and 2)......................... 421,486 171,338
Price risk management assets (Note 5)....................................... 44,240 36,623
Other ..................................................................... 24,743 21,465
---------- ----------
Total other property and investments..................................... 658,745 355,525
---------- ----------
Deferred debits and other assets:
Regulatory assets (Note 4).................................................. 24,899 27,729
Goodwill, net (Notes 1 and 2)............................................... 44,420 47,318
Other ..................................................................... 54,250 38,526
---------- ----------
Total deferred debits and other assets................................... 123,569 113,573
---------- ----------
Total assets......................................................... $3,366,391 $3,011,892
========== ==========
CAPITAL AND LIABILITIES:
Current liabilities:
Long-term debt due within one year.......................................... $ 20,000 -
Notes payable (Note 15)..................................................... 360,184 158,000
Accounts payable............................................................ 449,230 528,556
Trimble County settlement (Note 17)......................................... 13,248 17,511
Price risk management liabilities (Note 5).................................. 131,107 108,402
Other ..................................................................... 84,966 63,366
---------- ----------
Total current liabilities................................................ 1,058,735 875,835
----------- ----------
Long-term debt.................................................................. 664,339 646,835
Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 11).......................... 327,343 288,107
Investment tax credit, in process of amortization........................... 75,800 80,040
Accumulated provision for pensions and related benefits..................... 43,883 44,773
Regulatory liability (Note 4)............................................... 65,502 77,287
Price risk management liabilities (Note 5).................................. 23,803 27,482
Other ..................................................................... 67,576 64,987
---------- ----------
Total deferred credits and other liabilities............................. 603,907 582,676
---------- ----------
Minority interest............................................................... 105,985 -
- -
Cumulative preferred stock...................................................... 98,353 95,328
Commitments and contingencies (Note 16)
Common equity................................................................... 835,072 811,218
---------- ----------
Total capital and liabilities............................................... $3,366,391 $3,011,892
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
53
<PAGE>
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 97,817 $ 104,003 $ 82,830
Items not requiring cash currently:
Depreciation and amortization.................................. 115,736 103,556 94,393
Deferred income taxes - net.................................... 7,464 49,894 13,113
Investment tax credit - net.................................... (4,240) (3,997) (4,742)
Change in net price risk management assets..................... (22,088) (13,913) -
Undistributed earnings of joint ventures....................... (2,968) (2,581) 16,269
Non-recurring charges.......................................... - 26,330 -
Other.......................................................... 16,845 8,267 5,351
Change in certain net current assets:
Accounts receivable............................................ 50,946 (231,576) (161,649)
Materials and supplies......................................... (8,163) 6,650 (8,756)
Trimble County settlement...................................... (4,263) (12,289) 29,800
Accounts payable............................................... (91,377) 241,099 139,991
Accrued taxes.................................................. 2,022 (9,812) (5,935)
Accrued interest............................................... (2,303) (1,034) (2,056)
Prepayments and other.......................................... 5,486 4,310 (22,421)
Other............................................................. (21,406) (38,526) (7,106)
----------- --------- ---------
Net cash flows from operating activities....................... 139,508 230,381 169,082
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities........................................... (21,526) (20,625) (204,391)
Proceeds from sales of securities................................. 5,030 44,609 319,731
Construction expenditures......................................... (137,721) (115,450) (104,527)
Investment in subsidiaries net of cash and
temporary cash investments acquired (Note 2)................... (124,593) - (146,104)
Investments in affiliates (Note 7)................................ (986) (180) (34,045)
----------- ---------- ---------
Net cash flows from investing activities....................... (279,796) (91,646) (169,336)
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of bonds................................................. 69,776 49,745 39,914
Retirement of bonds............................................... (71,693) (67,013) (43,579)
Short-term borrowings............................................. 1,226,405 214,500 245,315
Repayment of short-term borrowings................................ (1,024,221) (229,500) (119,632)
Issuance of preferred stock....................................... 3,025 - -
Redemption of preferred stock..................................... - - (22,108)
Issuance of common stock.......................................... 3,781 2,293 2,711
Payment of common dividends....................................... (77,088) (74,235) (71,630)
----------- ---------- ---------
Net cash flows from financing activities....................... 129,985 (104,210) 30,991
----------- ---------- ---------
Change in cash and temporary cash investments......................... (10,303) 34,525 30,737
Beginning cash and temporary cash investments......................... 114,669 80,144 49,407
----------- ---------- ---------
Ending cash and temporary cash investments............................ $ 104,366 $ 114,669 $ 80,144
============ ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes................................................... $ 41,264 $ 22,005 $ 37,771
Interest on borrowed money..................................... 56,398 49,316 48,916
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Capitalization
(Thousands of $)
<TABLE>
<CAPTION>
December 31
1997 1996
---- ----
<S> <C> <C>
COMMON EQUITY:
Common stock, without par value -
Authorized 300,000,000 shares, outstanding 66,527,636
shares in 1997 and 66,341,444 shares in 1996 (Note 13)....................... $ 470,136 $ 466,329
Common stock expense............................................................ (1,285) (1,259)
Unrealized gain on marketable securities, net of income
taxes of $89 in 1997 and $122 in 1996 (Note 9)............................... 217 154
Retained earnings............................................................... 366,004 345,994
---------- ----------
Total common equity.......................................................... 835,072 811,218
---------- ----------
PREFERRED STOCK (Note 13):
$10 nominal value, 302,364 shares authorized and outstanding, variable rate,
redeemable by Inversora de Gas del Centro.................................... 3,025 -
Cumulative and redeemable on 30 days notice by Louisville Gas and Electric
Company, except $5.875 series:
Shares Current
Outstanding Redemption Price
$25 par value, 1,720,000 shares authorized -
5% series .................................... 860,287 $ 28.00 21,507 21,507
Without par value, 6,750,000 shares authorized -
Auction rate.................................. 500,000 100.00 50,000 50,000
$5.875 series................................. 250,000 Not redeemable 25,000 25,000
Preferred stock expense......................................................... (1,179) (1,179)
---------- ----------
Total preferred stock........................................................ 98,353 95,328
---------- ----------
LONG-TERM DEBT (Note 14):
First mortgage bonds -
Series due June 1, 1998, 6 3/4%.............................................. - 20,000
Series due July 1, 2002, 7 1/2%.............................................. 20,000 20,000
Series due August 15, 2003, 6%............................................... 42,600 42,600
Pollution control series:
N due February 1, 2019, 7 3/4%........................................... - 35,000
O due February 1, 2019, 7 3/4%........................................... - 35,000
P due June 15, 2015, 7.45%............................................... 25,000 25,000
Q due November 1, 2020, 7 5/8%........................................... 83,335 83,335
R due November 1, 2020, 6.55%............................................ 41,665 41,665
S due September 1, 2017, variable........................................ 31,000 31,000
T due September 1, 2017, variable........................................ 60,000 60,000
U due August 15, 2013, variable.......................................... 35,200 35,200
V due August 15, 2019, 5 5/8%............................................ 102,000 102,000
W due October 15, 2020, 5.45%............................................ 26,000 26,000
X due April 15, 2023, 5.90%.............................................. 40,000 40,000
---------- ----------
Total first mortgage bonds............................................ 506,800 596,800
Pollution control bonds (unsecured) -
Jefferson County Series due September 1, 2026, variable...................... 22,500 22,500
Trimble County Series due September 1, 2026, variable........................ 27,500 27,500
Jefferson County Series due November 1, 2027, variable....................... 35,000 -
Trimble County Series due November 1, 2027, variable......................... 35,000 -
---------- ----------
Total unsecured pollution control bonds.................................. 120,000 50,000
Argentine negotiable obligations, due August 2001, 10 1/2%...................... 37,539 -
---------- ----------
Total long-term bonds........................................................ 664,339 646,800
Unamortized premium on bonds.................................................... - 35
---------- ----------
Total long-term debt......................................................... 664,339 646,835
---------- ----------
Total capitalization..................................................... $1,597,764 $1,553,381
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance January 1..................................................... $345,994 $316,930 $307,072
Add net income........................................................ 97,817 104,003 82,830
Deduct: Cash dividends declared on common stock
($1.17 per share in 1997, $1.13 per share in 1996,
and $1.0925 per share in 1995)............................. 77,807 74,939 72,253
Preferred stock redemption expense......................... - - 719
-------- -------- --------
Balance December 31................................................... $366,004 $345,994 $316,930
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of LG&E Energy Corp., Louisville Gas and Electric Company (LG&E),
and LG&E Capital Corp. (Capital Corp.) and their respective wholly-owned
subsidiaries, collectively referred to herein as the "Company." On September
5, 1997, LG&E Energy Corp. merged two of its direct subsidiaries, LG&E Energy
Systems Inc. (Energy Systems) and LG&E Gas Systems Inc. (Gas Systems), and
renamed the surviving company LG&E Capital Corp.
LG&E Energy Corp.'s regulated operations are conducted by LG&E and
non-regulated operations are conducted by Capital Corp. which has various
subsidiaries referred to in these financial statements including LG&E Energy
Marketing Inc. (LEM), LG&E Power Inc. (LPI), and LG&E International Inc.
(LII).
All significant intercompany items and transactions have been eliminated from
the consolidated financial statements. Certain reclassification entries have
been made to the 1996 and 1995 financial statements to conform to the 1997
presentation with no impact on previously reported net income. The Company is
exempt from regulation as a registered holding company under the Public
Utility Holding Company Act of 1935 (PUHCA).
CASH AND TEMPORARY CASH INVESTMENTS. The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Temporary cash investments are carried at cost, which
approximates fair value.
GAS STORED UNDERGROUND. The costs of natural gas inventories are included in
gas stored underground in the balance sheets as of December 31, 1997, and
1996. Utility and non-utility gas inventories were $41 million and $8
million, respectively, at December 31, 1997, and $36 million and $7 million,
respectively, at December 31, 1996. LG&E accounts for gas inventories using
the average-cost method. Changes in value of the non-utility gas inventories
are included in the Company's mark-to-market calculation. See Note 5, Price
Risk Management and Financial Instruments.
UTILITY PLANT. LG&E's utility plant is stated at original cost, which
includes payroll-related costs such as taxes, fringe benefits, and
administrative and general costs. Construction work in progress has been
included in the rate base, and, accordingly, LG&E has not recorded any
allowance for funds used during construction.
56
<PAGE>
The cost of utility plant retired or disposed of in the normal course of
business is deducted from utility plant accounts and such cost plus removal
expense less salvage value is charged to the reserve for depreciation. When
complete operating units are disposed of, appropriate adjustments are made to
the reserve for depreciation and gains and losses, if any, are recognized.
DEPRECIATION AND AMORTIZATION. Utility depreciation is provided on the
straight-line method over the estimated service lives of depreciable plant.
The amounts provided for LG&E in 1997 were 3.4% and for 1996 and 1995 were
3.3%. Depreciation of non-utility plant and equipment is based on the
straight-line method over periods ranging from 3 to 33 years for domestic
operations. Intangible assets and goodwill have been allocated to the
subsidiaries' lines of business and are being amortized over periods ranging
from seven to 40 years.
FINANCIAL INSTRUMENTS. The Company uses financial instruments associated with
its energy trading and price risk management activities. See Revenue
Recognition for a discussion of the methods used to account for the financial
instruments.
The Company also uses over-the-counter interest-rate swap agreements to hedge
its exposure to fluctuations in the interest rates it pays on variable-rate
debt, and it uses exchange-traded U.S. Treasury note and bond futures to
hedge its exposure to fluctuations in the value of its investments in the
preferred stocks of other companies. Gains and losses on interest-rate swaps
used to hedge interest rate risk are reflected in interest charges monthly.
Gains and losses on U.S. Treasury note and bond futures used to hedge
investments in preferred stocks are initially deferred and classified as
unrealized losses on marketable securities in common equity and then charged
or credited to other income and deductions when the securities are sold. See
Note 5, Price Risk Management and Financial Instruments.
DEBT EXPENSE. Utility debt expense is amortized over the lives of the
related bond issues, consistent with regulatory practices.
DEFERRED INCOME TAXES. Deferred income taxes have been provided for all
material book-tax temporary differences.
INVESTMENT TAX CREDITS. Investment tax credits resulted from provisions of
the tax law that permitted a reduction of the Company's tax liability based
on credits for certain construction expenditures. Deferred investment tax
credits are being amortized to income over the estimated lives of the related
property that gave rise to the credits.
COMMON STOCK. Effective April 15, 1996, the outstanding shares of the
Company's common stock were split on a two-for-one basis. The new shares were
issued to shareholders of record on April 1, 1996. Prior period shares,
dividends, and earnings per share of common stock have been restated to
reflect the stock split.
REVENUE RECOGNITION. Effective January 1, 1996, the Company adopted the
mark-to-market method of accounting for its energy marketing and trading
activities. Under mark-to-market accounting, all electric power and natural
gas contracts which qualify for such accounting treatment, including both
physical transactions and financial instruments, are recorded at market
value, net of future servicing costs and reserves, and are recognized as
price risk management assets and liabilities in the accompanying balance
sheet. See Note 5, Price Risk Management and Financial Instruments. To
qualify for mark-to-market accounting treatment, energy marketing and trading
contracts generally must include, among other factors, a firm term, volume
and price and allow for settlement in cash or with another financial
instrument. Changes in the value of these price risk management assets and
liabilities resulting from the execution of new contracts and changes in
market factors are recognized as energy marketing and trading revenues in the
period of the change.
57
<PAGE>
Revenues and cost of revenues associated with energy marketing and trading
activities that do not qualify for mark-to-market accounting treatment are
recognized using the accrual method of accounting at the time of delivery of
the underlying commodity. Prior to January 1, 1996, all of the Company's
energy marketing and trading activities were accounted for under the accrual
method. The effect of this change in accounting was immaterial to prior
periods at the time of adoption.
In addition, the Company may enter into transactions to hedge the impact of
market fluctuations in its energy-related assets, liabilities and other
contractual commitments. Changes in the market value of these hedge
transactions are based on the accounting treatment afforded the hedged items
whereby gains and losses are deferred until the gains or losses on the hedged
items are recognized.
Utility revenues are recorded based on service rendered to customers through
month-end. LG&E accrues an estimate for unbilled revenues from each meter
reading date to the end of the accounting period. Under an agreement approved
by the Public Service Commission of Kentucky, LG&E has implemented a demand
side management program and a "decoupling mechanism," which allows LG&E to
recover a predetermined level of revenue on electric and gas residential
sales. See Management's Discussion and Analysis, Rates and Regulation, for
further discussion. The Company recognized revenues from non-utility
construction activities using the percentage of completion method of
accounting.
FUEL AND GAS COSTS. The cost of fuel for electric generation is charged to
expense as used, and the cost of gas supply is charged to expense as
delivered to the distribution system.
MANAGEMENT'S USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported assets and
liabilities and disclosure of contingent items 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. See Note
16, Commitments and Contingencies, for a further discussion.
NEW ACCOUNTING PRONOUNCEMENTS. Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (SFAS No. 125). This new standard is effective for all transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. Adopting SFAS No. 125 had no impact on
the Company's financial position or results of operations.
The Company adopted the provisions of Statement of Position 96-1,
Environmental Remediation Liabilities, effective January 1, 1997. This
statement provides authoritative guidance for recognition, measurement, and
disclosure of environmental remediation liabilities in financial statements.
Due to the Company's previous recognition of this type of liability, adoption
did not have a material impact on the Company's financial position or results
of operation. See Note 16, Commitments and Contingencies, for a further
discussion of the Company's environmental commitments and contingencies.
In February 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
and No. 129, Disclosure of Information about Capital Structure (SFAS No.
129), effective for periods ending after December 15, 1997. SFAS No. 128
requires that potential additional common stock (e.g., options, warrants,
convertible securities) be included in the calculation of a "dilutive EPS,"
in addition to the "basic EPS" which historically has been included in the
consolidated statements of income. The Company`s EPS as reported is the same
under both calculations. SFAS No. 129 broadens the disclosure requirements
related to an entity's capital structure to include non-public entities, but
requires no change in reporting by the Company.
58
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
No. 130) and No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131), effective for periods beginning after December
15, 1997. Under SFAS No. 130, the Company will present supplemental
information in the Financial Statements and Notes to Financial Statements
that measures changes in equity that are not required to be measured as a
component of net income. This standard will have no impact on the calculation
of net income or earnings per share. The Company anticipates that its pending
merger with KU Energy Corporation, the Big Rivers Electric Corporation
agreement, and other organizational changes will be considered in determining
segment disclosures under SFAS No. 131.
NOTE 2 - MERGERS AND ACQUISITIONS
KU ENERGY CORPORATION. On May 20, 1997, the Company and KU Energy
Corporation, a Kentucky corporation (KU), entered into an Agreement and Plan
of Merger (the Merger Agreement) providing for a merger of LG&E Energy and
KU. Pursuant to the Merger Agreement, KU will be merged with and into LG&E
Energy, with LG&E Energy as the surviving corporation. The merger, which was
unanimously approved by the Boards of Directors of LG&E Energy and KU, is
expected to close shortly after all of the conditions to consummation of the
merger, including the receipt of all applicable regulatory approvals, are met
or waived.
As a result of the merger, the Company, which is the parent of LG&E, will
become the parent company of KU's principal operating subsidiary, Kentucky
Utilities Company (Kentucky Utilities). The operating utility subsidiaries
(LG&E and Kentucky Utilities) will maintain their separate corporate
identities and will continue to serve customers in Kentucky and Virginia
under their present names. LG&E Energy and KU expect more than $760 million
in gross non-fuel savings over a ten-year period following the merger. Costs
to achieve these synergies are estimated to be $77 million. In regulatory
filings associated with approval of the merger, LG&E and Kentucky Utilities
committed not to seek increases in base rates and proposed reductions in
their retail customers' bills in amounts based on one-half of the net savings
over a five-year period. The preferred stock and debt securities of the
operating utility subsidiaries will not be affected by the merger. Present
non-utility operations of KU will be unaffected. The non-utility subsidiaries
of KU will become subsidiaries of LG&E Energy.
Under the terms of the Merger Agreement, each outstanding share of the common
stock, without par value, of KU (KU Common Stock) (other than shares with
respect to which dissenters' rights are perfected under applicable state
law), together with the associated KU stock purchase rights, will be
converted into the right to receive 1.67 shares of common stock of the
Company (LG&E Energy Common Stock), together with the associated LG&E Energy
stock purchase rights. The shares of LG&E Energy Common Stock outstanding
prior to the merger will remain unchanged. As of December 31, 1997, there
were 66,527,636 shares of LG&E Energy common stock outstanding, and
37,817,878 shares of KU common stock outstanding. Based on such
capitalization, upon consummation of the merger, 51.3% of the outstanding
LG&E Energy common stock will be owned by the shareholders of LG&E Energy
prior to the merger and 48.7% will be owned by former KU shareholders.
On September 12, 1997, the Public Service Commission of Kentucky (Kentucky
Commission or Commission) approved the merger application substantially as
filed. In the application filed with the Commission, the utilities proposed
that 50% of the net non-fuel cost savings estimated to be achieved from the
merger, less 50% of the costs to achieve such savings (but not in excess of
the currently estimated costs to achieve), be applied to reduce customer
rates, and the remaining 50% be retained by the companies. The Commission
approved and allocated the customer savings 53% to Kentucky Utilities and 47%
to LG&E. The order provides for a surcredit on customers' bills for 50% of
the projected net non-fuel savings in each of the five years following
consummation of the merger. The credit, which will be about 2% of customer
bills in the five-year period, will amount to
59
<PAGE>
approximately $55 million in net non-fuel savings to LG&E customers. Any fuel
cost savings will be passed to Kentucky customers through the companies' fuel
adjustment clauses. One-half of the costs to achieve the savings will be
charged to expenses as incurred once the merger is consummated, and the
remaining portion (not to exceed one-half of $77 million for Kentucky
Utilities and LG&E combined) will be deferred as a regulatory asset and
amortized as an offset to customer savings equally over five years. It will
be up to Kentucky Utilities and LG&E to actually realize the estimated level
of net non-fuel savings.
On October 9, 1997, LG&E Energy and KU filed for approval of the merger with
the Federal Energy Regulatory Commission. On October 14, 1997, in separate
meetings, stockholders from each of the companies met and the holders of over
75% of the outstanding shares of common stock of LG&E Energy and KU approved
the merger. On January 20, 1998, the Virginia State Corporation Commission
approved the merger substantially as filed.
The merger remains subject to approval of the Federal Energy Regulatory
Commission under the Federal Power Act, the approval of the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of
1935, and the filing of requisite notifications with the Federal Trade
Commission and the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the expiration of all
applicable waiting periods thereunder. Management plans to account for the
merger as a pooling of interests and expects the transaction to qualify as a
tax-free reorganization under the Internal Revenue Code. In addition, the
merger is subject to the approval for listing of shares of LG&E Energy Common
Stock to be issued in the merger on the New York Stock Exchange. It is
anticipated that LG&E Energy, as parent of LG&E and Kentucky Utilities, will
continue to be an exempt holding company under the Public Utility Holding
Company Act of 1935.
ARGENTINE GAS DISTRIBUTION COMPANIES. On February 13, 1997, the Company
acquired interests in two Argentine natural gas distribution companies for
$140 million, plus transaction-related costs and expenses. The Company
acquired a controlling interest in Distribuidora de Gas del Centro (Centro),
and a combined 14.4% interest in Distribuidora de Gas Cuyana (Cuyana). The
Company accounted for both acquisitions using the purchase method. The
Company allocated substantially all of the excess of the purchase price over
the underlying equity of Centro and Cuyana to property and equipment. The
Company recognized no goodwill on the acquisition.
The fair values of the net assets acquired follow (in thousands of $):
<TABLE>
<CAPTION>
<S> <C>
Assets $330,215
Liabilities 86,455
Minority interests 103,916
--------
Cash paid, excluding transaction costs 139,844
Cash and cash equivalents acquired 16,453
--------
Net cash paid, excluding transaction costs 123,391
Transaction costs 1,202
--------
Net cash paid $124,593
========
</TABLE>
Centro's revenues, cost of revenues, and operating expenses since the date of
acquisition are classified as components of Argentine gas distribution and
other in the 1997 Statements of Income. The earnings of Cuyana are included
in Equity in Earnings of Joint Ventures. The Company included Centro's
property and equipment in Non-utility property and plant, net, in its balance
sheet in 1997 and it included its investment in Cuyana in Investments in
affiliates.
Liabilities assumed in the purchase included negotiable obligations issued by
Centro with a face amount of $38
60
<PAGE>
million. The obligations mature in August 2001 and pay interest at 10.5% of
face value. The Company classified the negotiable obligations as long-term
debt in its balance sheet in 1997.
GAS MARKETING. In 1995, the Company acquired all of the outstanding common
stock of Hadson Corporation, a company engaged in natural gas marketing,
gathering and processing, for $143 million, plus transaction-related costs
and expenses. The Company accounted for the acquisition as a purchase, and
the purchase price was allocated to the assets and liabilities acquired based
on their estimated fair values. Approximately $37 million of goodwill has
been recorded.
A summary of the fair values of the net assets acquired follows (in thousands
of $):
<TABLE>
<CAPTION>
<S> <C>
Assets $277,059
Liabilities 133,948
--------
Cash paid, excluding transaction costs 143,111
Cash and cash equivalents acquired 4,924
--------
Net cash paid, excluding transaction costs 138,187
Transaction costs 7,917
--------
Net cash paid $146,104
========
</TABLE>
The revenues, cost of revenues, and operating expenses since the date of
acquisition are classified as Energy marketing and trading in the Statements
of Income. The operations did not have a material impact on consolidated
gross profit or operating income in 1995.
The property and equipment is included in the balance sheet under Non-utility
property and plant.
NOTE 3 - BIG RIVERS ELECTRIC CORPORATION LEASE
On June 9, 1997, certain subsidiaries of the Company entered into a
Participation Agreement with Big Rivers Electric Corporation (Big Rivers),
setting forth the detailed parameters of the proposed 25-year lease by
Company affiliates of the generation assets of Big Rivers as part of the
confirmation of Big Rivers' Plan of Reorganization by the U.S. Bankruptcy
Court. Consummation of this transaction is subject to a number of conditions,
including receipt of federal and state regulatory approvals. The Company made
initial filings seeking regulatory approvals from the Kentucky Public Service
Commission on June 30, 1997.
At hearings before the Kentucky Commission in November 1997, the Commission
expressed concerns regarding unforeseen future environmental, regulatory and
legislative costs. The Commission staff and the Office of the Attorney
General, among other interested parties, expressed their belief that, should
those costs materialize, they should be shared equitably among all rate
classes involved. On February 3, 1998, the Company, Big Rivers, and certain
other parties filed with the Commission a Term Sheet describing an agreement
for resolving this issue. The Commission has scheduled a hearing on March 18,
1998 for consideration of the agreement. In addition, all parties are working
toward finalizing the documents necessary to complete the transaction.
An order from the Kentucky Commission is expected during the second quarter
of 1998. Approval of various elements of the transaction is also required
from FERC.
NOTE 4 - UTILITY RATES AND REGULATORY MATTERS
Accounting for the regulated utility business conforms with generally
accepted accounting principles as applied to regulated public utilities and
as prescribed by the Federal Energy Regulatory Commission (FERC) and the
61
<PAGE>
Kentucky Commission. LG&E is subject to Statement of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of Regulation
(SFAS No. 71). Under SFAS No. 71, certain costs that would otherwise be
charged to expense are deferred as regulatory assets based on expected
recovery from customers in future rates. Likewise, certain credits that would
otherwise be reflected as income are deferred as regulatory liabilities based
on expected flowback to customers in future rates. LG&E's current or expected
recovery of deferred costs and expected flowback of deferred credits is
generally based on specific ratemaking decisions or precedent for each item.
The following regulatory assets and liabilities were included in the
consolidated balance sheets as of December 31 (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unamortized loss on bonds $ 18,698 $ 17,162
Merger costs 2,938 -
Manufactured gas sites 3,263 3,244
Unamortized extraordinary retirements - 4,087
Other - 3,236
-------- --------
Total regulatory assets 24,899 27,729
Deferred income taxes - net (65,502) (77,287)
-------- --------
Regulatory assets and liabilities - net $(40,603) $(49,558)
======== ========
</TABLE>
During 1997, LG&E wrote off certain previously deferred assets that amounted
to approximately $4.2 million. Items written off include expenses associated
with LG&E's hydro-electric plant, a management audit fee, and the accelerated
write-off of losses on early retirement of facilities.
ENVIRONMENTAL COST RECOVERY. In April 1995, in response to an application
filed by LG&E, the Commission approved, with modifications, an environmental
cost recovery surcharge that increased electric revenues by $3.2 million in
1995, an additional $2.4 million in 1996, and an additional $.4 million in
1997.
An appeal of the Commission's April 1995 order by various intervenors in the
proceeding (including the Kentucky Attorney General) is currently pending in
the Franklin Circuit Court of Kentucky. LG&E is contesting the legal
challenges to the surcharge, but cannot predict the outcome of the appeal. In
a similar proceeding involving appeals from the Commission's order
authorizing an environmental cost recovery surcharge for Kentucky Utilities
Company by the same intervenors, the Kentucky Court of Appeals, in a decision
issued on December 5, 1997, upheld the constitutionality of the surcharge
statute. The intervenors have petitioned the Kentucky Supreme Court to review
the decision of the Kentucky Court of Appeals. Any refunds that may be
ordered as a result of these proceedings are not expected to have a material
adverse effect on the Company's financial position or results of operations.
See Rates and Regulation under Management's Discussion and Analysis for a
further discussion.
PERFORMANCE-BASED RATEMAKING. On September 30, 1997, the Commission issued an
order approving LG&E's request to implement an experimental performance-based
ratemaking mechanism. This mechanism, which only applies to gas procurement
activities and gas off-system sales, was approved for a three-year test
period effective October 1, 1997. During the experimental period, rate
adjustments related to this mechanism will be determined for each 12-month
period beginning November 1 and ending October 31. This mechanism is not
expected to have a material effect on LG&E's financial position or results of
operations.
FUTURE RATE REGULATION. In its September 12, 1997 order approving the merger
of LG&E Energy Corp. and KU Energy Corporation, the Commission ordered LG&E
to file by the later of the consummation of the merger or September 14, 1998,
detailed plans to address the future rate regulation of the Company. The
Commission directed LG&E to indicate in its filing whether it desired to
remain under traditional rate of return regulation or commence
non-traditional regulation. LG&E was further ordered to explain the reasons
for its election, and in
62
<PAGE>
the case of traditional regulation, include an analysis and proposals
relative to its earnings at that time. If non-traditional regulation is
elected, LG&E must explain the reasons for its choice and how its plan will
achieve the Commission's goals of providing incentives to utilities and a
sharing of the resulting benefits with customers. The Commission stated that
it will fully investigate the filing and determine whether changes should be
made to the existing regulation of the Company. LG&E cannot presently predict
the outcome of this matter.
KENTUCKY PSC ADMINISTRATIVE CASE FOR AFFILIATE TRANSACTIONS. The Kentucky
Commission has opened Administrative Case No. 369 to lay ground work for
Commission policy addressing cost allocations, affiliate transactions, and
codes of conduct governing the relationship between utilities and their
non-regulated operations and affiliates. The Commission stated in its
December 19, 1997, order it intends to address two major areas in the
proceedings: the tools and conditions needed to prevent cost shifting and
cross-subsidization between regulated and non-regulated operations; and
whether a code of conduct should be established to assure that non-regulated
segments of the holding company are not engaged in practices which result in
unfair competition caused by cost shifting from the non-regulated affiliate
to the utility. Management does not expect the ultimate resolution of this
matter to have a material adverse effect on the Company's financial position
or results of operations.
NOTE 5 - PRICE RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
TRADING ACTIVITIES. The Company engages in price risk management activities
related to commodities associated with the energy industry, predominantly
electricity and natural gas. In addition to the purchase and sale of these
physical commodities, the Company enters into futures contracts, swap
agreements where settlement is based on the difference between a fixed and
index-based price for the underlying commodity, exchange-traded options,
over-the-counter options which are settled in cash or the physical delivery
of the underlying commodity, exchange-for-physical transactions in which
payment for delivery of the underlying commodity is in the form of futures
contracts, tolling and other contractual arrangements.
The Company may buy or sell instruments such as these to manage its exposure
to price risk from existing contractual commitments as well as other
energy-related assets and liabilities. It may also enter into such contracts
to take advantage of selected arbitrage opportunities via open positions.
MARKET RISK. The Company will at times create a net open position which could
result in losses for the Company if prices do not move in the manner or
direction anticipated by the Company. The Company has established trading
policies and limits designed to limit the Company's exposure to price risk
and revalues exposures daily against the stipulated limits. The Company also
continually reviews these policies to ensure they are responsive to changing
business conditions.
The Company utilizes various methodologies which simulate forward price
curves in the energy markets to estimate the size and probability of changes
in market value resulting from price movements. The use of these
methodologies requires a number of key assumptions including selection of
confidence levels, the holding period of the positions, and the depth and
applicability to future periods of historical price information. As of
December 31, 1997, the Company estimates that a $1 change in electricity
prices and a 10-cent change in natural gas prices across all geographic areas
and time periods could have changed the value of the Company's net price risk
management assets by approximately $4.5 million. In addition to price risk,
the value of the Company's entire energy portfolio is subject to operational
and event risks including, among others, regulatory changes, increases in
load demand, and forced outages at units providing supply for the Company.
NOTIONAL AMOUNTS AND TERMS. As of December 31, 1997, the Company was under
contract to pay a fixed price based on 239.1 million MWh's of electricity and
1.07 billion MMBTU's of natural gas with a volumetric weighted average period
of 2.94 and 0.33 years, respectively. The Company was also under contract to
receive
63
<PAGE>
a fixed price based on 246.4 million MWh's of electricity and 1.025 billion
MMBTU's of natural gas with a volumetric weighted average period of 2.93 and
0.33 years, respectively. Notional amounts reflect the nominal volume of
transactions included in the Company's net price risk management assets but
do not reflect actual amounts of cash, financial instruments, or quantities
of the underlying commodity which may ultimately be exchanged between the
parties.
FAIR VALUES. The fair values of the Company's price risk management assets
and liabilities as of December 31, 1997 and 1996 and the average fair values
during the year by commodity are set forth below (in thousands of $):
<TABLE>
<CAPTION>
Fair Value Average Fair Value
---------- ------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
1997:
----
By Commodity:
-------------
Electricity $ 69,704 $ 56,308 $ 81,765 $ 31,093
Natural gas 94,252 92,245 55,676 65,414
Other 625 1,119 505 848
--------- --------- --------- ---------
Total 164,581 149,672 $ 137,946 $ 97,355
========= =========
Reserves - 5,238
--------- ---------
Net values $ 164,581 $ 154,910
========= =========
1996:
----
By Commodity:
------------
Electricity $ 52,885 $ 27,159 $ 20,784 $ 12,736
Natural gas 70,582 101,484 69,156 65,356
Other - - - -
--------- --------- --------- ---------
Total 123,467 128,643 $ 89,940 $ 78,092
========= =========
Reserves - 7,241
--------- ---------
Net values $ 123,467 $ 135,884
========= =========
</TABLE>
The fair values above are based on quotes from exchanges and over-the-counter
markets, price volatility factors, the use of established pricing models and
the time value of money. They also reflect management estimates of
counterparty credit risk, location differentials and the potential impact of
liquidating the Company's position in an orderly manner over a reasonable
period of time under present market conditions.
CREDIT RISK. The Company maintains policies intended to minimize credit risk
and revalues credit exposures daily to monitor compliance with those
policies. As of December 31, 1997, over 97% of the Company's price risk
management assets were with counterparties rated BBB equivalent or better. As
of December 31, 1997, seven counterparties represented 52% of the Company's
price risk management assets.
OTHER CONTRACTS. In addition to the above price risk management assets and
liabilities, the Company's energy marketing and trading business unit is a
party to various arrangements which commit the Company to the sale or
purchase of electricity or natural gas without a specified firm volume. The
Company has also entered into certain forward transactions and financial
instruments which include futures contracts, fixed swaps and basis swaps, to
hedge the price risk exposure on these transactions. The transactions and
related hedges extend through April 2008, with an estimated volumetric
weighted average term of 3.23 years.
64
<PAGE>
As of December 31, 1997, the notional amount of these hedges was 8.1 million
MWh's of electricity and 10.3 million MMBTU's of natural gas. No gains or
losses have been explicitly deferred with respect to these transactions. The
estimated fair value of the financial instrument hedges was not material as
of December 31,1997.
The Company's energy marketing and trading business unit is also a party to
firm transportation contracts which require the Company to make specified
minimum payments. At December 31, 1997, the estimated aggregate amount of
such payments were $2.3 million, $1.1 million, $.9 million, $.7 million and
$.6 million for 1998 through 2002, respectively, and $1.4 million for later
years.
OTHER FINANCIAL INSTRUMENTS. At December 31, 1997, the Company held U.S.
Treasury note and bond futures contracts with notional amounts totaling $4.7
million. These contracts are used to hedge price risk associated with certain
marketable securities and mature in March 1998.
As of December 31, 1997, LG&E had in effect one interest rate swap agreement
to hedge its exposure to tax exempt rates related to Pollution Control Bonds,
Variable Rate Series. The swap has a notional amount of $15 million and it
matures in September 1999. The Company paid a fixed rate on the swap of 4.74%
in 1997, 1996, and 1995 and received a variable rate based on the JJ Kenny
Index of 3.66% in 1997, 3.46% in 1996, and 3.87% in 1995. In addition, LG&E
had entered into three other tax exempt interest rate swaps that became
effective in February 1998. The notional amount of each of these is $17
million, and they mature in February 2001, 2003, and 2005. The swap
agreements call for LG&E to pay fixed rates averaging 4.184%, and to receive
a variable rate based on the PSA Municipal Bond Index.
Capital Corp. had two interest rate swaps at year end 1997 which hedge a
portion of its notes payable. One swap with a notional amount of $25 million
matured on January 30, 1998. The other has a notional amount of $50 million
and matures in June 2002. Both of these require the Company to pay a fixed
rate which averaged 6.28% at December 31, 1997. The Company receives variable
rates based on the three-month London Interbank offered rate which equaled
5.885% at year end.
Capital Corp. also entered into a forward starting interest-rate swap to
hedge a portion of its initial issuance of medium term notes (see Note 14,
Long-Term Debt). The notional amount of the swap was $100 million, its
effective date was February 3, 1998, and its maturity date was February 2008.
The swap required Capital Corp. to pay a fixed rate of 6.5813%, and Capital
Corp. was to receive the six-month London Interbank offered rate. The swap
was terminated in conjunction with the pricing and sale of the medium term
notes on February 3, 1998.
65
<PAGE>
The cost and estimated fair values of the Company's non-trading financial
instruments (excluding the fair values of the Company's price risk management
assets and liabilities) used for non-trading as of December 31, 1997 and 1996
follow (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Marketable securities $ 21,994 $ 22,300 $ 5,539 $ 5,815
Long-term investments:
Not practicable to estimate
fair value 3,983 3,983 4,156 4,156
Preferred stock subject
to mandatory redemption 25,000 26,250 25,000 24,938
Long-term debt 664,339 687,030 646,800 662,721
U.S. Treasury note and
bond futures - (81) - 10
Interest rate swaps - (4,328) - (192)
</TABLE>
All of the above valuations reflect prices quoted by exchanges except for the
swaps and the long-term investments. The fair values of the swaps reflect
price quotes from dealers or amounts calculated using accepted pricing
models. The fair values of the long-term investments reflect cost, since the
Company cannot reasonably estimate fair value.
NOTE 6 - CONCENTRATIONS OF CREDIT AND OTHER RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on- or off-balance sheet) relate to
groups of customers or counterparties that have similar economic or industry
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions.
LG&E's customer receivables and gas and electric revenues arise from
deliveries of natural gas to approximately 284,000 customers and electricity
to approximately 356,000 customers in Louisville and adjacent areas in
Kentucky. For the year ended December 31, 1997, 73% of total utility revenue
was derived from electric operations and 27% from gas operations.
The Argentine natural gas distribution companies serve 675,000 customers in
six provinces in Argentina. The financial position and results of operations
of the domestic joint ventures described in Note 7, Investments in Joint
Ventures, and Note 16, Commitments and Contingencies, are dependent upon the
continuation of long-term power sales contracts with neighboring utilities.
LG&E's operation and maintenance employees are members of the International
Brotherhood of Electrical Workers (IBEW) Local 2100 which represents
approximately 60% of LG&E's workforce. LG&E's collective bargaining agreement
with IBEW employees expires in November 1998.
NOTE 7 - INVESTMENTS IN JOINT VENTURES
The Company's investments in joint ventures reflect interests in domestic and
foreign electric power and steam producing plants and one of the Argentine
gas distribution companies. These investments are accounted for using the
equity method.
66
<PAGE>
The fuel type, ownership percentages and carrying amounts of the joint
ventures as of December 31, 1997 are summarized below (in thousands of $):
<TABLE>
<CAPTION>
Carrying
Fuel Type % Owned Amount
--------- ------- --------
<S> <C> <C> <C>
LG&E Westmoreland - Southampton Coal 50 $ 16,841
LG&E Westmoreland - Altavista Coal 50 12,734
LG&E Westmoreland - Hopewell Coal 50 11,493
LG&E Westmoreland - Rensselaer (1) Natural Gas 25(1) 4,742(1)
Westmoreland - LG&E Partners Coal 50 28,462
Windpower Partners 1993 Wind 50 22,198
Windpower Partners 1994 Wind 25 4,251
Central Termica San Miguel de Tucuman, S.A. Natural Gas 33 16,536
KW Tarifa, S.A. Wind 46 5,642
Distribuidora de Gas Cuyana - 14 45,377
---------
Total $ 168,276
=========
</TABLE>
(1) As more fully discussed below, this amount reflects the sale of
one-half of the Company's interest in the project.
The Company's carrying amount exceeded the underlying equity in joint
ventures by $30.4 million and $25.3 million at December 31, 1997, and 1996,
respectively. This difference, which is being amortized, represents
adjustments to reflect the fair value of the underlying net assets acquired
and related goodwill.
With respect to the first seven projects listed above, certain of the
Company's partners (or affiliates of such partners) are in bankruptcy
proceedings. See Note 16, Commitments and Contingencies.
On February 11, 1998, the Company sold its one-third interest in the entity
which owns and operates the San Miguel facility to Pluspetrol Resources
Corporation and ASTRA Compania Argentina de Petroleo S.A. The purchase price
paid to the Company was $16 million. The Company's net investment in the San
Miguel project as of December 31, 1997, was approximately $18.8 million
(including interest and development costs incurred during construction).
In December 1997, the Company agreed to sell one-half of its interest in the
partnership that owns the Rensselaer facility, which resulted in a pre-tax
gain of $4.8 million in 1997. The Company will retain a 25% ownership
interest in the partnership. The purchase price for the partnership interest
consists of an initial payment of $9 million to be paid at closing. A
subsequent payment is contingent upon the consummation of certain
transactions and related matters involving the partnership. Accordingly, no
amounts for these contingent payments have been recorded in 1997. The effect
of any subsequent contingent payment will be recorded in 1998.
In June 1995, Babcock-Ultrapower West Enfield and Babcock-Ultrapower
Jonesboro, two partnerships which were 17%-owned by LPI, sold power purchase
contracts to Bangor Hydro-Electric Company. Equity in Earnings of Joint
Ventures in the Company's Statement of Income for 1995 includes $9.7 million
representing LPI's interest in the gains on the sales. In October 1996, the
plants were sold to a third party and the Company's interests in the
partnerships were liquidated.
NOTE 8 - NON-RECURRING CHARGES
During the second quarter of 1997, the Company consolidated the trading, risk
management and administrative
67
<PAGE>
operations of its power marketing and gas marketing divisions into a single
energy marketing unit, located in its Louisville headquarters. The Company
recorded a charge of $6.3 million in 1997 to reflect the costs of the
consolidation. This charge covered employee severance, facilities, and other
related costs. The Company expects future savings resulting from the
integration to more than offset these costs. This represented a step in the
Company's plan to integrate its two former marketing companies and to
capitalize on the convergence of the electric and gas marketing industries.
The consolidated division will expand the variety of commodities it will
offer to include coal, emission allowances and other energy-related products.
In the fourth quarter of 1996, the Company discovered that a marketer in its
Calgary, Alberta, office had engaged in unauthorized transactions, resulting
in significant losses in the Company's Canadian natural gas marketing
business. The Company recorded an expense of $26.3 million ($17.1 million
after income taxes) to reflect the losses. The activities of the marketer,
which occurred primarily within the last weeks prior to discovery, included
creating unsupported purchase and sales agreements. Management believes it
has taken appropriate steps necessary to mitigate the likelihood of these
events recurring. The Company is pursuing criminal and civil actions
associated with this event. See Note 16, Commitments and Contingencies. In
the second quarter of 1997, the Company received an insurance settlement of
$7.6 million (net of expenses) related to the losses. The Company included
the settlement amount as a credit in non-recurring charges in 1997.
NOTE 9 - MARKETABLE SECURITIES
The Company's marketable securities have been determined to be
"available-for-sale" under the provisions of Statement of Financial
Accounting Standards SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Proceeds from sales of available-for-sale securities
in 1997 were approximately $5 million, which resulted in immaterial realized
gains and losses. Proceeds from sales of available-for-sale securities in
1996 were approximately $44.6 million, which resulted in realized gains of
approximately $.5 million and losses of approximately $1.4 million,
calculated using the specific identification method.
68
<PAGE>
Approximate cost, fair value, and other required information pertaining to
the Company's available-for-sale securities by major security type as of
December 31, 1997 and 1996, follow (in thousands of $):
<TABLE>
<CAPTION>
Fixed
1997: Equity Income Total
---- ------ ------ -----
<S> <C> <C> <C>
Cost $6,379 $15,615 $21,994
Unrealized gains 445 18 463
Unrealized losses (90) (67) (157)
------ ------- -------
Fair values $6,734 $15,566 $22,300
====== ======= =======
Fair values:
No maturity $6,734 $ 114 $ 6,848
Contractual maturities:
Less than one year - 8,795 8,795
One to five years - 5,442 5,442
Five to ten years - - -
Over ten years - 1,215 1,215
Not due at a single maturity date - - -
------ ------- -------
Total fair values $6,734 $15,566 $22,300
====== ======= =======
1996:
----
Cost $4,833 $ 706 $ 5,539
Unrealized gains 2,109 - 2,109
Unrealized losses (1,789) (44) (1,833)
------ ------- -------
Fair values $5,153 $ 662 $ 5,815
====== ======= =======
Fair values:
No maturity $4,255 $ - $ 4,255
Contractual maturities:
Less than one year 898 - 898
One to five years - - -
Five to ten years - - -
Over ten years - 662 662
Not due at a single maturity date - - -
------ ------- -------
Total fair values $5,153 $ 662 $ 5,815
====== ======= =======
</TABLE>
NOTE 10 - PENSION PLANS AND RETIREMENT BENEFITS
PENSION PLANS. The Company has two non-contributory, defined-benefit pension
plans that cover eligible employees of LG&E Energy Corp. corporate staff and
LG&E. Retirement benefits are based on the employee's age at retirement,
years of service, and compensation. The Company's policy is to fund annual
actuarial costs, up to the maximum amount deductible for income tax purposes,
as determined under the frozen entry age actuarial cost method. The assets of
the plans consist primarily of common stocks, corporate bonds, investments in
international mutual funds and United States government securities.
The Company also has supplemental executive retirement plans that cover
eligible officers of the Company. The plans provide retirement benefits based
on average earnings during the final three or five years prior to retirement,
reduced by social security benefits, any pension benefits received from plans
of prior employers, and by amounts received under the pension plans mentioned
in the preceding paragraph.
Pension costs were $4 million for 1997, $5.4 million for 1996, and $5.8
million for 1995, of which approxi-
69
<PAGE>
mately $491,000, $751,000, and $761,000, respectively, was charged to
construction.
The components of periodic pension expense are shown below (in thousands of
$):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 5,947 $ 5,566 $ 4,805
Interest cost on projected benefit obligation 18,247 17,276 14,761
Actual return on plan assets (46,578) (32,250) (46,107)
Amortization of transition asset (1,079) (1,079) (1,079)
Net amortization and deferral 27,445 15,890 33,388
--------- --------- ---------
Net pension cost $ 3,982 $ 5,403 $ 5,768
========= ========= =========
</TABLE>
The funded status of the pension plans at December 31 is shown below (in
thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $215,100 $182,490
Non-vested 27,326 21,770
-------- --------
Accumulated benefit obligation 242,426 204,260
Effect of projected future compensation 42,060 33,417
-------- --------
Projected benefit obligation 284,486 237,677
Plan assets at fair value 283,862 240,733
-------- --------
Plan assets (less than) in excess of
projected benefit obligation (624) 3,056
Unrecognized net transition asset (9,009) (10,088)
Unrecognized prior service cost 44,429 45,064
Unrecognized net gain (60,620) (65,009)
-------- --------
Accrued pension liability $(25,824) $(26,977)
======== ========
</TABLE>
The assumptions used in determining the actuarial valuations are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assumed discount rate to determine
projected benefit obligation 7.00% 7.75%
Assumed long-term rate of return
on plan assets 8.50% 8.50%
Assumed annual rate of increase in
future compensation levels 2.00% - 4.00% 2.00% - 4.25%
</TABLE>
POST-RETIREMENT BENEFITS. The Company provides certain health care and life
insurance benefits for eligible retired employees. Post-retirement health
care benefits are subject to a maximum amount payable by the Company. The
Company accrues for the expected cost of post-retirement benefits other than
pensions during the employee's years of service with the Company. The
discounted present value of the post-retirement benefit obligation is being
amortized over 20 years.
70
<PAGE>
Post-retirement benefit costs are shown below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 780 $ 803 $ 614
Interest cost 2,965 2,994 2,717
Actual return on assets (80) - -
Amortization of transition obligation 1,341 1,341 1,341
Net amortization and deferral 260 332 -
------ ------ ------
Post-retirement benefit cost $5,266 $5,470 $4,672
====== ====== ======
</TABLE>
The accumulated post-retirement benefit obligation at December 31 is shown
below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Retirees $(21,795) $(18,568)
Fully eligible active employees (3,792) (4,837)
Other active employees (18,168) (16,819)
-------- --------
Accumulated post-retirement benefit obligation (43,755) (40,224)
Plan assets at fair value 4,429 2,297
Unrecognized prior service cost 3,456 3,788
Unrecognized transition obligation 20,111 21,452
Unrecognized net loss 2,968 500
-------- --------
Accrued post-retirement benefit liability $(12,791) $(12,187)
======== ========
</TABLE>
The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 7% for 1997 and 7.75% for 1996. Assumed compensation
increases for projected life insurance benefits for affected groups was 4%
for 1997 and 4.25% for 1996. An assumed health care cost trend rate of 9% was
assumed for 1997, gradually decreasing to 4.25% in nine years and thereafter.
A 1% increase in the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by approximately $1.7 million
and the annual service and interest cost by approximately $200,000. In 1996,
the Company began funding certain liabilities for post-retirement benefits
through a tax-deductible funding vehicle. The plan assets are being held in
two voluntary employee benefit association (VEBA) trusts and are invested
primarily in short-term United States government securities.
THRIFT SAVINGS PLANS. The Company has Thrift Savings Plans under Section
401(k) of the Internal Revenue Code. Under these plans, eligible employees
may defer and contribute to the plans a portion of current compensation in
order to provide future retirement benefits. The Company makes contributions
to the plans by matching a portion of employee's contributions. These costs
were approximately $3.3 million for 1997, $2.9 million for 1996, and $3.1
million for 1995.
71
<PAGE>
NOTE 11 - INCOME TAXES
Components of income tax expense are shown in the table below (in thousands
of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Included in Income Taxes:
Current - federal $39,579 $18,193 $32,526
- foreign 9,055 - -
- state 3,404 (6,731) 3,397
Deferred - federal - net 4,707 34,246 8,943
- state - net 2,757 15,648 4,170
Deferred investment tax credit 102 409 -
Amortization of investment tax credit (4,342) (4,406) (4,742)
------- ------- -------
Total $55,262 $57,359 $44,294
======= ======= =======
</TABLE>
Net deferred tax liabilities resulting from book-tax temporary differences
are shown below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other
plant-related items $419,513 $403,934
Other liabilities 42,956 29,568
--------- --------
462,469 433,502
--------- --------
Deferred tax assets:
Investment tax credit 30,595 32,306
Income taxes due to customers 26,357 31,195
Net operating loss carryforward 23,482 22,857
Deferred income 11,878 13,430
Accrued expenses not currently
deductible and other 42,814 45,607
-------- --------
135,126 145,395
-------- --------
Net deferred income tax liability $327,343 $288,107
======== ========
</TABLE>
Net operating loss carryforwards related to the acquisition of Hadson
Corporation total $122 million at December 31, 1997. These carryforwards,
which expire in 1998 through 2009, are subject to an annual limitation of
approximately $6 million under Sections 382 and 383 of the Internal Revenue
Code, and realization is dependent upon generating sufficient taxable income
prior to their expiration. At both December 31, 1997 and 1996, the Company
recorded valuation allowances of $25.6 million, related to these deferred tax
assets. Unamortized goodwill will be reduced if unrecorded net operating loss
carryforwards are realized.
72
<PAGE>
A reconciliation of differences between the statutory U.S. federal income tax
rate and the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes net of federal benefit 2.9 6.2 5.0
Effect of foreign operations including foreign tax credit 2.3 - -
Investment and other tax credits (3.8) (3.9) (4.7)
Reduction of taxes provided in prior years (.2) (3.0) (1.3)
Other differences - net (1.1) .3 (.8)
---- ----- -----
Effective income tax rate 35.1% 34.6% 33.2%
==== ==== ====
</TABLE>
NOTE 12 - OTHER INCOME AND DEDUCTIONS
Other income and deductions consisted of the following at December 31 (in
thousands of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gains (losses) on securities - net $ 68 $ (953) $(3,465)
Interest and dividend income 7,652 5,965 10,195
Gain on sale of investment in Rensselaer joint venture 4,800 - -
Gain on sale of stock options 1,794 - -
Interest on income tax settlement 1,446 - -
Gains (losses) on fixed asset disposals - net 77 (36) 1,089
Donations (423) (361) (356)
Other 62 (807) (2,074)
-------- -------- -------
Total other income and (deductions) $ 15,476 $ 3,808 $ 5,389
======== ======= =======
</TABLE>
NOTE 13 - CAPITAL STOCK
Changes in shares of common stock outstanding are shown in the table below (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Outstanding January 1 66,341 66,195 66,032
Issues under the Employee
Common Stock Purchase
Plan (1997, $1,613;
1996, $1,457; 1995, $1,354) 78 77 80
Issues under the Omnibus
Long-Term Incentive Plan
(1997, $2,195; 1996, $1,167;
1995, $1,371) 109 69 83
-------- --------- ---------
Outstanding December 31 66,528 66,341 66,195
====== ====== ======
</TABLE>
The Company's shareholders approved an increase in the Company's authorized
shares of common stock from 125,000,000 to 300,000,000 on October 14, 1997 in
conjunction with the proposed merger with KU Energy Corporation. This
increase will occur at the time of consummation of such merger.
73
<PAGE>
The Company has an Omnibus Long-Term Incentive Plan, under which nonqualified
stock options, performance units and stock appreciation rights have been
granted to key personnel. A total of 2,699,250 shares of common stock have
been reserved for issuance under the plan. Performance units are paid out on
a three-year rolling basis in 50% stock and 50% cash based on Company
performance. Directors of the Company receive stock options pursuant to the
Stock Option Plan for Non-Employee Directors. A total of 500,000 shares of
common stock have been reserved for issuance under this plan. Each option
entitles the holder to acquire one share of the Company's stock no earlier
than one year from the date granted. The options are granted at market value
and generally expire 10 years from the date granted. Although shares are
reserved as described above, the Company announced a repurchase program on
October 14, 1997, authorizing the repurchase of up to 1,000,000 shares of its
common stock to be used for, among other things, benefit and compensation
plans, including the Omnibus Long-Term Incentive Plan.
A summary of the status of the Company's nonqualified stock options follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
Weighted Weighted
Average Average
Options Price Options Price
------- --------- ------- ----------
<S> <C> <C> <C> <C>
As of December 31, 1994 484,528 $17.34 256,582 $15.78
Options granted and
exercisable 150,690 19.70 137,946 19.27
Options exercised (60,522) 15.48 (60,522) 15.48
Options cancelled (61,146) 19.07 (1,620) 19.30
----------- ------- --------- -------
As of December 31, 1995 513,550 18.04 332,386 17.26
Options granted and
exercisable 415,348 21.24 158,914 19.57
Options exercised (48,226) 17.26 (48,226) 17.26
Options cancelled (16,328) 21.01 - -
----------- -------------------- ----------
As of December 31, 1996 864,344 19.57 443,074 18.09
Options granted and
exercisable 394,945 24.15 352,966 21.22
Options exercised (87,568) 18.97 (87,568) 18.97
Options cancelled (77,100) 23.04 - -
----------- -------------------- ----------
As of December 31, 1997 1,094,621 $21.01 708,472 $19.54
========== ====== ======== ======
</TABLE>
Common stock equivalents resulting from the options granted under both the
Long-Term Plan and the Directors' Plan would not have a material dilutive
effect on reported earnings per share.
The Company has a Shareholders Rights Plan designed to protect shareholders'
interests in the event the Company is ever confronted with an unfair or
inadequate acquisition proposal. Pursuant to the plan, each share of common
stock has one-third of a "right" entitling the holder to purchase from the
Company one one-hundredth of a share of new preferred stock of the Company
under certain circumstances. The holders of the rights will, under certain
conditions, also be entitled to purchase either shares of common stock of
LG&E Energy Corp. or common stock of the acquirer at a reduced percentage of
market value. The rights will expire in the year 2000.
In December 1997, Inversora de Gas del Centro (Inversora), a subsidiary of
the Company that holds part of the Company's interest in Centro, issued
302,364 shares of preferred stock to unaffiliated parties. The stock has a
74
<PAGE>
nominal value of $10 per share, and a variable dividend consisting of 5% of
Inversora's annual net income. Inversora can redeem the shares at the nominal
value upon shareholder approval.
NOTE 14 - LONG-TERM DEBT
Annual requirements for the sinking funds of LG&E's First Mortgage Bonds
(other than the First Mortgage Bonds issued in connection with certain
Pollution Control Bonds) are the amounts necessary to redeem 1% of the
highest principal amount of each series of bonds at any time outstanding.
Property additions (166 2/3% of principal amounts of bonds otherwise required
to be so redeemed) have been applied in lieu of cash. It is the intent of
LG&E to apply property additions to meet 1998 sinking fund requirements of
the First Mortgage Bonds.
The trust indenture securing the First Mortgage Bonds constitutes a direct
first mortgage lien upon a substantial portion of all property owned by LG&E.
The indenture, as supplemented, provides in substance that, under certain
specified conditions, portions of retained earnings will not be available for
the payment of dividends on common stock. No portion of retained earnings is
presently restricted by this provision.
Pollution Control Bonds (LG&E Projects) issued by Jefferson and Trimble
Counties, Kentucky, are secured by the assignment of loan payments by LG&E to
the Counties pursuant to loan agreements, and certain series are further
secured by the delivery from time to time of an equal amount of LG&E's First
Mortgage Bonds, Pollution Control Series. First Mortgage Bonds so delivered
are summarized in the Statements of Capitalization. No principal or interest
on these First Mortgage Bonds is payable unless default on the loan
agreements occurs. The interest rate reflected in the Statements of
Capitalization applies to the Pollution Control Bonds.
In November 1997, LG&E issued $35 million of Jefferson County, Kentucky and
$35 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due November 1, 2027. Interest rates for these bonds were 3.90%
and 3.85%, respectively, at December 31, 1997. The proceeds from these bonds
were used to redeem the outstanding 7.75% Series of Jefferson County,
Kentucky and Trimble County, Kentucky, Pollution Control Bonds due February
1, 2019.
In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky, and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.79%
and 3.82%, respectively, as of December 31, 1997. In December 1996, the
proceeds from the bonds were used to redeem the outstanding 7.25% Series of
Jefferson County and Trimble County Pollution Control Bonds due December 1,
2016.
On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by the Company.
LG&E's First Mortgage Bonds, 6.75% Series of $20 million is scheduled to
mature in June 1998, and the $20 million, 7.5% Series is scheduled for
maturity in 2002. There are no scheduled maturities of Pollution Control
Bonds for the five years subsequent to December 31, 1997. The Company has no
cash sinking fund requirements.
Capital Corp. has established a $500 million medium-term note program. On
February 6,1998, Capital Corp. issued $150 million of medium-term notes due
in January 2008. The securities were issued pursuant to an unregistered Rule
144A offering. The stated interest rate on the notes was 6.46%. After taking
into account the effects of an interest-rate swap entered into in 1997 to
hedge the interest rate on $100 million (See Note 5, Price Risk Management
and Financial Instruments) and other issuance costs, the effective rate will
be 6.82%. The proceeds were used to repay outstanding notes payable.
75
<PAGE>
Centro maintains a $100 million global note program. As of December 31, 1997,
Centro had outstanding $37.5 million in negotiable obligations, net of
issuance costs as part of this program. The maturity date of the debt is
August 21, 2001. The fixed annual interest rate is 10.5% payable every six
months.
NOTE 15 - NOTES PAYABLE
On September 5, 1997, Energy Systems and Gas Systems merged to form Capital
Corp. At the same time, Capital Corp. implemented a $600 million commercial
paper facility backed by new lines of credit totaling $700 million. The
Company terminated the previous lines of credit which totaled $460 million.
Capital Corp. had outstanding commercial paper of $360.2 million at December
31, 1997, at a weighted average interest rate of 5.79%. The net proceeds were
used to repay a portion of the outstanding commercial paper. On February 6,
1998, Capital Corp. issued $150 million of medium-term notes (See Note 14,
Long-Term Debt). The outstanding commercial paper following the repayment
totaled $199.3 million. LG&E Energy Corp., LG&E, and Capital Corp. had no
other notes payable at December 31, 1997. Energy Systems and Gas Systems had
notes payable of $158 million at December 31, 1996, at a weighted average
interest rate of 5.83%.
At December 31, 1997, the Company had lines of credit in place totaling $900
million ($200 million for LG&E, and $700 million for Capital Corp.) for which
it pays commitment or facility fees. The LG&E credit facility provides for
short term borrowing and support of variable rate Pollution Control Bonds.
The Capital Corp. facility provides for short term borrowing, letter of
credit issuance, and support of commercial paper borrowings. Unused capacity
under these lines totaled $481.7 million after considering the commercial
paper support and approximately $58.1 million in letters of credit securing
on- and off-balance sheet commitments. The credit lines will expire at
various times from 1998 through 2002. Management expects to renegotiate the
lines when they expire.
The lenders under the credit facilities, commercial paper program, and medium
term notes for Capital Corp. are entitled to the benefits of Support
Agreements with LG&E Energy Corp. The Support Agreements state, in substance,
that LG&E Energy Corp. will provide Capital Corp. with the necessary funds
and financial support to meet their obligations under the credit facilities,
commercial paper program, and medium term notes.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
CONSTRUCTION PROGRAM. The Company had commitments, primarily in connection
with the construction program of LG&E, aggregating approximately $7 million
at December 31, 1997. LG&E's construction expenditures for the years 1998 and
1999 are estimated to total approximately $260 million. Non-utility
construction expenditures for the same two-year period are estimated to be
$55 million.
LETTERS OF CREDIT. Capital Corp. has provided letters of credit issued to
third parties to secure certain off-balance sheet obligations (including
contingent obligations) of its subsidiaries. The letters of credit securing
such obligations totaled approximately $38.3 million and $25.2 million at
December 31, 1997 and 1996, respectively. These letters of credit are subject
to Support Agreements as more fully described in Note 15, Notes Payable.
Capital Corp. has provided a guarantee of a lease obligation to a third
party. The obligation totaled $10.2 million and $12.8 million at December
31, 1997 and 1996, respectively.
76
<PAGE>
PROJECT CONTINGENCIES
SOUTHAMPTON. The Southampton plant, a 63-megawatt, coal-fired cogeneration
facility in Franklin, Virginia, supplies process steam to a nearby chemical
manufacturer and bulk electric power under contract to Virginia Electric and
Power Company (Virginia Power) as a qualifying facility (QF) under the Public
Utility Regulatory Policies Act (PURPA). The plant began commercial operation
in 1992. In July 1994, FERC denied the request of LG&E-Westmoreland
Southampton (the Partnership) for a waiver of certain QF requirements. The
Partnership subsequently filed a request seeking a reversal of FERC's order,
or, in the alternative, a clarification of FERC's order stating that, with
the exception of rates, the Partnership remains a QF for 1992 exempt from
regulation as a public utility under PUHCA, utility laws in Virginia and
various portions of the Federal Power Act.
In July 1996, the FERC entered an order in the Southampton case which
included a policy statement regarding all QF facilities which fail
temporarily to meet QF standards. The order affirmed the continued
availability to Southampton of exemptions from PUHCA and state law for the
year 1992, supporting the Partnership's request that the ruling on
non-compliance should have no effect on the exemptions from regulations that
would have classified the plant as a public utility. The FERC's decision to
uphold these exemptions eliminates potential issues involving provisions of
PUHCA, Virginia utility law and the non-rate provisions of the Federal Power
Act.
The FERC also concluded that the Partnership should refund a portion of the
rates it received from Virginia Power during 1992. The Company had
anticipated that the Partnership could be required to make a refund to
Virginia Power in the event the QF standards for 1992 were not waived. The
order calls for a refund with interest from the Partnership of the difference
between the amount paid by Virginia Power during the period and the amount
Virginia Power would have paid for energy if it had purchased energy at its
incremental energy rate. The amount of the refund is currently unknown,
pending further FERC review. In August 1996 the Partnership filed a Request
for Clarification to better understand what the Commission intended and filed
a Request for Rehearing on the grounds that the order violated the statutory
standard for just and reasonable rates. In November 1996, the Partnership
requested FERC approval for the contract rates it charged during the period
of non-compliance minus a $500,000 refund offered by the Partnership. The
Company continues to study the order and, at this time, cannot predict what,
if any, further action it may take, cannot predict the determinations of FERC
on the pending motions, and cannot predict what action Virginia Power may
take. The Company's share of the revenues received by the Partnership in 1992
is approximately $9.5 million.
WESTMORELAND BANKRUPTCY. On December 23, 1996, Westmoreland Coal Company and
its four first-tier subsidiaries filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. One of these subsidiaries, Westmoreland Energy,
Inc. is the direct parent of the various entities that are partners in
partnerships with LG&E Energy subsidiaries (including the Partnership and
WLP, as defined herein) which own six independent generating facilities. None
of those partnerships and no partner of those partnerships is under
bankruptcy court protection. It is unclear at this time what effect these
filings will have on the value of the partnerships. Although there is no
current default occasioned by the filings, defaults could occur under project
loan agreements if not remedied within the specified time period. If a
default occurred which was not cured within the allowed time, the lenders
would have the right, among other things, to accelerate the outstanding
loans. These loans, which are non-recourse to the Company above the
partnership level, totaled $596.7 million at December 31, 1997.
ROANOKE VALLEY I. The Company owns a 50% interest in Westmoreland-LG&E
Partners (WLP), the sole owner of Roanoke Valley I, a cogeneration facility
selling electric power to Virginia Power and steam energy to Patch Rubber
Company. Under the Power Purchase Agreement (PPA) between WLP and Virginia
Power, WLP is entitled to receive capacity payments based on availability.
From May 1994 through December 1997,
77
<PAGE>
Virginia Power withheld approximately $14.2 million of these capacity
payments during periods of forced outages. To date, the Company has not
realized any income on its 50% portion of the capacity payments being
withheld by Virginia Power.
In October 1994, WLP filed a complaint against Virginia Power in the Circuit
Court of the City of Richmond, Virginia seeking damages of at least $5.7
million, contending that Virginia Power breached the PPA in withholding such
payments. In June 1995, the court denied Virginia Power's motion to dismiss
WLP's complaint. In March 1996, Virginia Power filed a motion for summary
judgment which was subsequently granted by the court as to all counts. WLP
filed a petition for appeal with the Virginia Supreme Court in July 1996, and
in June 1997, the Virginia Supreme Court reversed the adverse lower court
ruling and remanded the case for a trial. A new trial date has not been set,
but is anticipated in late 1998.
In the Company's opinion, WLP is entitled to recover the capacity payments
withheld by Virginia Power and should prevail in this matter ensuring receipt
of future capacity payments during forced outages billable to Virginia Power
during the remaining 21 years of the PPA. However, the Company is unable to
predict the outcome of this proceeding, or the amount of capacity payments,
if any, which Virginia Power may be ordered to pay to WLP. However, the
Company does not expect the ultimate resolution of this matter to have a
material adverse effect on its results of operations or financial condition.
RENSSELAER. In July 1997, LG&E Westmoreland - Rensselaer (LWR), in which the
Company has a 25% interest through an indirect subsidiary, executed a master
restructuring agreement with Niagara Mohawk Power Corporation (NIMO) and 15
other independent power companies (IPPs). LWR is the owner of the Rensselaer
cogeneration facility. Under this agreement, LWR has an obligation to
negotiate towards a restructuring of the Power Purchase Agreement between
NIMO and LWR. Substantial further negotiations with NIMO, suppliers and
lenders to the Rensselaer project are required to implement any
restructuring. The Company is under no obligation to amend or terminate the
Rensselaer project power purchase agreement if all conditions precedent
cannot ultimately be met. Upon completion of a restructuring and satisfaction
of conditions precedent, including all IPPs receiving necessary approvals and
NIMO successfully arranging financing, LWR would receive consideration from
NIMO. Due to the early stage of the project restructuring at this time and
the existence of numerous conditions thereto, the Company is not able to
predict the outcome of this event. Based upon the terms of the agreement and
the current status of the restructuring, the Company does not expect the
ultimate resolution of this matter to have a material adverse effect on its
results of operations or financial condition. In December 1997, the Company
sold one-half of its interest in LWR. See Note 7, Investments in Joint
Ventures.
KENETECH BANKRUPTCY. In May 1996, Kenetech Windpower, Inc. (Kenetech) filed
in the United States Bankruptcy Court in the Northern District of California
for protection under Chapter 11 of the United States Bankruptcy Code seeking,
among other things, to restructure certain contractual commitments between
Kenetech and its subsidiaries, on one hand, and various windpower projects
located in the U.S. and abroad, on the other hand. Included in these projects
are the Windpower Partners 1993 (WPP 93), Windpower Partners 1994 (WPP 94)
and KW Tarifa, S.A. (Tarifa) wind projects in which the Company has invested,
collectively, approximately $31 million. As part of the bankruptcy
proceeding, Kenetech is also seeking to void certain warranty commitments
made to the owners of those projects with respect to the operation and output
of the facilities, and the repair and replacement of the windpower generation
equipment located there. LPI has been named to the creditors' committee in
the Kenetech bankruptcy on behalf of the three projects, and has been working
with representatives of Kenetech and other secured and unsecured creditors to
ensure that the project owners' interests are equitably treated in the
bankruptcy. On January 31, 1997, the projects filed their respective breach
of contract and other claims against Kenetech in the bankruptcy proceeding.
In September 1996, LG&E Power Services Inc., an affiliate of the Company,
assumed operating control over
78
<PAGE>
the WPP 93 and WPP 94 facilities, pursuant to Facility Operating Agreements
with the owners of those facilities. Those agreements replaced the interim
operations and maintenance agreements between the owners and Kenetech that
were implemented at the time of the Kenetech bankruptcy filing. The owners of
the Tarifa windpower project assumed operating control over that facility
shortly after the bankruptcy filing, and are considering the merits of
retaining a third-party contractor to operate and maintain these facilities.
In November 1996, KW Tarifa, S.A., certain of its shareholders and an
affiliate of the Company, LG&E Power Finance Inc. (LPF), completed separate
Settlement Transactions with affiliates of Kenetech, whereby the equity
interests of Kenetech's affiliate in KW Tarifa S.A. were purchased by the
other shareholders, and certain subordinated indebtedness of KW Tarifa S.A.
to another Kenetech affiliate was purchased by LPF and subsequently retired
by KW Tarifa S.A.
The Company is unable to predict the outcome of the bankruptcy proceeding or
the settlement negotiations. However, the Company does not expect the
ultimate resolution of the bankruptcy to have a material adverse effect on
its results of operations or financial condition.
WINDPOWER PARTNERS 1994. WPP 94, in which the Company has a 25% interest
through indirect subsidiaries, did not make a semiannual payment, due
September 2, 1997, to John Hancock Mutual Life Insurance Company (Hancock)
under certain Notes issued by WPP 94 to Hancock. The Company has offered WPP
94 financial support with respect to the appropriate proportion of its debt
obligations, but certain of the three other investor groups are unable to
offer funds to WPP 94 in support of the partnership. The aggregate indirect
investment of the Company in WPP 94 is $4.3 million as of December 31, 1997.
WPP 94 and Hancock are presently engaged in discussions concerning a possible
restructuring of WPP 94's debt obligations and Hancock has informed WPP 94
that it may declare WPP 94 in default of the trust indenture relating to the
Notes. WPP 94 operates wind power generation facilities in Texas. Because of
the continuing nature of the negotiations, the Company is not able to predict
the outcome of this event. The Company does not expect the ultimate
resolution of this matter to have a material effect on its results of
operations or financial condition.
CALGARY
On November 22, 1996, LG&E Natural Canada Inc., a subsidiary of LEM,
initiated action in the Court of the Queens Bench of Alberta, Calgary against
a former employee. That action and an additional action, filed on the same
date in the General Division of the Ontario Court, also named a natural gas
sales and marketing company and the director, president and secretary of that
company (Marketing Company Defendants). The action against such Marketing
Company Defendants was settled on June 6, 1997. An amended statement of claim
was filed in the Calgary action on December 23, 1996, naming additional
parties. These lawsuits were filed as a result of LEM's discovery in the
fourth quarter of 1996 that the former employee had engaged in unauthorized
transactions. Counterclaims have been filed seeking damages of approximately
$40 million for, among other things, defamation and breach of contract. In
the second quarter of 1997, the Company received an insurance settlement of
$7.6 million (net of expenses) related to the losses. See Note 8,
Non-Recurring Charges. The Company does not expect the ultimate resolution of
this matter to have a material adverse effect on its results of operations or
financial condition.
79
<PAGE>
OPERATING LEASES
The Company leases office space, office equipment, and vehicles. The Company
accounts for these leases as operating leases. Total lease expense for 1997,
1996, and 1995, was $5 million, $4.1 million, and $5.5 million, respectively.
The future minimum annual lease payments under lease agreements for years
subsequent to December 31, 1997, are as follows (in thousands of $):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 6,561
1999 5,476
2000 5,567
2001 5,320
2002 4,519
Thereafter 10,262
--------
Total $37,705
=======
</TABLE>
Future minimum annual lease payments have been reduced by rental payments to
be received from noncancelable subleases of approximately $1.8 million per
year from 1998 through 2000, and $1.3 million in 2001.
ENVIRONMENTAL
With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E
already complied with the stringent sulfur dioxide emission limits required
by the year 2000 as it had previously installed scrubbers on all of its
coal-fired generating units. Since then, as part of its ongoing construction
program, LG&E has spent $31 million for measures to meet applicable nitrogen
oxide limits. While the overall financial impact of the Act on LG&E has been
minimal, LG&E is closely monitoring several significant regulatory
developments which may potentially impact the Company including efforts by
local officials to address the "ozone nonattainment" status of Jefferson
County, Kentucky and implementation of new ozone and particulate matter
standards adopted by the United States Environmental Protection Agency
(USEPA) in June 1997. Finally, LG&E is monitoring regulations proposed by
USEPA in October 1997, that could require numerous utilities including LG&E
to reduce nitrogen oxide emissions by approximately 85% from 1990 levels.
LG&E has already reduced its nitrogen oxide emissions by approximately 40%
and the Company's independent power projects generally operate at even lower
emissions levels. However, if finally adopted, the proposed regulations may
require LG&E and the independent power projects to incur significant capital
expenditures, currently estimated as potentially in excess of $100 million in
the case of LG&E, and significantly increased operation and maintenance
costs. LG&E currently anticipates that a significant portion of any such
capital costs could be recoverable through rates, although there can be no
guarantee of such recovery.
LG&E is currently addressing other emissions issues at two of its power
plants. First, LG&E is conducting modeling activities in response to a
notification from the Air Pollution Control District of Jefferson County
(APCD) indicating that the Cane Run plant may be the source of a potential
exceedance of the air quality standards for sulfur dioxide. Depending on the
outcome of the modeling, LG&E may be required to undertake corrective action
that could include significant capital improvements. Secondly, LG&E is
working with the APCD to review the effectiveness of remedial measures aimed
at controlling particulate emissions from the Mill Creek plant which
allegedly damaged metal surfaces on adjacent properties. LG&E had previously
established a claims resolution process which resulted in property damage
settlements with adjacent residents at an aggregate cost of approximately $15
million. In related litigation, in October, 1997, the Jefferson Circuit Court
dismissed all but one of the claims pursued by persons who had not previously
settled with LG&E. In management's opinion, resolution of any remaining
claims should not have a material adverse impact on the financial position or
results of operations of LG&E.
LG&E is also addressing potential liabilities for cleanup of properties where
hazardous substances may have been released. LG&E has identified
contamination at certain manufactured gas plant (MGP) sites currently or
80
<PAGE>
formerly owned by the Company. One of the sites was conveyed to a new owner
which assumed responsibility for environmental liabilities and LG&E is
negotiating with potentially responsible parties and state agencies with
respect to two other sites. Until conclusion of such discussions, LG&E is
unable to precisely determine its remaining liability for cleanup costs at
MGP sites. However, based on site studies, management currently estimates
total cleanup costs within the range of $3 million to $8 million and has
recorded an accrual of approximately $3 million in the accompanying financial
statements.
LG&E, along with other companies, has also been identified by USEPA as a
potentially responsible party allegedly liable for cleanup costs under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
for certain off-site disposal facilities. LG&E has entered a final settlement
for $7,500 for one site and has entered tentative settlements for an
aggregate of $150,000 for the remaining sites. Tentative settlements are
subject to approval by the government and entry by the court.
LPI and its subsidiaries are also subject to extensive federal, state, and
local environmental laws and regulations governing the operation of various
facilities in which they participate as an owner or managing operator. To the
extent that there have been any developments pursuant to environmental laws
and regulations, such developments have not been material, except as
otherwise disclosed herein.
NOTE 17 - TRIMBLE COUNTY GENERATING PLANT
Trimble County Unit 1 (Trimble County), a 495-megawatt coal-fired electric
generating unit placed into service in December 1990, has been the subject of
numerous legal and regulatory proceedings to determine the appropriate
ratemaking treatment to implement the Kentucky Public Service Commission's
1988 decision that LG&E should not be allowed to recover 25% of the cost of
Trimble County from ratepayers.
In December 1995, the Commission approved a unanimous settlement agreement
that was filed by LG&E and other parties. Under the agreement, which resolved
all outstanding issues, LG&E agreed to refund approximately $22 million to
current electric customers, most of which is being refunded by credits to
customers' bills over the five years 1996 through 2000. In addition, LG&E
agreed to pay $900,000 per year for five years beginning in 1996 to the Metro
Human Needs Alliance, Inc., a not-for-profit Louisville-based corporation,
for the sole purpose of funding low-income energy assistance programs in the
service territory. LG&E also agreed to revise the residential decoupling
methodology approved by the Commission in 1994 in a manner that reduced
revenues collected from residential customers by approximately $1.8 million.
Finally, the parties agreed to dismiss all appeals currently pending in state
courts regarding the Commission's orders in LG&E's last general rate case.
NOTE 18 - JOINTLY OWNED ELECTRIC UTILITY PLANT
LG&E owns a 75% undivided interest in Trimble County Unit 1. Accounting for
the 75% portion of the Unit, which the Commission has allowed to be reflected
in customer rates, is similar to LG&E's accounting for other wholly owned
utility plants.
Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA)
owns a 12.12% undivided interest in the Unit, and Indiana Municipal Power
Agency (IMPA) owns a 12.88% undivided interest. Each is responsible for their
proportionate ownership share of operation and maintenance expenses and
incremental assets, and for fuel used.
81
<PAGE>
The following data represent shares of the jointly owned property:
<TABLE>
<CAPTION>
Trimble County
<S> <C> <C> <C> <C>
LG&E IMPA IMEA Total
Ownership interest 75% 12.88% 12.12% 100%
Mw capacity 371.25 63.75 60 495
</TABLE>
NOTE 19 - SEGMENTS OF BUSINESS
LG&E Energy Corp. has business operations in both the regulated and
non-regulated energy markets. The regulated business is conducted through
Louisville Gas and Electric Company (LG&E), an electric and gas public utility
engaged in the generation, transmission, distribution, and sale of electric
energy and the storage, distribution and sale of natural gas in Louisville and
adjacent areas of Kentucky.
The non-utility businesses are subsidiaries of LG&E Capital Corp. and include
LG&E Power Inc. (LPI), LG&E International Inc. (LII) and LG&E Energy Marketing
Inc. (LEM). LPI and its subsidiaries develop, design, own, operate, and maintain
power generation facilities that sell energy to local industries and utilities
throughout the United States. LPI also owns and operates certain natural gas
collection and processing facilities in the United States. LII develops and owns
international power-generation assets located in Spain and Argentina and
acquired interests in two natural gas distribution companies located in
Argentina in February 1997. LEM primarily engages in retail and wholesale
marketing of natural gas and electric power, respectively, throughout the United
States and Canada. LEM makes up the energy marketing and trading segment of the
business. Other primarily relates to non-utility power generation activities and
corporate interest and operating expenses.
<TABLE>
<CAPTION>
(Thousands of $) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating information:
Revenues:
Electric $ 615,159 $ 607,160 $ 542,786(a)
Gas 231,011 214,419 181,126
----------- ---------- ----------
Total utility 846,170 821,579 723,912
Energy marketing and trading 3,266,811 2,748,873 630,249
Argentine gas distribution 127,182 - -
Other 23,657 19,013 20,519
---------- ---------- ----------
Total $4,263,820 $3,589,465 $1,374,680
========== ========== ==========
Operating income:
Electric $ 197,860 $ 192,593 $ 152,648
Gas 15,034 18,393 16,651
----------- ---------- ----------
Total utility 212,894 210,986 169,299
Energy marketing and trading (30,577) 3,259 (959)
Argentine gas distribution 30,173 -
Other (1,987) (2,804) 7,217
---------- ---------- ----------
Total $ 210,503 $ 211,441 $ 175,557
========== ========== ==========
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other information:
Depreciation and amortization:
Electric $ 79,958 $ 76,929 $ 74,437
Gas 13,062 12,073 11,322
----------- ---------- ----------
Total utility 93,020 89,002 85,759
Energy marketing and trading 13,484 12,969 6,961
Argentine gas distribution 7,569 - -
Other 1,663 1,585 1,673
---------- ---------- ----------
Total $ 115,736 $ 103,556 $ 94,393
========== ========== ==========
Construction expenditures:
Electric $ 81,713 $ 79,541 $ 66,661
Gas 29,180 28,338 26,762
---------- ---------- ----------
Total utility (b) 110,893 107,879 93,423
Energy marketing and trading 21,596 6,081 9,020
Argentine gas distribution 4,369 - -
Other 863 1,490 2,084
---------- ---------- ----------
Total $ 137,721 $ 115,450 $ 104,527
========== ========== ==========
Identifiable assets - December 31:
Electric $1,517,512 $1,505,508 $1,501,568
Gas 317,337 300,550 268,840
Other 219,776 186,346 208,517
---------- ---------- ----------
Total utility 2,054,625 1,992,404 1,978,925
Energy marketing and trading 778,538 828,030 470,440
Argentine gas distribution 340,144 - -
Other 193,084 191,458 179,555
---------- ---------- ----------
Total $3,366,391 $3,011,892 $2,628,920
========== ========== ==========
</TABLE>
(a) Net of Refund - Trimble County Settlement of $28.3 million.
(b) Excluding cost of removal and salvage.
83
<PAGE>
NOTE 20 - SELECTED QUARTERLY DATA (UNAUDITED)
Selected financial data for the four quarters of 1997 and 1996 are shown below.
Because of seasonal fluctuations in temperature and other factors, results for
quarters may fluctuate throughout the year.
<TABLE>
<CAPTION>
(Thousands of $ except per share data) Quarters Ended
March June September December
----- ---- --------- --------
<S> <C> <C> <C> <C>
1997
-----
Revenues $1,303,243 $747,566 $1,113,521 $1,099,490
Operating income 44,903 51,265 67,185 47,150
Net income 21,239 21,617 29,193 25,768
Earnings per share of common stock (1) .32 .33 .44 .38
1996
-----
Revenues $875,429 $760,913 $853,928 $1,099,195
Operating income 59,060 48,692 70,307 33,382
Net income 27,095 23,822 41,736 11,350
Earnings per share of common stock (1) .41 .36 .63 .17
</TABLE>
(1) The Company is required to disclose basic and dilutive earnings
per share under the requirements of SFAS No. 128, Earnings Per
Share. The Company has determined that basic and dilutive earnings
per share for the quarters presented are the same.
84
<PAGE>
LG&E Energy Corp.
REPORT OF MANAGEMENT
The management of LG&E Energy Corp. and subsidiaries is responsible for the
preparation and integrity of the consolidated financial statements and related
information included in this Annual Report. These statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis and, necessarily, include amounts that reflect the best
estimates and judgment of management.
The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Management has made available to Arthur Andersen
LLP all the Company's financial records and related data as well as the minutes
of shareholders' and directors' meetings. Management has established and
maintains a system of internal controls that provides reasonable assurance that
transactions are completed in accordance with management's authorization, that
assets are safeguarded and that financial statements are prepared in conformity
with generally accepted accounting principles. Management believes that an
adequate system of internal controls is maintained through the selection and
training of personnel, appropriate division of responsibility, establishment and
communication of policies and procedures and by regular reviews of internal
accounting controls by the Company's internal auditors. Management reviews and
modifies its system of internal controls in light of changes in conditions and
operations, as well as in response to recommendations from the internal
auditors. These recommendations for the year ended December 31, 1997, did not
identify any material weaknesses in the design and operation of the Company's
internal control structure.
The Audit Committee of the Board of Directors is composed entirely of outside
directors. In carrying out its oversight role for the financial reporting and
internal controls of the Company, the Audit Committee meets regularly with the
Company's independent public accountants, internal auditors and management. The
Audit Committee reviews the results of the independent accountants' audit of the
consolidated financial statements and their audit procedures, and discusses the
adequacy of internal accounting controls. The Audit Committee also approves the
annual internal auditing program, and reviews the activities and results of the
internal auditing function. Both the independent public accountants and the
internal auditors have access to the Audit Committee at any time.
LG&E Energy Corp. and subsidiaries maintain and internally communicate a written
code of business conduct that addresses, among other items, potential conflicts
of interest, compliance with laws, including those relating to financial
disclosure, and the confidentiality of proprietary information.
85
<PAGE>
LG&E Energy Corp.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of LG&E Energy Corp.:
We have audited the consolidated balance sheets and statements of capitalization
of LG&E Energy Corp. (a Kentucky corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended December
31, 1997. These 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LG&E Energy Corp.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1996, the Company changed its method of accounting for price risk
management activities.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Louisville, Kentucky Arthur Andersen LLP
January 28, 1998 (Except with respect
to the matters discussed in the fifth paragraph of Note 7, the eighth paragraph
of Note 14 and the second paragraph of Note 15, as to which the date is February
11, 1998.)
86
<PAGE>
Louisville Gas and Electric Company
Statements of Income
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <S> <C> <C>
OPERATING REVENUES:
Electric.......................................... $ 614,532 $ 606,696 $ 570,637
Gas............................................... 231,011 214,419 181,126
Refund - Trimble County settlement (Note 13)...... - - (28,300)
--------- --------- ---------
Total operating revenues (Note 1).............. 845,543 821,115 723,463
--------- --------- ---------
OPERATING EXPENSES:
Fuel for electric generation...................... 149,463 149,697 138,002
Power purchased................................... 17,229 16,626 16,830
Gas supply expenses............................... 158,929 140,482 110,738
Other operation expenses.......................... 150,750 143,338 134,655
Maintenance....................................... 47,586 54,790 52,101
Depreciation and amortization..................... 93,020 89,002 85,759
Federal and state income taxes (Note 8)........... 64,081 63,259 47,524
Property and other taxes.......................... 16,299 16,658 16,528
--------- --------- ---------
Total operating expenses....................... 697,357 673,852 602,137
--------- --------- ---------
Net operating income.................................. 148,186 147,263 121,326
Other income and (deductions) (Note 9)................ 4,277 920 3,776
Interest charges...................................... 39,190 40,242 41,918
--------- --------- ---------
Net income............................................ 113,273 107,941 83,184
Preferred stock dividends............................. 4,585 4,568 6,311
--------- --------- ---------
Net income available for common stock................. $ 108,688 $ 103,373 $ 76,873
========= ========= =========
</TABLE>
Statements of Retained Earnings
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance January 1..................................... $ 209,222 $ 181,049 $193,895
Add net income........................................ 113,273 107,941 83,184
--------- --------- --------
322,495 288,990 277,079
Deduct: Cash dividends declared on stock:
5% cumulative preferred.................. 1,075 1,075 1,075
7.45% cumulative preferred............... - - 1,527
Auction rate cumulative preferred........ 2,041 2,024 2,240
$5.875 cumulative preferred.............. 1,469 1,469 1,469
Common................................... 59,000 75,200 89,000
Preferred stock redemption expense......... - - 719
--------- --------- --------
63,585 79,768 96,030
--------- --------- --------
Balance December 31................................... $ 258,910 $ 209,222 $181,049
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
Louisville Gas and Electric Company
Balance Sheets
(Thousands of $)
<TABLE>
<CAPTION>
December 31
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Utility plant, at original cost:
Electric.................................................................. $2,242,980 $2,192,557
Gas ................................................................... 337,619 320,791
Common ................................................................... 137,496 130,678
---------- ----------
2,718,095 2,644,026
Less: reserve for depreciation........................................... 1,072,842 999,987
---------- ----------
1,645,253 1,644,039
Construction work in progress............................................. 61,139 41,183
---------- ----------
1,706,392 1,685,222
---------- ----------
Other property and investments - less reserve................................. 1,365 1,028
Current assets:
Cash and temporary cash investments....................................... 50,472 56,792
Marketable securities (Note 6)............................................ 19,311 3,595
Accounts receivable - less reserve of $1,295 in 1997 and $1,470 in 1996... 124,872 115,144
Materials and supplies - at average cost:
Fuel (predominantly coal).............................................. 17,651 14,576
Gas stored underground................................................. 41,487 35,510
Other.................................................................. 31,866 32,426
Prepayments............................................................... 2,627 2,480
---------- ----------
288,286 260,523
---------- ----------
Deferred debits and other assets:
Unamortized debt expense.................................................. 6,074 6,933
Regulatory assets (Note 3)................................................ 24,899 27,729
Other ................................................................... 28,625 25,277
---------- ----------
59,598 59,939
---------- ----------
$2,055,641 $2,006,712
========== ==========
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
Common equity............................................................. $ 683,326 $ 633,757
Cumulative preferred stock................................................ 95,328 95,328
Long-term debt............................................................ 626,800 646,835
---------- ----------
1,405,454 1,375,920
---------- ----------
Current liabilities:
Long-term debt due within one year........................................ 20,000 -
Accounts payable.......................................................... 98,894 97,478
Trimble County settlement (Note 13)....................................... 13,248 17,511
Dividends declared........................................................ 21,152 20,131
Accrued taxes............................................................. 18,723 11,982
Accrued interest.......................................................... 8,016 9,994
Other ................................................................... 14,608 13,128
---------- ----------
194,641 170,224
---------- ----------
Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 8)......................... 249,851 241,681
Investment tax credit, in process of amortization......................... 75,800 80,040
Accumulated provision for pensions and related benefits................... 40,608 42,554
Customers' advances for construction...................................... 10,385 10,033
Regulatory liability (Note 3)............................................. 65,502 77,287
Other ................................................................... 13,400 8,973
---------- ----------
455,546 460,568
---------- ----------
Commitments and contingencies (Note 12)
$2,055,641 $2,006,712
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
Louisville Gas and Electric Company
Statements of Cash Flows
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 113,273 $ 107,941 $ 83,184
Items not requiring cash currently:
Depreciation and amortization.................................. 93,020 89,002 85,759
Deferred income taxes - net.................................... (3,495) 26,055 7,049
Investment tax credit - net.................................... (4,240) (3,997) (4,742)
Other.......................................................... 4,640 3,911 3,958
Change in certain net current assets:
Accounts receivable............................................ (9,728) (9,555) (19,531)
Materials and supplies......................................... (8,492) (1,418) 1,428
Trimble County settlement...................................... (4,263) (10,789) 28,300
Accounts payable............................................... 1,416 3,772 22,936
Accrued taxes.................................................. 6,741 4,168 (433)
Accrued interest............................................... (1,978) (1,070) (2,330)
Prepayments and other.......................................... 1,333 685 (61)
Other............................................................. (3,188) (23,153) (6,917)
---------- ---------- ---------
Net cash flows from operating activities....................... 185,039 185,552 198,600
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities........................................... (18,529) (11,039) (119,151)
Proceeds from sales of securities................................. 2,544 28,605 151,422
Construction expenditures......................................... (110,893) (107,879) (93,423)
---------- ---------- ---------
Net cash flows from investing activities....................... (126,878) (90,313) (61,152)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of first mortgage bonds and pollution control bonds...... 69,776 49,745 39,914
Redemption of preferred stock..................................... - - (22,108)
Retirement of first mortgage bonds and pollution control bonds.... (71,693) (67,013) (41,055)
Payment of dividends.............................................. (62,564) (79,310) (95,206)
---------- ---------- ---------
Net cash flows from financing activities....................... (64,481) (96,578) (118,455)
---------- ---------- ---------
Change in cash and temporary cash investments......................... (6,320) (1,339) 18,993
Cash and temporary cash investments at beginning of year.............. 56,792 58,131 39,138
---------- ---------- ---------
Cash and temporary cash investments at end of year.................... $ 50,472 $ 56,792 $ 58,131
========== ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes................................................... $ 63,421 $ 41,508 $ 40,049
Interest on borrowed money..................................... 39,582 40,334 42,589
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
Louisville Gas and Electric Company
Statements of Capitalization
(Thousands of $)
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
COMMON EQUITY:
Common stock, without par value -
Authorized 75,000,000 shares, outstanding 21,294,223 shares.................. $ 425,170 $ 425,170
Common stock expense............................................................ (836) (836)
Unrealized gain on marketable securities, net of income
taxes $16 in 1997 and $136 in 1996 (Note 6).................................. 82 201
Retained earnings............................................................... 258,910 209,222
---------- ----------
683,326 633,757
---------- ----------
</TABLE>
CUMULATIVE PREFERRED STOCK:
Redeemable on 30 days notice by LG&E, except $5.875 series
<TABLE>
<CAPTION>
Shares Current
Outstanding Redemption Price
----------- ----------------
<S> <C> <C> <C> <C>
$25 par value, 1,720,000 shares authorized -
5% series .................................... 860,287 $ 28.00 21,507 21,507
Without par value, 6,750,000 shares authorized -
Auction rate.................................. 500,000 100.00 50,000 50,000
$5.875 series................................. 250,000 Not redeemable 25,000 25,000
Preferred stock expense......................................................... (1,179) (1,179)
---------- ----------
95,328 95,328
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM DEBT (Note 10):
First mortgage bonds -
Series due June 1, 1998, 6 3/4%.............................................. - 20,000
Series due July 1, 2002, 7 1/2%.............................................. 20,000 20,000
Series due August 15, 2003, 6%............................................... 42,600 42,600
Pollution control series:
N due February 1, 2019, 7 3/4%........................................... - 35,000
O due February 1, 2019, 7 3/4%........................................... - 35,000
P due June 15, 2015, 7.45%............................................... 25,000 25,000
Q due November 1, 2020, 7 5/8%........................................... 83,335 83,335
R due November 1, 2020, 6.55%............................................ 41,665 41,665
S due September 1, 2017, variable........................................ 31,000 31,000
T due September 1, 2017, variable........................................ 60,000 60,000
U due August 15, 2013, variable.......................................... 35,200 35,200
V due August 15, 2019, 5 5/8%............................................ 102,000 102,000
W due October 15, 2020, 5.45%............................................ 26,000 26,000
X due April 15, 2023, 5.90%.............................................. 40,000 40,000
---------- ----------
Total first mortgage bonds............................................ 506,800 596,800
Pollution control bonds (unsecured) -
Jefferson County due September 1, 2026, variable............................. 22,500 22,500
Trimble County due September 1, 2026, variable............................... 27,500 27,500
Jefferson County due November 1, 2027, variable.............................. 35,000 -
Trimble County due November 1, 2027, variable................................ 35,000 -
---------- ----------
Total unsecured pollution control bonds.................................. 120,000 50,000
---------- ----------
Total long-term bonds................................................. 626,800 646,800
Unamortized premium on bonds.................................................... - 35
---------- ----------
626,800 646,835
---------- ----------
Total capitalization......................................................... $1,405,454 $1,375,920
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
Louisville Gas and Electric Company
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Louisville Gas and Electric Company (LG&E) is the primary subsidiary of LG&E
Energy Corp. LG&E is a regulated public utility that is engaged in the
generation, transmission, distribution, and sale of electric energy and the
storage, distribution, and sale of natural gas in Louisville and adjacent
areas in Kentucky. LG&E Energy Corp. is an exempt energy services holding
company with wholly-owned subsidiaries consisting of LG&E and LG&E Capital
Corp. All of LG&E's Common Stock is held by LG&E Energy Corp.
UTILITY PLANT. LG&E's plant is stated at original cost, which includes
payroll-related costs such as taxes, fringe benefits, and administrative and
general costs. Construction work in progress has been included in the rate
base, and, accordingly, LG&E has not recorded any allowance for funds used
during construction.
The cost of plant retired or disposed of in the normal course of business is
deducted from plant accounts and such cost plus removal expense less salvage
value is charged to the reserve for depreciation. When complete operating
units are disposed of, appropriate adjustments are made to the reserve for
depreciation and gains and losses, if any, are recognized.
DEPRECIATION. Depreciation is provided on the straight-line method over the
estimated service lives of depreciable plant. The amounts provided for 1997
were 3.4% (3.2% electric, 3.3% gas, and 6% common); and for 1996 and 1995
were 3.3% (3.2% electric, 3.3% gas, and 6% common) of average depreciable
plant.
CASH AND TEMPORARY CASH INVESTMENTS. LG&E considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Temporary cash investments are carried at cost, which
approximates fair value.
FINANCIAL INSTRUMENTS. LG&E uses over-the-counter interest-rate swap
agreements to hedge its exposure to fluctuations in the interest rates it
pays on variable-rate debt, and it uses exchange-traded U.S. Treasury note
and bond futures to hedge its exposure to fluctuations in the value of its
investments in the preferred stocks of other companies. Gains and losses on
interest-rate swaps used to hedge interest rate risk are reflected in
interest charges monthly. Gains and losses on U.S. Treasury note and bond
futures used to hedge investments in preferred stocks are initially deferred
and classified as unrealized gains or losses on marketable securities in
common equity and then charged or credited to other income and deductions
when the securities are sold. See Note 4, Financial Instruments.
DEBT EXPENSE. Debt expense is amortized over the lives of the related bond
issues, consistent with regulatory practices.
DEFERRED INCOME TAXES. Deferred income taxes have been provided for all
material book-tax temporary differences.
INVESTMENT TAX CREDITS. Investment tax credits resulted from provisions of
the tax law that permitted a reduction of LG&E's tax liability based on
credits for certain construction expenditures. Deferred investment tax
credits are being amortized to income over the estimated lives of the related
property that gave rise to the credits.
REVENUE RECOGNITION. Revenues are recorded based on service rendered to
customers through month-end. LG&E accrues an estimate for unbilled revenues
from each meter reading date to the end of the accounting period. Under an
agreement approved by the Public Service Commission of Kentucky (Kentucky
Commission or
91
<PAGE>
Commission), LG&E has implemented a demand side management program and a
"decoupling mechanism," which allows LG&E to recover a predetermined level of
revenue on electric and gas residential sales. See Management's Discussion
and Analysis, Rates and Regulation, for further discussion.
FUEL AND GAS COSTS. The cost of fuel for electric generation is charged to
expense as used, and the cost of gas supply is charged to expense as
delivered to the distribution system.
MANAGEMENT'S USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported assets and
liabilities and disclosure of contingent items 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. See Note
12, Commitments and Contingencies, for a further discussion.
NEW ACCOUNTING PRONOUNCEMENTS. Effective January 1, 1997, LG&E adopted
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS
No. 125). This new standard is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. Adopting SFAS No. 125 had no impact on LG&E's financial position
or results of operations.
LG&E adopted the provisions of Statement of Position 96-1, Environmental
Remediation Liabilities, effective January 1, 1997. This statement provides
authoritative guidance for recognition, measurement, and disclosure of
environmental remediation liabilities in financial statements. Due to LG&E's
previous recognition of this type of liability, adoption did not have a
material impact on LG&E's financial position or results of operation. See
Note 12, Commitments and Contingencies, for a further discussion of LG&E's
environmental commitments and contingencies.
In February 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
and No. 129, Disclosure of Information about Capital Structure (SFAS No.
129), effective for periods ending after December 15, 1997. SFAS No. 128
will not have an effect on LG&E because the common stock is held by the
parent, LG&E Energy Corp. LG&E does not expect any change in reporting by
LG&E as a result of adopting SFAS No. 129.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, and
No. 131, Disclosures about Segments of an Enterprise and Related Information,
effective for periods beginning after December 15, 1997. LG&E does not expect
its comprehensive income to differ materially from its net income or its
segment disclosures to change significantly as a result of adopting the
provisions of these statements.
NOTE 2 - LG&E - KENTUCKY UTILITIES MERGER
On May 20, 1997, LG&E Energy Corp. (LG&E Energy), the parent company of LG&E,
entered into an Agreement and Plan of Merger with KU Energy Corporation (KU).
As a result of the merger, LG&E Energy will become the parent company of KU's
principal operating subsidiary, Kentucky Utilities Company (Kentucky
Utilities). The operating utility subsidiaries (LG&E and Kentucky Utilities)
will maintain their separate corporate identities and will continue to serve
customers in Kentucky and Virginia under their present names although certain
functions performed by each of the utilities will be combined. LG&E Energy
and KU expect more than $760 million in gross non-fuel savings over a
ten-year period following the merger. Costs to achieve these synergies are
estimated to be $77 million. The preferred stock and debt securities of the
operating utility subsidiaries will not be affected by the merger.
92
<PAGE>
On September 12, 1997, the Kentucky Commission approved the merger
application substantially as filed. In the application filed with the
Commission, the utilities proposed that 50% of the net non-fuel cost savings
estimated to be achieved from the merger, less 50% of the costs to achieve
such savings (but not in excess of the currently estimated costs to achieve),
be applied to reduce customer rates, and the remaining 50% be retained by the
companies. The Commission approved and allocated the customer savings 53% to
Kentucky Utilities and 47% to LG&E. The order provides for a surcredit on
customers' bills for 50% of the projected net non-fuel savings in each of the
five years following consummation of the merger. The credit, which will be
about 2% of customer bills in the five-year period, will amount to
approximately $55 million in net non-fuel savings to LG&E customers. Any fuel
cost savings will be passed to Kentucky customers through the companies' fuel
adjustment clauses. One-half of the costs to achieve the savings will be
charged to expenses as incurred, once the merger is consummated, and the
remaining portion (not to exceed one-half of $77 million for Kentucky
Utilities and LG&E combined) will be deferred as a regulatory asset and
amortized as an offset to customer savings equally over five years. It will
be up to Kentucky Utilities and LG&E to actually realize the estimated level
of net non-fuel savings.
On October 9, 1997, LG&E Energy and KU filed for approval of the merger with
the Federal Energy Regulatory Commission. On October 14, 1997, in separate
meetings, stockholders from each of the companies met and the holders of over
75% of the outstanding shares of common stock of LG&E Energy and KU approved
the merger. On January 20, 1998, the Virginia State Corporation Commission
approved the merger substantially as filed.
The merger remains subject to approval of the Federal Energy Regulatory
Commission under the Federal Power Act, the approval of the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of
1935, and the filing of requisite notifications with the Federal Trade
Commission and the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the expiration of all
applicable waiting periods thereunder. It is anticipated that LG&E Energy, as
parent of LG&E and Kentucky Utilities, will continue to be an exempt holding
company under the Public Utility Holding Company Act of 1935.
NOTE 3 - RATES AND REGULATORY MATTERS
LG&E conforms with generally accepted accounting principles as applied to
regulated public utilities and as prescribed by the Federal Energy Regulatory
Commission (FERC) and the Kentucky Commission. LG&E is subject to Statement
of Financial Accounting Standards No. 71, Accounting for the Effects of
Certain Types of Regulation (SFAS No. 71). Under SFAS No. 71, certain costs
that would otherwise be charged to expense are deferred as regulatory assets
based on expected recovery from customers in future rates. Likewise, certain
credits that would otherwise be reflected as income are deferred as
regulatory liabilities based on expected flowback to customers in future
rates. LG&E's current or expected recovery of deferred costs and expected
flowback of deferred credits is generally based on specific ratemaking
decisions or precedent for each item. The following regulatory assets and
liabilities were included in the balance sheets as of December 31 (in
thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unamortized loss on bonds $ 18,698 $ 17,162
Merger costs 2,938 -
Manufactured gas sites 3,263 3,244
Unamortized extraordinary retirements - 4,087
Other - 3,236
--------- ---------
Total regulatory assets 24,899 27,729
Deferred income taxes - net (65,502) (77,287)
--------- ---------
Regulatory assets and (liabilities) - net $(40,603) $(49,558)
======== ========
</TABLE>
During 1997, LG&E wrote off certain previously deferred assets that amounted to
approximately $4.2 million. Items written off include expenses associated with
LG&E's hydro-electric plant, a management audit fee, and the
93
<PAGE>
accelerated write-off of losses on early retirement of facilities.
ENVIRONMENTAL COST RECOVERY. In April 1995, in response to an application
filed by LG&E, the Commission approved, with modifications, an environmental
cost recovery surcharge that increased electric revenues by $3.2 million in
1995, an additional $2.4 million in 1996, and an additional $.4 million in
1997.
An appeal of the Commission's April 1995 order by various intervenors in the
proceeding (including the Kentucky Attorney General) is currently pending in
the Franklin Circuit Court of Kentucky. LG&E is contesting the legal
challenges to the surcharge, but cannot predict the outcome of the appeal. In
a similar proceeding involving appeals from the Commission's order
authorizing an environmental cost recovery surcharge for Kentucky Utilities
Company by the same intervenors, the Kentucky Court of Appeals, in a decision
issued on December 5, 1997, upheld the constitutionality of the surcharge
statute. The intervenors have petitioned the Kentucky Supreme Court to review
the decision of the Kentucky Court of Appeals. Any refunds that may be
ordered as a result of these proceedings are not expected to have a material
adverse effect on LG&E's financial position or results of operations. See
Rates and Regulation under Management's Discussion and Analysis for a further
discussion.
PERFORMANCE-BASED RATEMAKING. On September 30, 1997, the Commission issued an
order approving LG&E's request to implement an experimental performance-based
ratemaking mechanism. This mechanism, which only applies to gas procurement
activities and gas off-system sales, was approved for a three-year test
period effective October 1, 1997. During the experimental period, rate
adjustments related to this mechanism will be determined for each 12-month
period beginning November 1 and ending October 31. This mechanism is not
expected to have a material effect on LG&E's financial position or results of
operations.
FUTURE RATE REGULATION. In its September 12, 1997 order approving the merger
of LG&E Energy and KU, the Kentucky Commission ordered LG&E to file by the
later of the consummation of the merger or September 14, 1998, detailed plans
to address the future rate regulation of LG&E. The Commission directed LG&E
to indicate in its filing whether it desired to remain under traditional rate
of return regulation or commence non-traditional regulation. LG&E was further
ordered to explain the reasons for its election, and in the case of
traditional regulation, include an analysis and proposals relative to its
earnings at that time. If non-traditional regulation is elected, LG&E must
explain the reasons for its choice and how its plan will achieve the
Commission's goals of providing incentives to utilities and a sharing of the
resulting benefits with customers. The Commission stated that it will fully
investigate the filing and determine whether changes should be made to the
existing regulation of LG&E. LG&E cannot presently predict the outcome of
this matter.
KENTUCKY PSC ADMINISTRATIVE CASE FOR AFFILIATE TRANSACTIONS. The Kentucky
Commission has opened Administrative Case No. 369 to lay ground work for
Commission policy addressing cost allocations, affiliate transactions, and
codes of conduct governing the relationship between utilities and their
non-regulated operations and affiliates. The Commission stated in its
December 19, 1997 order it intends to address two major areas in the
proceedings: the tools and conditions needed to prevent cost shifting and
cross-subsidization between regulated and non-regulated operations; and
whether a code of conduct should be established to assure that non-regulated
segments of the holding company are not engaged in practices which result in
unfair competition caused by cost shifting from the non-regulated affiliate
to the utility. Management does not expect the ultimate resolution of this
matter to have a material adverse effect on LG&E's financial position or
results of operations.
NOTE 4 - FINANCIAL INSTRUMENTS
LG&E uses over-the-counter interest-rate swap agreements to hedge its
exposure to fluctuations in the interest rates it pays on variable-rate debt,
and it uses exchange-traded U.S. Treasury note and bond futures to hedge its
94
<PAGE>
exposure to fluctuations in the value of its investments in the preferred
stocks of other companies.
At December 31, 1997, LG&E held U.S. Treasury notes and bond futures
contracts with notional amounts totaling $2.4 million. These contracts are
used to hedge price risk associated with certain marketable securities and
mature in March 1998.
As of December 31, 1997, LG&E had in effect one interest rate swap agreement
to hedge its exposure to tax exempt rates related to Pollution Control Bonds,
Variable Rate Series. The swap has a notional amount of $15 million and it
matures in September 1999. LG&E paid a fixed rate on the swap of 4.74% in
1997, 1996, and 1995 and received a variable rate based on the JJ Kenny Index
of 3.66% in 1997, 3.46% in 1996, and 3.87% in 1995. In addition, LG&E had
entered into three other tax exempt interest rate swaps that became effective
in February 1998. The notional amount of each of these is $17 million, and
they mature in February 2001, 2003, and 2005. The swap agreements call for
LG&E to pay fixed rates averaging 4.184%, and to receive a variable rate
based on the PSA Municipal Bond Index.
The cost and estimated fair values of LG&E's financial instruments as of
December 31, 1997 and 1996 follow (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
------------------------ ---------------------------
Fair Fair
Cost Value Cost Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Marketable securities $ 19,213 $ 19,311 $ 3,258 $ 3,595
Long-term investments:
Not practicable to estimate
fair value 747 747 744 744
Preferred stock subject
to mandatory redemption 25,000 26,250 25,000 24,938
Long-term debt 626,800 649,491 646,800 662,721
U.S. Treasury note and
bond futures - (37) - 6
Interest rate swaps - (248) - (319)
</TABLE>
All of the above valuations reflect prices quoted by exchanges except for the
swaps and the long-term investments. The fair values of the swaps reflect
price quotes from dealers or amounts calculated using accepted pricing
models. The fair values of the long-term investments reflect cost, since LG&E
cannot reasonably estimate fair value.
NOTE 5 - CONCENTRATIONS OF CREDIT AND OTHER RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on- or off-balance sheet) relate to
groups of customers or counterparties that have similar economic or industry
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions.
LG&E's customer receivables and gas and electric revenues arise from
deliveries of natural gas to approximately 284,000 customers and electricity
to approximately 356,000 customers in Louisville and adjacent areas in
Kentucky. For the year ended December 31, 1997, 73% of total revenue was
derived from electric operations and 27% from gas operations.
95
<PAGE>
LG&E's operation and maintenance employees are members of the International
Brotherhood of Electrical Workers (IBEW) Local 2100 which represents
approximately 60% of LG&E's workforce. LG&E's collective bargaining agreement
with IBEW employees expires in November 1998.
NOTE 6 - MARKETABLE SECURITIES
LG&E's marketable securities have been determined to be "available-for-sale"
under the provisions of Statement of Financial Accounting Standards SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities.
Proceeds from sales of available-for-sale securities in 1997 were
approximately $2.5 million, which resulted in immaterial realized gains and
losses. Proceeds from sales of available-for-sale securities in 1996 were
approximately $28.6 million, which resulted in realized gains of
approximately $.3 million and losses of approximately $.8 million, calculated
using the specific identification method.
Approximate cost, fair value, and other required information pertaining to
LG&E's available-for-sale securities by major security type as of December
31, 1997 and 1996, follow (in thousands of $):
<TABLE>
<CAPTION>
Fixed
Equity Income Total
------- ------- -------
<S> <C> <C> <C>
1997:
Cost $3,763 $15,450 $19,213
Unrealized gains 192 13 205
Unrealized losses (40) (67) (107)
------- ------- -------
Fair values $3,915 $15,396 $19,311
====== ======= =======
Fair values:
No maturity $3,915 $ 114 $ 4,029
Contractual maturities:
Less than one year - 8,795 8,795
One to five years - 5,442 5,442
Five to ten years - - -
Over ten years - 1,045 1,045
Not due at a single maturity date - - -
---------- ------------- -------------
Total fair values $3,915 $15,396 $19,311
====== ======= =======
1996:
Cost $3,258 $ - $3,258
Unrealized gains 572 - 572
Unrealized losses (235) - (235)
------- -------- -------
Fair values $3,595 $ - $3,595
====== ======= ======
Fair values:
No maturity $2,126 $ - $ 2,126
Contractual maturities:
Less than one year 1,469 - 1,469
One to five years - - -
Five to ten years - - -
Over ten years - - -
Not due at a single maturity date - - -
---------- -------- ----------
Total fair values $3,595 $ - $3,595
====== ======= ======
</TABLE>
96
<PAGE>
NOTE 7 - PENSION PLANS AND RETIREMENT BENEFITS
PENSION PLANS. LG&E has two non-contributory, defined-benefit pension plans
that cover all eligible employees. Retirement benefits are based on the
employee's age at retirement, years of service, and compensation. LG&E's
policy is to fund annual actuarial costs, up to the maximum amount deductible
for income tax purposes, as determined under the frozen entry age actuarial
cost method. The assets of the plans consist primarily of common stocks,
corporate bonds, investments in international mutual funds, and United States
government securities.
LG&E also has a supplemental executive retirement plan that covers officers
of LG&E. The plan provides retirement benefits based on average earnings
during the final three years prior to retirement, reduced by social security
benefits, any pension benefits received from plans of prior employers, and by
amounts received under the pension plans referred to in the preceding
paragraph.
Pension costs were $2.7 million for 1997, $4.3 million for 1996, and $5
million for 1995, of which approximately $491,000, $751,000, and $761,000,
respectively, were charged to construction. The components of periodic
pension expense are shown below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 5,213 $ 4,989 $ 4,361
Interest cost on projected benefit obligation 17,630 16,697 14,328
Actual return on plan assets (46,039) (31,931) (45,608)
Amortization of transition asset (1,112) (1,112) (1,112)
Net amortization and deferral 27,032 15,669 33,008
-------- -------- --------
Net pension cost $ 2,724 $ 4,312 $ 4,977
========= ========= =========
</TABLE>
The funded status of the pension plans at December 31 is shown below (in
thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $209,240 $178,534
Non-vested 25,455 19,913
-------- --------
Accumulated benefit obligation 234,695 198,447
Effect of projected future compensation 39,400 30,902
-------- --------
Projected benefit obligation 274,095 229,349
Plan assets at fair value 280,238 238,026
------- -------
Plan assets in excess of projected benefit obligation 6,143 8,677
Unrecognized net transition asset (9,188) (10,300)
Unrecognized prior service cost 43,518 44,142
Unrecognized net gain (61,790) (65,891)
-------- --------
Accrued pension liability $(21,317) $(23,372)
======== ========
</TABLE>
97
<PAGE>
The assumptions used in determining the actuarial valuations are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assumed discount rate to determine
projected benefit obligation 7.00% 7.75%
Assumed long-term rate of return
on plan assets 8.50% 8.50%
Assumed annual rate of increase in
future compensation levels 2.00% - 4.00% 2.00% - 4.25%
</TABLE>
POST-RETIREMENT BENEFITS. LG&E provides certain health care and life
insurance benefits for eligible retired employees. Post-retirement health
care benefits are subject to a maximum amount payable by LG&E. LG&E accrues
for the expected cost of post-retirement benefits other than pensions during
the employee's years of service with LG&E. The discounted present value of
the post-retirement benefit obligation is being amortized over 20 years.
Post-retirement benefit costs are shown below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 746 $ 773 $ 595
Interest cost 2,943 2,976 2,706
Actual return on assets (80) - -
Amortization of transition obligation 1,337 1,337 1,337
Net amortization and deferral 256 328 -
------ ------ ------
Post-retirement benefit cost $5,202 $5,414 $4,638
====== ====== ======
</TABLE>
The accumulated post-retirement benefit obligation at December 31 is shown
below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Retirees $(21,735) $(18,568)
Fully eligible active employees (3,783) (4,808)
Other active employees (17,855) (16,575)
-------- --------
Accumulated post-retirement benefit obligation (43,373) (39,951)
Plan assets at fair value 4,384 2,284
Unrecognized prior service cost 3,410 3,738
Unrecognized transition obligation 20,053 21,390
Unrecognized net loss 2,901 493
-------- --------
Accrued post-retirement benefit liability $(12,625) $(12,046)
======== ========
</TABLE>
The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 7% for 1997 and 7.75% for 1996. Assumed compensation
increases for projected life insurance benefits for affected groups was 4%
for 1997 and 4.25% for 1996. An assumed health care cost trend rate of 9% was
assumed for 1997, gradually decreasing to 4.25% in nine years and thereafter.
A 1% increase in the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by approximately $1.7 million
and the annual service and interest cost by approximately $200,000. In 1996,
LG&E began funding certain liabilities for post-retirement benefits through a
tax-deductible funding vehicle. The plan assets are being held in two
voluntary employee benefit association (VEBA) trusts and are invested
primarily in short-term United States government securities.
98
<PAGE>
THRIFT SAVINGS PLAN. LG&E has a Thrift Savings Plan under Section 401(k) of
the Internal Revenue Code. The plan covers all regular full-time employees
with one year or more of service at LG&E. Under the plan, eligible employees
may defer and contribute to the plan a portion of current compensation in
order to provide future retirement benefits. LG&E makes contributions to the
plan by matching a portion of employee contributions. These costs were
approximately $1.8 million for each of the years 1997, 1996, and 1995.
NOTE 8 - INCOME TAXES
Components of income tax expense are shown in the table below (in thousands
of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Included in operating expenses:
Current - federal $57,590 $33,823 $36,379
- state - net 14,593 7,685 9,138
Deferred - federal - net (4,565) 19,161 4,021
- state - net 703 6,587 2,728
Deferred investment tax credit 102 409 -
Amortization of investment tax credit (4,342) (4,406) (4,742)
------- ------- -------
Total 64,081 63,259 47,524
Included in other income and (deductions):
Current - federal 1,484 196 (555)
- state 161 (96) (343)
Deferred - federal - net 292 246 240
- state - net 75 61 60
------- ------- -------
Total 2,012 407 (598)
------- ------- -------
Total income tax expense $66,093 $63,666 $46,926
======= ======= =======
</TABLE>
Net deferred tax liabilities resulting from book-tax temporary differences
are shown below (in thousands of $):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other
plant-related items $321,442 $314,692
Other liabilities 6,702 14,864
-------- --------
328,144 329,556
-------- --------
Deferred tax assets:
Investment tax credit 30,595 32,305
Income taxes due to customers 26,357 31,195
Pension overfunding 7,265 7,860
Accrued liabilities not currently
deductible and other 14,076 16,515
-------- --------
78,293 87,875
-------- --------
Net deferred income tax liability $249,851 $241,681
======== ========
</TABLE>
99
<PAGE>
A reconciliation of differences between the statutory U.S. federal income tax
rate and LG&E's effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes net of federal benefit 5.7 5.4 5.8
Amortization of investment tax credit (2.4) (2.6) (3.6)
Other differences - net (1.5) (.7) (1.1)
----- ------ -----
Effective income tax rate 36.8% 37.1% 36.1%
==== ==== ====
</TABLE>
NOTE 9 - OTHER INCOME AND DEDUCTIONS
Other income and deductions consisted of the following at December 31 (in
thousands of $):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gain on sale of stock options $ 1,794 $ - $ -
Interest on income tax settlement 1,446 - -
Interest and dividend income 4,786 4,096 5,732
Gains (losses) on fixed asset disposal 77 (36) 1,090
Donations (147) (150) (144)
Income taxes and other (3,679) (2,990) (2,902)
------- -------- -------
Total other income and deductions $ 4,277 $ 920 $ 3,776
======= ======== =======
</TABLE>
NOTE 10 - FIRST MORTGAGE BONDS AND POLLUTION CONTROL BONDS
Annual requirements for the sinking funds of LG&E's First Mortgage Bonds
(other than the First Mortgage Bonds issued in connection with certain
Pollution Control Bonds) are the amounts necessary to redeem 1% of the
highest principal amount of each series of bonds at any time outstanding.
Property additions (166 2/3% of principal amounts of bonds otherwise required
to be so redeemed) have been applied in lieu of cash. It is the intent of
LG&E to apply property additions to meet 1998 sinking fund requirements of
the First Mortgage Bonds.
The trust indenture securing the First Mortgage Bonds constitutes a direct
first mortgage lien upon a substantial portion of all property owned by LG&E.
The indenture, as supplemented, provides in substance that, under certain
specified conditions, portions of retained earnings will not be available for
the payment of dividends on common stock. No portion of retained earnings is
presently restricted by this provision.
Pollution Control Bonds (Louisville Gas and Electric Company Projects) issued
by Jefferson and Trimble Counties, Kentucky, are secured by the assignment of
loan payments by LG&E to the Counties pursuant to loan agreements, and
certain series are further secured by the delivery from time to time of an
equal amount of LG&E's First Mortgage Bonds, Pollution Control Series. First
Mortgage Bonds so delivered are summarized in the Statements of
Capitalization. No principal or interest on these First Mortgage Bonds is
payable unless default on the loan agreements occurs. The interest rate
reflected in the Statements of Capitalization applies to the Pollution
Control Bonds.
In November 1997, LG&E issued $35 million of Jefferson County, Kentucky and
$35 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due November 1, 2027. Interest rates for these bonds were 3.90%
and 3.85%, respectively, at December 31, 1997. The proceeds from these bonds
were used to redeem
100
<PAGE>
the outstanding 7.75% Series of Jefferson County, Kentucky and Trimble
County, Kentucky, Pollution Control Bonds due February 1, 2019.
In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky, and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.79%
and 3.82%, respectively, as of December 31, 1997. In December 1996, the
proceeds from the bonds were used to redeem the outstanding 7.25% Series of
Jefferson County and Trimble County Pollution Control Bonds due December 1,
2016.
On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by LG&E.
LG&E's First Mortgage Bonds, 6.75% Series of $20 million is scheduled to
mature in June 1998, and the $20 million, 7.5% Series is scheduled for
maturity in 2002. There are no scheduled maturities of Pollution Control
Bonds for the five years subsequent to December 31, 1997. LG&E has no cash
sinking fund requirements.
NOTE 11 - NOTES PAYABLE
LG&E had no notes payable at December 31, 1997, and 1996.
At December 31, 1997, LG&E had unused lines of credit of $200 million, for
which it pays commitment fees. The credit facility provides for short-term
borrowings and support of variable rate Pollution Control Bonds. The credit
lines are scheduled to expire in 2001. Management expects to renegotiate
these lines when they expire.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
CONSTRUCTION PROGRAM. LG&E had commitments in connection with its
construction program aggregating approximately $7 million at December 31,
1997. Construction expenditures for the years 1998 and 1999 are estimated to
total approximately $260 million.
OPERATING LEASE. LG&E leases office space and accounts for all of its office
space leases as operating leases. Total lease expense for 1997, 1996, and
1995, less amounts contributed by the parent company, was $1.8 million, $1.9
million, and $2 million, respectively. The future minimum annual lease
payments under lease agreements for years subsequent to December 31, 1997,
are as follows (in thousands of $):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 3,071
1999 3,055
2000 3,321
2001 3,654
2002 3,594
Thereafter 8,767
-------
Total $25,462
=======
</TABLE>
ENVIRONMENTAL. With the passage of the Clean Air Act Amendments of 1990 (the
Act), LG&E already complied with the stringent sulfur dioxide emission limits
required by the year 2000 as it had previously installed scrubbers on all of
its coal-fired generating units. Since then, as part of its ongoing
construction program, LG&E has spent $31 million for measures to meet
applicable nitrogen oxide limits. While the overall financial impact of the
Act on LG&E has been minimal, LG&E is closely monitoring several significant
regulatory developments which may potentially impact LG&E including efforts
by local officials to address the "ozone nonattainment" status of Jefferson
County, Kentucky and implementation of new ozone and particulate matter
standards adopted by the
101
<PAGE>
United States Environmental Protection Agency (USEPA) in June 1997. Finally,
LG&E is monitoring regulations proposed by USEPA in October 1997, that could
require numerous utilities including LG&E to reduce nitrogen oxide emissions
by approximately 85% from 1990 levels. LG&E has already reduced its nitrogen
oxide emissions by approximately 40%. However, if finally adopted, the
proposed regulations may require LG&E to incur significant capital
expenditures, currently estimated as potentially in excess of $100 million,
and significantly increased operation and maintenance costs. LG&E currently
anticipates that a significant portion of any such capital costs could be
recoverable through rates, although there can be no guarantee of such
recovery.
LG&E is currently addressing other emissions issues at two of its power
plants. First, LG&E is conducting modeling activities in response to a
notification from the Air Pollution Control District of Jefferson County
(APCD) indicating that the Cane Run plant may be the source of a potential
exceedance of the air quality standards for sulfur dioxide. Depending on the
outcome of the modeling, LG&E may be required to undertake corrective action
that could include significant capital improvements. Secondly, LG&E is
working with the APCD to review the effectiveness of remedial measures aimed
at controlling particulate emissions from the Mill Creek plant which
allegedly damaged metal surfaces on adjacent properties. LG&E had previously
established a claims resolution process which resulted in property damage
settlements with adjacent residents at an aggregate cost of approximately $15
million. In related litigation, in October, 1997, the Jefferson Circuit Court
dismissed all but one of the claims pursued by persons who had not previously
settled with LG&E. In management's opinion, resolution of any remaining
claims should not have a material adverse impact on the financial position or
results of operations of LG&E.
LG&E is also addressing potential liabilities for cleanup of properties where
hazardous substances may have been released. LG&E has identified
contamination at certain manufactured gas plant (MGP) sites currently or
formerly owned by LG&E. One of the sites was conveyed to a new owner which
assumed responsibility for environmental liabilities and LG&E is negotiating
with potentially responsible parties and state agencies with respect to two
other sites. Until conclusion of such discussions, LG&E is unable to
precisely determine its remaining liability for cleanup costs at MGP sites.
However, based on site studies, management currently estimates total cleanup
costs within the range of $3 million to $8 million and has recorded an
accrual of approximately $3 million in the accompanying financial statements.
LG&E, along with other companies, has also been identified by USEPA as a
potentially responsible party allegedly liable for cleanup costs under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
for certain off-site disposal facilities. LG&E has entered a final settlement
for $7,500 for one site and has entered tentative settlements for an
aggregate of $150,000 for the remaining sites. Tentative settlements are
subject to approval by the government and entry by the court.
NOTE 13 - TRIMBLE COUNTY GENERATING PLANT
Trimble County Unit 1 (Trimble County), a 495-megawatt coal-fired electric
generating unit placed into service in December 1990, has been the subject of
numerous legal and regulatory proceedings to determine the appropriate
ratemaking treatment to implement the Kentucky Public Service Commission's
1988 decision that LG&E should not be allowed to recover 25% of the cost of
Trimble County from ratepayers.
In December 1995, the Commission approved a unanimous settlement agreement
that was filed by LG&E and other parties. Under the agreement, which resolved
all outstanding issues, LG&E agreed to refund approximately $22 million to
current electric customers, most of which is being refunded by credits to
customers' bills over the five years 1996 through 2000. In addition, LG&E
agreed to pay $900,000 per year for five years beginning in 1996 to the Metro
Human Needs Alliance, Inc., a not-for-profit Louisville-based corporation,
for the sole purpose of funding low-income energy assistance programs in the
service territory. LG&E also agreed to revise the residential decoupling
methodology approved by the Commission in 1994 in a manner that reduced
revenues
102
<PAGE>
collected from residential customers by approximately $1.8 million. Finally,
the parties agreed to dismiss all appeals currently pending in state courts
regarding the Commission's orders in LG&E's last general rate case.
NOTE 14 - JOINTLY OWNED ELECTRIC UTILITY PLANT
LG&E owns a 75% undivided interest in Trimble County Unit 1. Accounting for
the 75% portion of the Unit, which the Commission has allowed to be reflected
in customer rates, is similar to LG&E's accounting for other wholly owned
utility plants.
Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA)
owns a 12.12% undivided interest in the Unit, and Indiana Municipal Power
Agency (IMPA) owns a 12.88% undivided interest. Each is responsible for their
proportionate ownership share of operation and maintenance expenses and
incremental assets, and for fuel used.
The following data represent shares of the jointly owned property:
<TABLE>
<CAPTION>
Trimble County
LG&E IMPA IMEA Total
------ ------ ------ -----
<S> <C> <C> <C> <C>
Ownership interest 75% 12.88% 12.12% 100%
Mw capacity 371.25 63.75 60 495
</TABLE>
NOTE 15 - SEGMENTS OF BUSINESS
LG&E is a regulated public utility engaged in the generation, transmission,
distribution, and sale of electricity and the storage, distribution, and sale of
natural gas.
<TABLE>
<CAPTION>
(Thousands of $) 1997 1996 1995
----------- ----------- --------------
<S> <C> <C> <C>
Operating information:
Operating revenues:
Electric $ 614,532 $ 606,696 $ 542,337(a)
Gas 231,011 214,419 181,126
----------- ----------- -----------
Total $ 845,543 $ 821,115 $ 723,463
=========== =========== ===========
Pre-tax operating income:
Electric $ 197,233 $ 192,129 $ 152,199
Gas 15,034 18,393 16,651
----------- ----------- -----------
Total $ 212,267 $ 210,522 $ 168,850
=========== =========== ===========
Other information:
Depreciation and amortization:
Electric $ 79,958 $ 76,929 $ 74,437
Gas 13,062 12,073 11,322
----------- ----------- -----------
Total $ 93,020 $ 89,002 $ 85,759
============ ============ ============
Construction expenditures (b):
Electric $ 81,713 $ 79,541 $ 66,661
Gas 29,180 28,338 26,762
----------- ----------- -----------
Total $ 110,893 $ 107,879 $ 93,423
=========== =========== ============
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
(Thousands of $) 1997 1996 1995
----------- ----------- --------------
<S> <C> <C> <C>
Investment information - December 31:
Identifiable assets:
Electric $1,517,512 $1,505,508 $1,501,568
Gas 317,337 300,550 268,840
----------- ----------- -----------
Total 1,834,849 1,806,058 1,770,408
Other assets (c) 220,792 200,654 209,082
----------- ----------- -----------
Total assets $2,055,641 $2,006,712 $1,979,490
========== ========== ==========
</TABLE>
(a) Net of refund - Trimble County settlement of $28.3 million.
(b) Excluding cost of removal and salvage.
(c) Includes cash and temporary cash investments, marketable
securities, accounts receivable, unamortized debt expense, and
other property and investments.
NOTE 16 - SELECTED QUARTERLY DATA (UNAUDITED)
Selected financial data for the four quarters of 1997 and 1996 are shown
below. Because of seasonal fluctuations in temperature and other factors,
results for quarters may fluctuate throughout the year.
<TABLE>
<CAPTION>
Quarters Ended
March June September December
-------- -------- -------- ---------
(Thousands of $)
<S> <C> <C> <C> <C>
1997
Operating revenues $225,399 $180,276 $208,435 $231,433
Net operating income 32,895 30,422 46,562 38,307
Net income 23,967 21,487 37,223 30,596
Net income available for common stock 22,840 20,326 36,077 29,445
1996
Operating revenues $226,744 $181,107 $203,818 $209,446
Net operating income 33,950 32,736 51,681 28,896
Net income 23,552 22,908 42,466 19,015
Net income available for common stock 22,396 21,772 41,320 17,885
</TABLE>
104
<PAGE>
Louisville Gas and Electric Company
REPORT OF MANAGEMENT
The management of Louisville Gas and Electric Company is responsible for the
preparation and integrity of the financial statements and related information
included in this Annual Report. These statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, necessarily, include amounts that reflect the best estimates and
judgment of management.
LG&E's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Management has made available to Arthur Andersen
LLP all LG&E's financial records and related data as well as the minutes of
shareholders' and directors' meetings.
Management has established and maintains a system of internal controls that
provide reasonable assurance that transactions are completed in accordance with
management's authorization, that assets are safeguarded and that financial
statements are prepared in conformity with generally accepted accounting
principles. Management believes that an adequate system of internal controls is
maintained through the selection and training of personnel, appropriate division
of responsibility, establishment and communication of policies and procedures
and by regular reviews of internal accounting controls by LG&E's internal
auditors. Management reviews and modifies its system of internal controls in
light of changes in conditions and operations, as well as in response to
recommendations from the internal auditors. These recommendations for the year
ended December 31, 1997, did not identify any material weaknesses in the design
and operation of LG&E's internal control structure.
The Audit Committee of the Board of Directors is composed entirely of outside
directors. In carrying out its oversight role for the financial reporting and
internal controls of LG&E, the Audit Committee meets regularly with LG&E's
independent public accountants, internal auditors and management. The Audit
Committee reviews the results of the independent accountants' audit of the
financial statements and their audit procedures, and discusses the adequacy of
internal accounting controls. The Audit Committee also approves the annual
internal auditing program, and reviews the activities and results of the
internal auditing function. Both the independent public accountants and the
internal auditors have access to the Audit Committee at any time.
Louisville Gas and Electric Company maintains and internally communicates a
written code of business conduct that addresses, among other items, potential
conflicts of interest, compliance with laws, including those relating to
financial disclosure, and the confidentiality of proprietary information.
105
<PAGE>
Louisville Gas and Electric Company
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Louisville Gas and Electric Company:
We have audited the accompanying balance sheets and statements of capitalization
of Louisville Gas and Electric Company (a Kentucky corporation and a
wholly-owned subsidiary of LG&E Energy Corp.) as of December 31, 1997 and 1996,
and the related statements of income, retained earnings and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of LG&E'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 Louisville Gas and Electric
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Louisville, Kentucky Arthur Andersen LLP
January 28, 1998
106
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEMS 10, 11, 12 and 13 are omitted pursuant to General Instruction G, inasmuch
as LG&E Energy and LG&E filed copies of their definitive proxy statement and
information statement with the Commission on March 20, 1998, and March 27, 1998,
respectively, pursuant to Regulation 14A under the Securities Exchange Act of
1934. Such proxy and information statements are incorporated herein by this
reference. In accordance with General Instruction G of Form 10-K, the
information required by Item 10 relating to executive officers has been included
in Part I of this Form 10-K.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements (included in Item 8):
LG&E Energy:
Consolidated statements of income for the three years ended December 31,
1997 (page 52).
Consolidated balance sheets - December 31, 1997, and 1996 (page 53).
Consolidated statements of cash Flows for the three years ended
December 31, 1997 (page 54).
Consolidated statements of capitalization - December 31, 1997, and 1996
(page 55).
Consolidated statements of retained earnings for the three years
ended December 31, 1997 (page 56).
Notes to consolidated financial statements (pages 56-84).
Report of management (page 85).
Report of independent public accountants (page 86).
LG&E:
Statements of income for the three years ended December 31, 1997
(page 87).
Statements of retained earnings for the three years ended December 31,
1997 (page 87).
Balance sheets - December 31, 1997, and 1996 (page 88).
Statements of cash flows for the three years ended December 31, 1997
(page 89).
Statements of capitalization - December 31, 1997, and 1996 (page 90).
Notes to financial statements (pages 91-104).
Report of management (page 105).
Report of independent public accountants (page 106).
2. Financial Statement Schedules (included in Part IV):
Schedule II Valuation and Qualifying Accounts for the three years
ended December 31, 1997, for LG&E Energy (page 126) and
LG&E (page 127).
All other schedules have been omitted as not applicable or not
required or because the information required to be shown is included
in the Financial Statements or the accompanying Notes to Financial
Statements.
107
<PAGE>
3. Unaudited Pro Forma Combined Condensed Financial Information (Page 128):
Balance sheet as of December 31, 1997 (Page 129).
Statements of income for the years ended December 31, 1997, 1996, and
1995 (Pages 130-132).
Notes to unaudited pro forma combined condensed financial statements
(Page 133).
4. Exhibits:
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
2.01 x x Copy of Agreement and Plan of Merger, dated as of May 20, 1997, by and between LG&E
Energy and KU Energy, including certain exhibits thereto. [Filed as Exhibit 2 to LG&E
Energy's Current Report on Form 8-K filed May 30, 1997 and incorporated by reference
herein]
3.01 x Copy of Restated Articles of Incorporation of LG&E Energy, dated November 6, 1996.
[Filed as Exhibit 3.06 to LG&E Energy's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated by reference herein]
3.02 x Copy of Restated Articles of Incorporation of LG&E, dated November 6, 1996. [Filed as
Exhibit 3.06 to LG&E's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, and incorporated by reference herein]
3.03 x Copy of Bylaws of LG&E Energy, as amended through December 4, 1991. [Filed as Exhibit
3.03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991,
and incorporated by reference herein]
3.04 x Copy of By-Laws of LG&E, as amended through December 15, 1995. [Filed as Exhibit 3.06
to LG&E's Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]
4.01 x x Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris Trust and Savings
Bank, Trustee. [Filed as Exhibit 7.01 to LG&E's Registration Statement 2-8283 and
incorporated by reference herein]
4.02 x x Copy of Supplemental Indenture dated February 1, 1952, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.05 to LG&E's Registration
Statement 2-9371 and incorporated by reference herein]
108
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
4.03 x x Copy of Supplemental Indenture dated February 1, 1954, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.03 to LG&E's Registration
Statement 2-11923 and incorporated by reference herein]
4.04 x x Copy of Supplemental Indenture dated September 1, 1957, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.04 to LG&E's Registration
Statement 2-17047 and incorporated by reference herein]
4.05 x x Copy of Supplemental Indenture dated October 1, 1960, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.05 to LG&E's Registration
Statement 2-24920 and incorporated by reference herein]
4.06 x x Copy of Supplemental Indenture dated June 1, 1966, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 2.06 to LG&E's Registration Statement
2-28865 and incorporated by reference herein]
4.07 x x Copy of Supplemental Indenture dated June 1, 1968, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 2.07 to LG&E's Registration Statement
2-37368 and incorporated by reference herein]
4.08 x x Copy of Supplemental Indenture dated June 1, 1970, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 2.08 to LG&E's Registration Statement
2-37368 and incorporated by reference herein]
4.09 x x Copy of Supplemental Indenture dated August 1, 1971, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.09 to LG&E's Registration
Statement 2-44295 and incorporated by reference herein]
4.10 x x Copy of Supplemental Indenture dated June 1, 1972, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 2.10 to LG&E's Registration Statement
2-52643 and incorporated by reference herein]
4.11 x x Copy of Supplemental Indenture dated February 1, 1975, which is a supplemental
instrument to exhibit 4.01 hereto. [Filed as Exhibit 2.11 to LG&E's Registration
Statement 2-57252 and incorporated by reference herein]
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
4.12 x x Copy of Supplemental Indenture dated September 1, 1975, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.12 to LG&E's Registration
Statement 2-57252 and incorporated by reference herein]
4.13 x x Copy of Supplemental Indenture dated September 1, 1976, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.13 to LG&E's Registration
Statement 2-57252 and incorporated by reference herein]
4.14 x x Copy of Supplemental Indenture dated October 1, 1976, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.14 to LG&E's Registration
Statement 2-65271 and incorporated by reference herein]
4.15 x x Copy of Supplemental Indenture dated June 1, 1978, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 2.15 to LG&E's Registration Statement
2-65271 and incorporated by reference herein]
4.16 x x Copy of Supplemental Indenture dated February 15, 1979, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.16 to LG&E's Registration
Statement 2-65271 and incorporated by reference herein]
4.17 x x Copy of Supplemental Indenture dated September 1, 1979, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.17 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.18 x x Copy of Supplemental Indenture dated September 15, 1979, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.18 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.19 x x Copy of Supplemental Indenture dated September 15, 1981, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.19 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
4.20 x x Copy of Supplemental Indenture dated March 1, 1982, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 4.20 to LG&E's Annual Report on Form 10-K
for the year ended December 31, 1982, and incorporated by reference herein]
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
4.21 x x Copy of Supplemental Indenture dated March 15, 1982, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.21 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.22 x x Copy of Supplemental Indenture dated September 15, 1982, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.22 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.23 x x Copy of Supplemental Indenture dated February 15, 1984, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.23 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1984, and incorporated by reference herein]
4.24 x x Copy of Supplemental Indenture dated July 1, 1985, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 4.24 to LG&E's Annual Report on Form 10-K
for the year ended December 31, 1985, and incorporated by reference herein]
4.25 x x Copy of Supplemental Indenture dated November 15, 1986, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.25 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.26 x x Copy of Supplemental Indenture dated November 16, 1986, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.26 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.27 x x Copy of Supplemental Indenture dated August 1, 1987, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.27 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
4.28 x x Copy of Supplemental Indenture dated February 1, 1989, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.28 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.29 x x Copy of Supplemental Indenture dated February 2, 1989, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.29 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
4.30 x x Copy of Supplemental Indenture dated June 15, 1990, which is a supplemental instrument
to Exhibit 4.01 hereto. [Filed as Exhibit 4.30 to LG&E's Annual Report on Form 10-K
for the year ended December 31, 1990, and incorporated by reference herein]
4.31 x x Copy of Supplemental Indenture dated November 1, 1990, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.31 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.32 x x Copy of Supplemental Indenture dated September 1, 1992, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.32 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.33 x x Copy of Supplemental Indenture dated September 2, 1992, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.33 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.34 x x Copy of Supplemental Indenture dated August 15, 1993, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.34 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.35 x x Copy of Supplemental Indenture dated August 16, 1993, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.35 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.36 x x Copy of Supplemental Indenture dated October 15, 1993, which is a supplemental
instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.36 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.01 x x Copies of Agreement between Sponsoring Companies re: Project D of Atomic Energy
Commission, dated May 12, 1952, Memorandums of Understanding between Sponsoring
Companies re: Project D of Atomic Energy Commission, dated September 19, 1952 and
October 28, 1952, and Power Agreement between Ohio Valley Electric Corporation and
Atomic Energy Commission, dated October 15, 1952. [Filed as Exhibit 13(y) to LG&E's
Registration Statement 2-9975 and incorporated by reference herein]
10.02 x x Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4.03(b)
to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- ------------- ---- -----------
<S> <C> <C> <C>
10.03 x x Copy of Modification No. 2 dated March 15, 1964, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02c to
LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.04 x x Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7, 1967,
respectively, to the Power Agreement between Ohio Valley Electric Corporation and
Atomic Energy Commission. [Filed as Exhibits 4(a)(13) and 4(a)(14) to LG&E's
Registration Statement 2-26063 and incorporated by reference herein]
10.05 x x Copy of Modification No. 5 dated August 15, 1967, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 13(c) to
LG&E's Registration Statement 2-27316 and incorporated by reference herein]
10.06 x x Copies of (i) Inter-Company Power Agreement, dated July 10, 1953, between Ohio Valley
Electric Corporation and Sponsoring Companies (which Agreement includes as Exhibit A
the Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and
Indiana-Kentucky Electric Corporation); (ii) First Supplementary Transmission
Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and
Sponsoring Companies; (iii) Inter-Company Bond Agreement, dated July 10, 1953, between
Ohio Valley Electric Corporation and Sponsoring Companies; (iv) Inter-Company Bank
Credit Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and
Sponsoring Companies. [Filed as Exhibit 5.02f to LG&E's Registration Statement
2-61607 and incorporated by reference herein]
10.07 x x Copy of Modification No. 1 and No. 2 dated June 3, 1966 and January 7, 1967,
respectively, to Inter-Company Power Agreement dated July 10, 1953. [Filed as
Exhibits 4(a)(8) and 4(a)(10) to LG&E's Registration Statement 2-26063 and
incorporated by reference herein]
10.08 x x Copies of Amendments to Agreements (iii) and (iv) referred to under 10.06 above as
follows: (i) Amendment to Inter-Company Bond Agreement and (ii) Amendment to
Inter-Company Bank Credit Agreement. [Filed as Exhibit 5.02h to LG&E's Registration
Statement 2-61607 and incorporated by reference herein]
10.09 x x Copy of Modification No. 1, dated August 20, 1958, to First Supplementary Transmission
Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the
Sponsoring Companies. [Filed as Exhibit 5.02i to LG&E's Registration Statement 2-61607
and incorporated by reference herein]
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
10.10 x x Copy of Modification No. 2, dated April 1, 1965, to the First Supplementary
Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation
and the Sponsoring Companies. [Filed as Exhibit 5.02j to LG&E's Registration
Statement 2-61607 and incorporated by reference herein]
10.11 x x Copy of Modification No. 3, dated January 20, 1967, to First Supplementary
Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation
and the Sponsoring Companies. [Filed as Exhibit 4(a)(7) to LG&E's Registration
Statement 2-26063 and incorporated by reference herein]
10.12 x x Copy of Modification No. 6 dated November 15, 1967, to the Power Agreement between
Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4(g)
to LG&E's Registration Statement 2-28524 and incorporated by reference herein]
10.13 x x Copy of Modification No. 3 dated November 15, 1967, to the Inter-Company Power
Agreement dated July 10, 1953. [Filed as Exhibit 4.02m to LG&E's Registration
Statement 2-37368 and incorporated by reference herein]
10.14 x x Copy of Modification No. 7 dated November 5, 1975, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02n to
LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.15 x x Copy of Modification No. 4 dated November 5, 1975, to the Inter-Company Power
Agreement dated July 10, 1953. [Filed as Exhibit 5.02o to LG&E's Registration
Statement 2-56357 and incorporated by reference herein]
10.16 x x Copy of Modification No. 4 dated April 30, 1976, to First Supplementary Transmission
Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the
Sponsoring Companies. [Filed as Exhibit 5.02p to LG&E's Registration Statement
2-61607 and incorporated by reference herein]
10.17 x x Copy of Modification No. 8 dated June 23, 1977, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02q to
LG&E's Registration Statement 2-61607 and incorporated by reference herein]
114
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
10.18 x x Copy of Modification No. 9 dated July 1, 1978, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02r to
LG&E's Registration Statement 2-63149 and incorporated by reference herein]
10.19 x x Copy of Modification No. 10 dated August 1, 1979, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 2 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and
incorporated by reference herein]
10.20 x x Copy of Modification No. 11 dated September 1, 1979, to the Power Agreement between
Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 3 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and
incorporated by reference herein]
10.21 x x Copy of Modification No. 5 dated September 1, 1979, to Inter-Company Power Agreement
dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies.
[Filed as Exhibit 4 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1979, and incorporated by reference herein]
10.22 x x Copy of Modification No. 12 dated August 1, 1981, to the Power Agreement between Ohio
Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.25 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and
incorporated by reference herein]
10.23 x x Copy of Modification No. 6 dated August 1, 1981, to Inter-Company Power Agreement
dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies.
[Filed as Exhibit 10.26 to LG&E's Annual Report on Form 10-K for the year ended
December 31, 1981, and incorporated by reference herein]
10.25 x x Copy of Supplemental Executive Retirement Plan as amended through January 3, 1990,
115
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
10.26 x x Copy of LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1, 1992,
covering non-employee directors of the Company and its subsidiaries. [Filed as
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December
31, 1991, and incorporated by reference herein]
10.27 x x Copy of form of change in control agreement for officers of LG&E Energy Corp. [Filed
as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated by reference herein]
10.28 x x Copy of Supplemental Executive Retirement Plan for R. W. Hale, effective June 1,
1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated by reference herein]
10.29 x x Copy of Nonqualified Savings Plan covering officers of the Company, effective January
1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated by reference herein]
10.30 x x Copy of Modification No. 13 dated September 1, 1989, to the Power Agreement between
Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit
10.42 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein]
10.31 x x Copy of Modification No. 14 dated January 15, 1992, to the Power Agreement between
Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit
10.43 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein]
10.32 x x Copy of Modification No. 7 dated January 15, 1992, to Inter-Company Power Agreement
dated July 10, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies.
[Filed as Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference herein]
10.33 x x Copy of Modification No. 15 dated February 15, 1993, to the Power Agreement between
Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit
116
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
10.45 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein]
10.34 x x Copy of Firm No Notice Transportation Agreement effective November 1, 1993, between
Texas Gas Transmission Corporation and LG&E (expires October 31, 2001) covering the
transmission of natural gas.
Copy of Firm No Notice Transportation Agreement effective November 1, 1993, between
Texas Gas Transmission Corporation and LG&E (expires October 31, 2000) covering
the transmission of natural gas.
Copy of Firm No Notice Transportation Agreement effective November 1, 1993, between
Texas Gas Transmission Corporation and LG&E (expires October 31, 1998) covering
the transmission of natural gas.
[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated by reference herein]
10.35 x x Copy of LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December
31, 1993, and incorporated by reference herein]
10.36 x x Copy of Modification No. 8 dated January 19, 1994, to Intercompany Power Agreement,
dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring
Companies. [Filed as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference herein]
10.37 x x Copy of Amendment dated March 1 1995, to Firm No-Notice Transportation Agreements
dated November 1, 1993 (2-Year, 5-Year and 8-Year), between Texas Gas Transmission
Corporation and LG&E covering the transmission of natural gas. [Filed as Exhibit
10.44 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]
10.38 x x Copy of Modification No. 9, dated August 17, 1995, to the Inter-Company Power
Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and the
Sponsoring Companies. [Filed as Exhibit 10.39 to LG&E's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated by reference herein]
10.39 x x Copy of Agreement and Plan of Merger, dated February 10, 1995, between LG&E Natural
Inc., formerly known as Hadson Corporation, Carousel Acquisition Corporation and the
117
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
Company. [Filed as Exhibit 2 of Schedule 13D by the Company on February 21, 1995, and
incorporated by reference herein]
10.40 x x Copy of Firm Transportation Agreement, dated March 1, 1995, between Texas Gas
Transmission Corporation and LG&E (expires October 31, 1998) covering the
transportation of natural gas.
Copy of Firm Transportation Agreement, dated March 1, 1995,
between Texas Gas Transmission Corporation and LG&E (expires
October 31, 2001) covering the transportation of natural gas.
[Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference herein]
10.41 x x Copy of Firm Transportation Agreement, dated March 1, 1995, between Texas Gas
Transmission Corporation and LG&E (expires October 31, 2000) covering the
transportation of natural gas [Filed as Exhibit 10.41 to LG&E's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.42 x x Copy of Coal Supply Agreement, dated January 1, 1996, between Lafayette Coal Company,
Black Beauty Coal Company and LG&E covering the purchase of coal. [Filed as Exhibit
10.46 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]
10.43 x x Copy of Coal Supply Agreement, dated December 15, 1995, between W.B. Coal Company,
Inc., Windsor Coal Company and LG&E covering the purchase of coal. [Filed as Exhibit
10.48 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]
10.44 x x Copy of Coal Supply Agreement, dated June 1, 1996, between Peabody Coalsales Company
and LG&E covering the purchase of coal. [Filed as Exhibit 10.49 to LG&E's Annual
Report on Form 10-K for the year ended December 31, 1996, and incorporated by
reference herein]
10.45 x x Copy of Coal Supply Agreement, dated June 1, 1996, between Kindill Mining, Inc. and
LG&E covering the purchase of coal. [Filed as Exhibit 10.46 to LG&E's Annual Report
on Form 10-K for the year ended December 31, 1996, and incorporated by reference
herein]
10.46 x x Copy of Letter Amendment, dated October 31, 1996, to the Coal Supply Agreement dated
June 1, 1996, between Kindill Mining, Inc. and LG&E covering the purchase of coal.
[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated by reference herein]
118
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
<S> <C> <C> <C>
10.47 x x Copy of Amended and Restated Omnibus Long-Term Incentive Plan effective January 1,
1996, covering officers and key employees of the Company. [Filed as Exhibit 10.52 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]
10.48 x x Copy of Short-Term Incentive Plan effective January 1, 1996, covering officers and key
employees of the Company. [Filed as Exhibit 10.53 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.49 x x Copy of form of first amendment to change in control agreement for officers of the
Company and key employees dated as of January 1, 1996. [Filed as Exhibit 10.54 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]
10.50 x x Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1992.
[Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated by reference herein]
10.51 x x Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated by reference herein]
10.52 x x Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated by reference herein]
10.53 x x Copy of Amendment to the Supplemental Executive Retirement Plan, effective January 1,
1992. [Filed as Exhibit 10.58 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference herein]
10.54 x x Copy of Amendment to the Supplemental Executive Retirement Plan, effective January 1,
1993. [Filed as Exhibit 10.59 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference herein]
10.55 x x Copy of Amendment to the Supplemental Executive Retirement Plan, effective January 1,
1995. [Filed as Exhibit 10.60 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference herein]
119
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
10.56 x x Copy of Amendment to the Supplemental Executive Retirement Plan, effective May 1,
1995. [Filed as Exhibit 10.61 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference herein]
10.57 x x Copy of Form of Master Gas Purchase Agreement, dated December 14, 1993, among Santa
Fe, SFEOP and AGPC. [Filed as Exhibit 10.23 to LG&E Natural Inc.'s, formerly known as
Hadson Corporation, Registration Statement on Form S-4, File No. 33-68224, and
incorporated by reference herein]
10.58 x x Copy of Credit Agreement, dated as of December 18, 1995, among LG&E, as Borrower, the
Banks named therein, PNC Bank, Kentucky, Inc. as Agent and Bank of Montreal as
Co-Agent. [Filed as Exhibit 10.01 to the LG&E's Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996, and incorporated by reference herein]
10.59 x x Copy of Firm Transportation Agreement, dated November 1, 1996, between LG&E and
Tennessee Gas Pipeline Company for 30,000 MMBtu per day in Firm Transportation Service
under Tennessee's Rate FT-A (expires October 31, 2001). [Filed as Exhibit 10.42 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated by reference herein]
10.60 x x Copy of Amendment No. 1, dated as of November 5, 1996, to Credit Agreement dated as of
December 18, 1995, by and among Louisville Gas and Electric Company, the Banks party
thereto, and PNC Bank, Kentucky, Inc. as Agent and Bank of Montreal as Co-Agent.
[Filed as Exhibit 10.59 to LG&E's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated by reference herein]
10.61 x x Copy of Power Purchase and Sale Agreement, dated as of November 19, 1996, among the
Company, LG&E Power Marketing Inc., and Oglethorpe Power Corporation. [Filed as
Exhibit 10.66 to LG&E Energy's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated by reference herein] [Certain portions of this exhibit
have been omitted pursuant to a confidential treatment request filed with the
Securities and Exchange Commission]
10.62 x x Copy of Power Purchase and Sale Agreement, dated as of January 1, 1997, among LG&E
Power Marketing Inc., LG&E Power Inc., and Oglethorpe Power Corporation. [Filed as
Exhibit 10.67 to LG&E Energy's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated by reference herein] [Certain portions of this exhibit
have been omitted pursuant to a confidential treatment request filed with the
Securities and Exchange Commission]
120
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
10.63 x Copy of U.S. $500,000,000 Credit Agreement, dated as of September 5, 1997, among LG&E
Capital Corp., as Borrower, and the Banks named therein, as Lenders, and Chase
Securities Inc., as Syndication Agent, Bank of Montreal, as Administrative Agent, and
Morgan Guaranty Trust Company of New York, PNC Bank, Kentucky, Inc., The Bank of New
York, The First National Bank of Chicago and Wachovia Bank, N.A., as Co-Agents.
[Filed as Exhibit 10.01 to LG&E Energy's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated by reference herein]
10.64 x Copy of U.S. $ 200,000,000 Credit Agreement, dated as of September 5, 1997, among LG&E
Capital Corp., as Borrower, and the Banks named therein, as Lenders, and Chase
Securities Inc., as Syndication Agent, Bank of Montreal, as Administrative Agent, and
Morgan Guaranty Trust Company of New York, PNC Bank, Kentucky, Inc., The Bank of New
York, The First National Bank of Chicago and Wachovia Bank, N.A., as Co-Agents.
[Filed as Exhibit 10.02 to LG&E Energy's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated by reference herein]
10.65 x Copy of Support Agreement, dated as of September 5, 1997, between LG&E Energy Corp.
and LG&E Capital Corp. [Filed as Exhibit 10.03 to LG&E Energy's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, and incorporated by reference
herein]
10.66 x KU Energy Stock Option Agreement, dated as of May 20, 1997, by and between KU Energy
and LG&E Energy. [Filed as Exhibit 99.1 to the Company's Current Report on Form 8-K
filed May 30, 1997 and incorporated by reference herein]
10.67 x Copy of LG&E Energy Stock Option Agreement, dated as of May 20, 1997, by and between
KU Energy and LG&E Energy. [Filed as Exhibit 99.2 to the Company's Current Report on
Form 8-K filed May 30, 1997 and incorporated by reference herein]
121
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
10.68 x x Copy of Employment Agreement between LG&E Energy and Roger W. Hale dated May 20, 1997,
effective following the Merger. [Filed as Annex D to Exhibit 2.01 of this Form 10-K
and incorporated by reference herein]
10.69 x x Copy of LG&E Energy Corp. and Louisville Gas and Electric Company Non-Officer Senior
Management Pension Restoration Plan, effective May 1, 1996. [Filed as Exhibit 10.69
to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated by reference herein]
10.70 x x Copy of Employment Contract between the Company and Roger W. Hale effective January 1,
1997. [Filed as Exhibit 10.70 to LG&E Energy's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated by reference herein]
10.72 x Copy of Indenture between LG&E Capital Corp. and the Bank of New York as Trustee dated
as of January 15, 1998.
10.73 x Copy of First Supplemental Indenture between LG&E Capital Corp. and The Bank of New
York as Trustee dated as of January 15, 1998.
10.74 x x Copy of Supplemental Executive Retirement Plan as amended through January 1, 1998,
covering officers of LG&E Energy.
10.75 x x Copy of form of Change in Control Agreement for officers of LG&E Energy Corp.
10.76 x x Copy of Coal Supply Agreement between LG&E and Kindill Mining, Inc., dated July 1,
1997.
10.77 x x Copy of Coal Supply Agreement between LG&E and Lafayette Coal dated January 1, 1997.
10.78 x x Copy of Coal Supply Agreement between LG&E and Charolais Corp. dated January 1, 1997,
and assigned to Centennial Resources Inc. as of March 7, 1997, and Amendments #1 and
#2 dated August 1, 1997, and January 1, 1998, thereto.
122
<PAGE>
Applicable to
Form 10-K of
Exhibit LG&E
No. Energy LG&E Description
- ------- -------------- ---- -----------
10.79 x x Copy of Coal Supply Agreement between LG&E and Warrior Coal Corp. dated January 1,
1997, and Amendments #1 and #2 dated May 1, 1997, and December 1, 1997, thereto.
10.80 x x Copy of Coal Supply Agreement between LG&E and Andalex Resources, Inc., dated April 1,
1997, and an Amendment dated August 1, 1997, thereto.
10.81 x x Copies of Amendments dated September 23, 1997, to Firm No-Notice Transportation
Agreements dated November 1, 1993, between Texas Gas Transmission Corporation and
LG&E, as amended.
10.82 x x Copies of Amendments dated September 23, 1997, to Firm Transportation Agreements dated
March 1, 1995, between Texas Gas Transmission Corporation and LG&E, as amended.
10.83 x x Copy of Gas Transportation Agreement dated November 1, 1996, between Tennessee Gas
Pipeline Company and LG&E and amendments dated February 4, 1997, thereto. [Certain
portions of this exhibit have been omitted pursuant to a confidential treatment
request filed with the Securities and Exchange Commission]
12 x Computation of Ratio of Earnings to Fixed Charges for LG&E.
21 x x Subsidiaries of the Registrant.
23.01 x Consent of Independent Public Accountants for LG&E Energy Corp.
23.02 x Consent of Independent Public Accountants for LG&E.
23.03 x x Consent of Independent Public Accountants for KU Energy.
24 x x Power of Attorney.
27 x x Financial Data Schedules for LG&E Energy Corp. and LG&E.
99.01 x x Cautionary Statement for purposes of the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
99.02 x Description of Common Stock.
99.03 x x Audited Financial Statements of KU Energy Corporation. [Item 8 of Part II of KU
Energy Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 1-10944, and incorporated by reference herein]
</TABLE>
(b) Executive Compensation Plans and Arrangements:
Supplemental Executive Retirement Plan as amended through January 3,
1990, covering all officers of
123
<PAGE>
LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated by reference herein]
LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1,
1992, covering non-employee directors of the Company and its
subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, and incorporated by
reference herein]
Form of change in control agreement for officers of LG&E Energy Corp.
[Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated by reference herein]
Supplemental Executive Retirement Plan for R. W. Hale, effective June 1, 1989.
[Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated by reference herein]
Nonqualified Savings Plan covering officers of the Company effective
January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, and incorporated by
reference herein]
LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference herein]
Amended and Restated Omnibus Long-Term Incentive Plan effective January
1, 1996, covering officers and key employees of the Company. [Filed as
Exhibit 10.52 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference herein]
Short-Term Incentive Plan effective January 1, 1996, covering officers
and key employees of the Company. [Filed as Exhibit 10.53 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, and incorporated by reference herein]
Form of first amendment to change in control agreement for officers of
the Company and key employees dated as of January 1, 1996. [Filed as
Exhibit 10.54 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference herein]
Amendment to the Non-Qualified Savings Plan, effective January 1, 1992.
[Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]
Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]
Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]
124
<PAGE>
Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1992. [Filed as Exhibit 10.58 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]
Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1993. [Filed as Exhibit 10.59 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]
Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1995. [Filed as Exhibit 10.60 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]
Amendment to the Supplemental Executive Retirement Plan, effective May 1,
1995. [Filed as Exhibit 10.61 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]
Copy of Employment Contract between the Company and Roger W. Hale
effective January 1, 1997. [Filed as Exhibit 10.70 to LG&E Energy's
Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated by reference herein]
Copy of Employment Agreement between LG&E Energy and Roger W. Hale dated May
20, 1997, effective following the merger [Filed as Annex D to
Exhibit 2.01 of this Form 10-K]
LG&E Energy Corp. and Louisville Gas and Electric Company Non-Officer Senior
Management Pension Restoration Plan, effective May 1, 1996. [Filed as Exhibit
10.69 to LG&E Energy's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated by reference herein]
Copy of form of Change in Control Agreement for officers of LG&E Energy Corp.
[Filed as Exhibit 10.75 to this Form 10-K]
(c) Reports on Form 8-K:
On October 17, 1997, LG&E Energy Corp. filed a report on Form 8-K stating
that on October 14, 1997, the board of directors of LG&E Energy Corp. elected
Jeffery T. Grade, 53, to the boards of LG&E Energy Corp. and Louisville Gas
and Electric Company. Mr. Grade will fulfill the term of Mr. Ronald L.
Bittner, who passed away Aug. 31.
On January 8, 1998, LG&E Energy Corp. filed a report on Form 8-K stating that:
(1) On December 19, 1997, LG&E Power Argentina I Inc. ("LG&E
Argentina"), a wholly-owned indirect subsidiary of the Company,
entered into a Put and Call Agreement with Pluspetrol Resources
Corporation ("Pluspetrol") and ASTRA Compania Argentina de Petroleo
S.A. ("Astra") pursuant to which Pluspetrol and Astra have an
option to purchase from LG&E Argentina, and LG&E Argentina has an
option to sell to Pluspetrol and Astra, LG&E Argentina's one-third
interest in the company which owns and operates the San Miguel
facility, at a purchase price which is established based upon a
variable pricing structure.
(2) On December 30, 1997, LG&E Energy Corp. announced that it elected
R. Foster Duncan, 43, to the position of executive vice president,
planning and development, effective January 12, 1998.
125
<PAGE>
<TABLE>
<CAPTION>
LG&E Energy Corp. and Subsidiaries Schedule II
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1997
(Thousands of $)
(a)
Accumulated
Other Accounts Price Deferred
Property Receivable Risk Income Taxes
and (Uncollectible Management (NOL Carry-
Investments Accounts) Reserves forwards)
----------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $ 2,545 $ 1,539 $ - $ -
Additions:
Charged to costs and expenses 6,523 4,039 - -
Other additions 41 4,614 - 29,501
Deductions:
Net charges of nature for which
reserves were created - 3,923 - -
Other deductions 502 - - -
--------- ---------- ---------- -----------
Balance December 31, 1995 8,607 6,269 - 29,501
Additions:
Charged to costs and expenses 10,934 2,940 7,241 -
Other additions 641 616 - -
Deductions:
Net charges of nature for which
reserves were created - 3,224 - -
Other deductions 1,479 - - 3,900
-------- ---------- ---------- --------
Balance December 31, 1996 18,703 6,601 7,241 25,601
Additions:
Charged to costs and expenses 11,793 3,982 - -
Other additions 7,570 1,997 - -
Deductions:
Net charges of nature for which
reserves were created 354 2,838 - -
Other deductions - 75 2,003 -
---------- --------- ------- ------------
Balance December 31, 1997 $37,712 $ 9,667 $ 5,238 $25,601
======= ======= ======= =======
</TABLE>
(a) Partially offsets a deferred tax debit included in accumulated deferred
income taxes. The debit represents net operating loss carryforwards
available from a previous acquisition.
126
<PAGE>
<TABLE>
<CAPTION>
Louisville Gas and Electric Company Schedule II
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1997
(Thousands of $)
Other Accounts
Property Receivable
and (Uncollectible
Investments Accounts)
----------- --------------
<S> <C> <C>
Balance December 31, 1994 $ 63 $ 1,203
Additions:
Charged to costs and expenses - 3,200
Deductions:
Net charges of nature for which
reserves were created - 3,043
---------- -------
Balance December 31, 1995 63 1,360
Additions:
Charged to costs and expenses - 2,600
Deductions:
Net charges of nature for which
reserves were created - 2,490
---------- -------
Balance December 31, 1996 63 1,470
Additions:
Charged to costs and expenses - 2,300
Deductions:
Net charges of nature for which
reserves were created - 2,475
---------- -------
Balance December 31, 1997 $ 63 $ 1,295
======== =======
</TABLE>
127
<PAGE>
Unaudited Pro Forma Combined Condensed Consolidated Financial Information
The following unaudited pro forma financial information combines the
historical balance sheets and statements of income of LG&E Energy and KU
Energy, including their respective subsidiaries, after giving effect to the
Merger. The unaudited pro forma combined condensed balance sheet at December
31, 1997 gives effect to the Merger as if it had occurred at December 31,
1997. The unaudited pro forma combined condensed statements of income for all
periods give effect to the Merger as if it had occurred at the beginning of
the periods presented. These statements are prepared on the basis of
accounting for the Merger as a pooling of interests and are based on the
assumptions set forth in the notes thereto. The pro forma financial
information does not give effect to the expected synergies of the transaction.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical financial statements and
related notes thereto of LG&E Energy and KU Energy. The following information
is not necessarily indicative of the financial position or operating results
that would have occurred had the Merger been consummated on the date as of
which, or at the beginning of the periods for which, the Merger is being
given effect, nor is it necessarily indicative of future operating results or
financial position.
128
<PAGE>
LG&E Energy Corp.
Unaudited Pro Forma Combined Condensed Balance Sheet
At December 31, 1997
(Thousands of $)
<TABLE>
<CAPTION>
LG&E KU Energy Pro Forma Pro Forma
Energy (As Reported) Adjustment Combined
(As Reported) (Note 1) (Note 2) (Note 3)
------------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash investments....................... $ 104,366 $ 21,726 $ - $ 126,092
Marketable securities..................................... 22,300 - - 22,300
Accounts receivable - less reserve........................ 521,166 74,937 (156) 595,947
Materials and supplies - primarily at average cost:
Fuel (predominantly coal).............................. 17,651 27,799 - 45,450
Gas stored underground................................. 49,396 - - 49,396
Other.................................................. 31,866 23,648 - 55,514
Price risk management assets.............................. 120,341 - - 120,341
Prepayments and other..................................... 10,599 5,769 - 16,368
------------ ------------ ---------------- -----------
Total current assets................................... 877,685 153,879 (156) 1,031,408
------------ ------------ ---------------- -----------
Utility plant:
At original cost.......................................... 2,779,234 2,611,634 - 5,390,868
Less: reserve for depreciation........................... 1,072,842 1,128,282 - 2,201,124
------------ ------------ ---------------- -----------
Net utility plant...................................... 1,706,392 1,483,352 - 3,189,744
------------ ------------ ---------------- -----------
Other property and investments - less reserve:
Investments in affiliates................................. 168,276 2,157 - 170,433
Non-utility property and plant, net....................... 421,486 2,666 - 424,152
Price risk management assets.............................. 44,240 - - 44,240
Other ................................................... 24,743 42,409 - 67,152
------------ ------------ ---------------- -----------
Total other property and investments................... 658,745 47,232 - 705,977
------------ ------------ ---------------- -----------
Deferred debits and other assets.............................. 123,569 52,799 (5,012) 171,356
------------ ------------ ---------------- -----------
Total assets.............................................. $ 3,366,391 $ 1,737,262 $ (5,168) $ 5,098,485
============ ============ ================ ===========
CAPITAL AND LIABILITIES:
Current liabilities:
Long-term debt due within one year........................ $ 20,000 $ 21 $ - $ 20,021
Notes payable............................................. 360,184 33,600 - 393,784
Accounts payable.......................................... 449,230 29,561 3,082 481,873
Trimble County settlement................................. 13,248 - - 13,248
Price risk management liabilities......................... 131,107 - - 131,107
Other ................................................... 84,966 42,733 (3,330) 124,369
------------ ------------ ---------------- -----------
Total current liabilities.............................. 1,058,735 105,915 (248) 1,164,402
------------ ------------ ---------------- -----------
Long-term debt................................................ 664,339 546,351 - 1,210,690
Deferred credits and other liabilities:
Accumulated deferred income taxes......................... 327,343 252,492 - 579,835
Investment tax credit, in process of amortization......... 75,800 26,131 - 101,931
Accumulated provision for pensions and related benefits... 43,883 35,664 79,547
Regulatory liability...................................... 65,502 51,577 - 117,079
Price risk management liabilities......................... 23,803 - - 23,803
Other ................................................... 67,576 15,010 - 82,586
------------ ------------ ---------------- -----------
Total deferred credits and other liabilities........... 603,907 380,874 - 984,781
------------ ------------ ---------------- -----------
Minority interest............................................. 105,985 - - 105,985
Cumulative preferred stock.................................... 98,353 40,000 - 138,353
Common equity................................................. 835,072 664,122 (4,920) 1,494,274
------------ ------------ ---------------- -----------
Total capital and liabilities............................. $ 3,366,391 $ 1,737,262 $ (5,168) $ 5,098,485
============ ============ ================ ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
129
<PAGE>
LG&E Energy Corp.
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1997
(Thousands of $ Except Per Share Data)
<TABLE>
<CAPTION>
LG&E KU Energy Pro Forma Pro Forma
Energy (As Reported) Adjustment Combined
(As Reported) (Note 1) (Note 2) (Note 3)
------------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Energy marketing and trading.............................. $3,266,811 $ - $ (4) $3,266,807
Electric utility.......................................... 615,159 716,410 (305) 1,331,264
Gas utility............................................... 231,011 - - 231,011
Argentine gas distribution and other...................... 150,839 5,899 - 156,738
---------- --------------- ------------- ----------
Total revenues......................................... 4,263,820 722,309 (309) 4,985,820
---------- --------------- ------------- ----------
COST OF REVENUES:
Energy marketing and trading.............................. 3,245,234 - (14) 3,245,220
Fuel and power purchased.................................. 166,692 260,981 (295) 427,378
Gas supply expenses....................................... 158,929 - - 158,929
Argentine gas distribution and other...................... 84,873 - - 84,873
---------- --------------- ------------- ----------
Total cost of revenues................................. 3,655,728 260,981 (309) 3,916,400
---------- --------------- ------------- ----------
Gross profit.................................................. 608,092 461,328 - 1,069,420
OPERATING EXPENSES:
Operation and maintenance:
Energy marketing and trading........................... 40,012 - - 40,012
Utility................................................ 214,635 201,247 - 415,882
Argentine gas distribution and other................... 49,562 3,661 - 53,223
Depreciation and amortization............................. 115,736 84,297 - 200,033
Non-recurring charges..................................... (1,342) - - (1,342)
---------- --------------- ------------- ----------
Total operating expenses............................... 418,603 289,205 - 707,808
---------- --------------- ------------- ----------
Equity in earnings of joint ventures.......................... 21,014 - - 21,014
---------- --------------- ------------- ----------
OPERATING INCOME.............................................. 210,503 172,123 - 382,626
Other income and (deductions)................................. 15,476 3,960 - 19,436
Interest charges and preferred dividends...................... 63,865 41,959 - 105,824
Minority interest............................................. 9,035 - - 9,035
---------- --------------- ------------- ----------
Income before income taxes.................................... 153,079 134,124 - 287,203
Income taxes.................................................. 55,262 48,945 - 104,207
---------- --------------- ------------- ----------
NET INCOME (Note 5)........................................... $ 97,817 $ 85,179 $ - $ 182,996
========== =============== ============= ==========
Average common shares outstanding (Note 4).................... 66,471 37,818 25,338 129,627
Earnings per share of common stock - basic and diluted........ $1.47 $2.25 $ - $1.41
===== ===== ======= =====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
130
<PAGE>
LG&E Energy Corp.
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1996
(Thousands of $ Except Per Share Data)
<TABLE>
<CAPTION>
LG&E KU Energy Pro Forma Pro Forma
Energy (As Reported) Adjustment Combined
(As Reported) (Note 1) (Note 2) (Note 3)
------------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Energy marketing and trading (Note 6)..................... $2,748,873 $ - $ - $2,748,873
Electric utility.......................................... 607,160 711,686 (760) 1,318,086
Gas utility............................................... 214,419 - - 214,419
Argentine gas distribution and other...................... 19,013 4,522 - 23,535
----------- --------- ------------ -----------
Total revenues......................................... 3,589,465 716,208 (760) 4,304,913
----------- --------- ------------ -----------
COST OF REVENUES:
Energy marketing and trading.............................. 2,664,399 - (257) 2,664,142
Fuel and power purchased.................................. 166,323 260,688 (503) 426,508
Gas supply expenses....................................... 140,482 - - 140,482
Argentine gas distribution and other...................... 13,059 - - 13,059
----------- --------- ------------ -----------
Total cost of revenues................................. 2,984,263 260,688 (760) 3,244,191
----------- --------- ------------ -----------
Gross profit.................................................. 605,202 455,520 - 1,060,722
OPERATING EXPENSES:
Operation and maintenance:
Energy marketing and trading........................... 41,916 - - 41,916
Utility................................................ 214,786 201,811 - 416,597
Argentine gas distribution and other................... 25,991 2,759 - 28,750
Depreciation and amortization............................. 103,556 80,612 - 184,168
Non-recurring charges (Notes 7 and 8)..................... 26,330 5,493 - 31,823
----------- --------- ------------ -----------
Total operating expenses............................... 412,579 290,675 - 703,254
----------- --------- ------------ -----------
Equity in earnings of joint ventures.......................... 18,818 - - 18,818
----------- --------- ------------ -----------
OPERATING INCOME.............................................. 211,441 164,845 - 376,286
Other income and (deductions)................................. 3,808 5,327 - 9,135
Interest charges and preferred dividends...................... 53,887 41,889 - 95,776
----------- --------- ------------ -----------
Income before income taxes.................................... 161,362 128,283 - 289,645
Income taxes.................................................. 57,359 46,334 - 103,693
----------- --------- ------------ -----------
NET INCOME ...... $ 104,003 $ 81,949 $ - $ 185,952
=========== ========= ============ ===========
Average common shares outstanding (Note 4).................... 66,294 37,818 25,338 129,450
Earnings per share of common stock - basic and diluted........ $1.57 $2.17 $ - $1.44
===== ===== ======= =====
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
131
<PAGE>
LG&E Energy Corp.
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1995
(Thousands of $ Except Per Share Data)
<TABLE>
<CAPTION>
LG&E KU Energy Pro Forma Pro Forma
Energy (As Reported) Adjustment Combined
(As Reported) (Note 1) (Note 2) (Note 3)
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Energy marketing and trading.............................. $ 630,249 $ - $ (1,616) $ 628,633
Electric utility.......................................... 571,086 686,400 (2,212) 1,255,274
Refund - Trimble County settlement (Note 9)............... (28,300) - - (28,300)
Gas utility............................................... 181,126 - - 181,126
Argentine gas distribution and other...................... 20,519 4,028 - 24,547
----------- --------- ------------ -----------
Total revenues......................................... 1,374,680 690,428 (3,828) 2,061,280
----------- --------- ------------ -----------
COST OF REVENUES:
Energy marketing and trading.............................. 604,302 - - 604,302
Fuel and power purchased.................................. 154,832 259,424 (3,828) 410,428
Gas supply expenses....................................... 110,738 - - 110,738
Argentine gas distribution and other...................... 19,858 - - 19,858
----------- --------- ------------ -----------
Total cost of revenues................................. 889,730 259,424 (3,828) 1,145,326
----------- --------- ------------ -----------
Gross profit.................................................. 484,950 431,004 - 915,954
OPERATING EXPENSES:
Operation and maintenance:
Energy marketing and trading........................... 18,177 - - 18,177
Utility................................................ 203,284 198,712 - 401,996
Argentine gas distribution and other................... 21,697 2,969 - 24,666
Depreciation and amortization............................. 94,393 75,268 - 169,661
----------- --------- ------------ -----------
Total operating expenses............................... 337,551 276,949 - 614,500
----------- --------- ------------ -----------
Equity in earnings of joint ventures.......................... 28,158 - - 28,158
----------- --------- ------------ -----------
OPERATING INCOME.............................................. 175,557 154,055 - 329,612
Other income and (deductions)................................. 5,389 6,092 - 11,481
Interest charges and preferred dividends...................... 53,822 42,273 - 96,095
----------- --------- ------------ -----------
Income before income taxes.................................... 127,124 117,874 - 244,998
Income taxes.................................................. 44,294 41,821 - 86,115
------------ ---------- -------------- ------------
NET INCOME ................................................... $ 82,830 $ 76,053 $ - $ 158,883
=========== ========= ============== ===========
Average common shares outstanding (Note 4).................... 66,105 37,818 25,338 129,261
Earnings per share of common stock - basic and diluted........ $1.25 $2.01 $ - $1.23
===== ===== ======= =====
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
LG&E Energy Corp.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
<S> <C>
1. Reclassifications have been made to certain "as reported" account
balances reflected in KU Energy's financial statements to conform to this
reporting presentation. All other financial statement presentation and
accounting policy differences are immaterial and have not been adjusted
in the pro forma combined condensed financial statements.
2. Intercompany transactions (power purchased and power sales transactions)
between LG&E Energy and KU Energy during the periods presented were
eliminated through pro forma adjustments.
3. Merger-related transaction costs are currently estimated to be
approximately $16.5 million (including fees for financial advisors,
attorneys, accountants, consultants, filings and printing). LG&E
Energy and KU Energy have incurred transaction costs of $13.3 million
through December 31, 1997, which are included in deferred debits and
other assets in the pro forma combined condensed balance sheet. None
of the estimated cost savings resulting from the Merger or costs to
achieve such savings have been reflected in the pro forma combined
condensed statements of income. A charge of $4.92 million ($8.25
million, net of income taxes of $3.33 million) as a pro forma
adjustment to retained earnings and a credit of $5.0 million ($8.25
million less $13.3 million actual charges incurred through December
31, 1997) as a pro forma adjustment to deferred debits and other
assets have been made in the pro forma combined condensed balance
sheet to recognize such estimated transaction costs and the proposed
treatment following the consummation of the Merger.
4. The pro forma combined condensed financial statements reflect the
conversion of each share of KU Energy Common Stock (no par value)
outstanding into 1.67 shares of LG&E Energy Common Stock (no par value)
as provided in the Merger Agreement. The pro forma combined condensed
financial statements are presented as if the companies were combined
during all periods included therein.
5. LG&E Energy's non-recurring charges for the year ended December 31, 1997,
included a net insurance settlement of $7.6 million related to losses
incurred in its Canadian office during 1996, partially offset by a charge
of $6.3 million to reflect the costs of consolidating the trading, risk
management and administrative operations of its power and gas marketing
divisions into a single energy marketing unit, located in its Louisville
headquarters.
6. LG&E Energy adopted the mark-to-market method of accounting for its
energy trading and price risk management activities during 1996. This
resulted in an increase in Energy Marketing and Trading revenues and
income from operations of $26.2 million for 1996. The impact on prior
period financial results was immaterial.
7. LG&E Energy's net income for the year ended December 31, 1996, includes a
non-recurring after-tax charge of $17.1 million for losses in its natural
gas marketing business resulting from unauthorized transactions entered
into by a marketer in its Calgary, Alberta, office. This charge is
reflected in non-recurring charges on the respective statements of
income.
8. KU Energy's net income for the year ended December 31, 1996, includes a
non-recurring write-off of nonutility investments of $5.5 million which
is reflected in non-recurring charges.
9. LG&E Energy's 1995 operating revenues were reduced by $28.3 million
related to a settlement agreement approved by the Kentucky Commission on
December 8, 1995, which resolved numerous legal and regulatory
133
<PAGE>
proceedings to determine the appropriate ratemaking treatment to
implement the Kentucky Commission's 1988 decision that LG&E should not be
allowed to recover 25% of the cost of Trimble County Unit 1 (Trimble
County) from ratepayers.
</TABLE>
134
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LG&E ENERGY CORP.
Registrant
March 4, 1998 /s/ Victor A. Staffieri
- ------------- ----------------------------
(Date) Victor A. Staffieri
Chief Financial Officer
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 registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- -----
Roger W. Hale Chairman of the Board,
President and Chief
Executive Officer (Prin-
cipal Executive Officer);
Victor A. Staffieri Chief Financial Officer
(Principal Financial and
Accounting Officer);
William C. Ballard, Jr. Director;
Owsley Brown, II Director;
S. Gordon Dabney Director;
Gene P. Gardner Director;
Jeffrey T. Grade Director;
J. David Grissom Director;
David B. Lewis Director;
Anne H. McNamara Director;
T. Ballard Morton, Jr. Director; and
Dr. Donald C. Swain Director.
By /s/ Victor A. Staffieri March 4, 1998
-----------------------
Victor A. Staffieri
(Attorney-In-Fact)
</TABLE>
135
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LOUISVILLE GAS AND ELECTRIC COMPANY
Registrant
March 4, 1998 /s/ Victor A. Staffieri
- ------------- -----------------------------
(Date) Victor A. Staffieri
Chief Financial Officer
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 registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
Roger W. Hale Chairman of the Board
and Chief Executive
Officer (Principal
Executive Officer);
Victor A. Staffieri Chief Financial Officer
(Principal Financial and
Accounting Officer);
William C. Ballard, Jr. Director;
Owsley Brown, II Director;
S. Gordon Dabney Director;
Gene P. Gardner Director;
Jeffrey T. Grade Director;
J. David Grissom Director;
David B. Lewis Director;
Anne H. McNamara Director;
T. Ballard Morton, Jr. Director; and
Dr. Donald C. Swain Director.
By /s/ Victor A. Staffieri March 4, 1998
-----------------------
Victor A. Staffieri
(Attorney-In-Fact)
</TABLE>
136
<PAGE>
Exhibit 10.72
LG&E CAPITAL CORP.
AND
THE BANK OF NEW YORK,
AS TRUSTEE
______________
INDENTURE
DATED AS OF JANUARY 15, 1998
______________
NOTES
<PAGE>
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
RECITALS:
Purpose of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Compliance with legal requirements . . . . . . . . . . . . . . . . . . . . . . . . .1
Purpose of and consideration for Indenture . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.01. Certain Terms Defined. . . . . . . . . . . . . . . . . . . . . .2
"Accredited Investor Notes". . . . . . . . . . . . . . . . . . . . . . . .2
"Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Agent Members". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Attributable Debt". . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Authenticating Agent" . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Authorized Officer" . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Board Resolution" . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Capitalized Lease". . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Cedel". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Certificate of Authentication". . . . . . . . . . . . . . . . . . . . . .3
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Company". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Consolidated Current Liabilities" . . . . . . . . . . . . . . . . . . . .3
"Consolidated Net Tangible Assets" . . . . . . . . . . . . . . . . . . . .3
"Consolidated Total Assets". . . . . . . . . . . . . . . . . . . . . . . .3
"Corporate Trust Office" . . . . . . . . . . . . . . . . . . . . . . . . .4
"Default". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Depositary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Dollars" or "$" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Energy Corp." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Euroclear". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Federal Bankruptcy Code". . . . . . . . . . . . . . . . . . . . . . . . .4
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Global Note". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Governmental Obligations" . . . . . . . . . . . . . . . . . . . . . . . .4
"Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Indenture". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Intangible Assets". . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Interest Payment Date". . . . . . . . . . . . . . . . . . . . . . . . . .5
"Legend" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"LG&E" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Material Consolidated Subsidiary" . . . . . . . . . . . . . . . . . . . .5
"Non-Recourse Indebtedness". . . . . . . . . . . . . . . . . . . . . . . .6
"Note" or "Notes". . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Note Register" and "Note Registrar" . . . . . . . . . . . . . . . . . . .6
"Noteholder," "holder of Notes," "registered holder" . . . . . . . . . . .6
"Officer's Certificate". . . . . . . . . . . . . . . . . . . . . . . . . .6
"Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Original Issue Date". . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Outstanding". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Predecessor Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Regulation S" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Relevant Parties" . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Responsible Officer". . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Restricted Regulation S Global Note". . . . . . . . . . . . . . . . . . .7
"Rule 144" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Rule 144A". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Rule 144A Global Note". . . . . . . . . . . . . . . . . . . . . . . . . .7
"Rule 144A Information". . . . . . . . . . . . . . . . . . . . . . . . . .7
"Sale and Leaseback Transaction" . . . . . . . . . . . . . . . . . . . . .7
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Stated Maturity". . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Support Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Trade Obligations". . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Trust Indenture Act". . . . . . . . . . . . . . . . . . . . . . . . . . .8
"Trustee". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
"Unrestricted Regulation S Global Note". . . . . . . . . . . . . . . . . .8
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE TWO The Notes and the Support Agreement. . . . . . . . . . . . . . . . . . .8
SECTION 2.01. Amount Unlimited; Issuable in Series.. . . . . . . . . . . . . .8
SECTION 2.02. Form of Notes. . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.03. Denominations, Interest and Principal. . . . . . . . . . . . . 13
SECTION 2.04. Printing, Execution and Authentication of Notes. . . . . . . . 15
SECTION 2.05. Global Notes . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.06 Registration, Registration of Transfer and Exchange. . . . . . 17
SECTION 2.07. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.08. Mutilated, Destroyed, Lost and Stolen Notes. . . . . . . . . . 22
SECTION 2.09. Cancellations. . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.10. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. Authenticating Agent.. . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.13. Support Agreement. . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE THREE Redemption of Notes, Repayment at the Option of the Holder . . . . . 24
SECTION 3.01. Redemption of Notes; Repayment at the Option of the
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.02. Notices of Redemption. . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.03. Presentation and Surrender of Notes. . . . . . . . . . . . . . 26
SECTION 3.04. Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.05. Satisfaction of Sinking Fund Payment.. . . . . . . . . . . . . 26
SECTION 3.06. Redemption of Securities for Sinking Fund. . . . . . . . . . . 27
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE FOUR Particular Covenants of the Company . . . . . . . . . . . . . . . . . 27
SECTION 4.01. Payment of Principal, Premium and Interest . . . . . . . . . . 27
SECTION 4.02. Maintenance of Office and Agency . . . . . . . . . . . . . . . 27
SECTION 4.03. Money for Note Payments to be held in Trust. . . . . . . . . . 27
SECTION 4.04. Appointment of Trustee.. . . . . . . . . . . . . . . . . . . . 28
SECTION 4.05. Consolidation, Merger or Sale. . . . . . . . . . . . . . . . . 28
SECTION 4.06. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.07. Certificate to Trustee . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.08. Reports by the Company . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.09. Restrictions on Sales and Leasebacks . . . . . . . . . . . . . 31
SECTION 4.10. Support Agreement. . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE FIVE Noteholders' Lists and Reports by the Company . . . . . . . . . . . . 32
SECTION 5.01. Company to Furnish Trustee Names and Addresses of
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.02. Information from Trustee . . . . . . . . . . . . . . . . . . . 32
ARTICLE SIX Remedies of the Trustee and Noteholders. . . . . . . . . . . . . . . . 33
SECTION 6.01. Event of Default Defined; Acceleration of Maturity;
Waiver of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.02. Collection of Indebtedness by Trustee; Trustee May
Prove Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.03. Application of Proceeds. . . . . . . . . . . . . . . . . . . . 38
SECTION 6.04. Limitation of Suits by Noteholders.. . . . . . . . . . . . . . 38
SECTION 6.05. Powers and Remedies Cumulative; Delay or Omission
Not Waiver of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.06. Control by Noteholders . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.07. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.08. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE SEVEN Concerning the Trustee . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.01. Duties and Responsibilities of the Trustee Prior to and
During Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.02. Certain Rights of the Trustee. . . . . . . . . . . . . . . . . 42
SECTION 7.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. . . . . . . . . . . . . .43
SECTION 7.04. Trustee and Agents May Hold Securities; Collections,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.05. Moneys Held by Trustee . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.06. Compensation and Indemnification of Trustee and its
Prior Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.07. Right of Trustee to Rely on Officer's Certificate, etc.. . . . 44
SECTION 7.08. Conflicting Interest . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.09. Persons Eligible for Appointment as Trustee. . . . . . . . . . 45
SECTION 7.10. Resignation and Removal; Appointment of Successor
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.11. Acceptance of Appointment by Successor . . . . . . . . . . . . 46
SECTION 7.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.13. Preferential Collection of Claims Against Company. . . . . . . 48
ARTICLE EIGHT Concerning the Noteholders . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.01. Acts of Noteholders. . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.02. Trustee May Require Proof of Ownership . . . . . . . . . . . . 48
SECTION 8.03. Noteholders to be Treated as Owners. . . . . . . . . . . . . . 49
SECTION 8.04. Notes Held by Company Deemed Not Outstanding . . . . . . . . . 49
SECTION 8.05. Right of Revocation of Action Taken. . . . . . . . . . . . . . 49
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE NINE Supplemental Indentures; Amendments to Support Agreement. . . . . . . 50
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders . . . . 50
SECTION 9.02. Supplemental Indentures With Consent of Noteholders. . . . . . 51
SECTION 9.03. Effect of Supplemental Indenture . . . . . . . . . . . . . . . 51
SECTION 9.04. Notation of Notes in Respect of Supplemental Indenture . . . . 52
SECTION 9.05. Documents to be Given to Trustee . . . . . . . . . . . . . . . 52
SECTION 9.06. Amendments to Support Agreement. . . . . . . . . . . . . . . . 52
ARTICLE TEN Consolidation, Merger and Sale . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.01. Consolidation, Merger and Sale of Substantially
all of Company's Assets . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.02. Successor Corporation Substituted . . . . . . . . . . . . . . 54
SECTION 10.03. Opinion of Counsel to Trustee . . . . . . . . . . . . . . . . 54
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ELEVEN Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . 55
SECTION 11.01. Satisfaction and Discharge of Indenture . . . . . . . . . . . 55
SECTION 11.02. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.03. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . 56
SECTION 11.04. Deposited Money and Governmental Obligations to be
Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.05. Deposited Moneys Held in Trust. . . . . . . . . . . . . . . . 56
SECTION 11.06. Repayment to the Company; Miscellaneous . . . . . . . . . . . 56
ARTICLE TWELVE Immunity of Incorporators, Stockholders, Officers . . . . . . . . . 57
SECTION 12.01. Incorporators, Stockholders, Officers and Directors of
Company Exempt from Individual Liability. . . . . . . . . . . . . . . 57
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE THIRTEEN Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . 57
SECTION 13.01. Successors and Assigns of Company Bound by Indenture. . . . . 57
SECTION 13.02. Acts by Successors and Assigns of Company . . . . . . . . . . 57
SECTION 13.03. Notices and Demands on Company, Trustee and
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.04. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.05. Officer's Certificates and Opinions of Counsel;
Statements to be Contained Therein . . . . . . . . . . . . . . . . . 58
SECTION 13.06. Opinion of Counsel Required . . . . . . . . . . . . . . . . . 58
SECTION 13.07. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.08. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.09. Separability Clause . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.10. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
- -------------------------
* This Table of Contents does not constitute part of the Indenture and
should not have any bearing upon the interpretation of any of its terms or
provisions.
ix
<PAGE>
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF RESTRICTED PERIOD CERTIFICATE
EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM RULE
144A GLOBAL NOTE OR ACCREDITED INVESTOR NOTE TO RESTRICTED
REGULATION S GLOBAL NOTE
EXHIBIT D FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM RULE
144A GLOBAL NOTE TO UNRESTRICTED REGULATION S GLOBAL NOTE
EXHIBIT E FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM
RESTRICTED REGULATION S GLOBAL NOTE, UNRESTRICTED REGULATION S
GLOBAL NOTE OR ACCREDITED INVESTOR NOTE TO RULE 144A GLOBAL NOTE
EXHIBIT F FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM RULE
144A GLOBAL NOTE, RESTRICTED REGULATION S GLOBAL NOTE OR
UNRESTRICTED REGULATION S GLOBAL NOTE TO ACCREDITED INVESTOR NOTE
EXHIBIT G SUPPORT AGREEMENT
x
<PAGE>
THIS INDENTURE, dated as of the 15th day of January,
1998, between LG&E Capital Corp., a corporation duly organized and existing
under the laws of the State of Kentucky (hereinafter sometimes referred to as
the "COMPANY"), and The Bank of New York, a New York banking corporation, as
trustee (hereinafter sometimes referred to as the "TRUSTEE"):
WHEREAS, the Company has duly authorized the execution
and delivery of this Indenture to provide for the issuance of notes and other
evidences of Indebtedness (hereinafter referred to as the "NOTES"), in an
unlimited aggregate principal amount to be issued from time to time in one or
more series as in this Indenture provided as registered Notes without
coupons, to be authenticated by the certificate of the Trustee;
WHEREAS, to provide the terms and conditions upon which
the Notes are to be authenticated, issued and delivered, the Company has duly
authorized the execution of this Indenture;
WHEREAS, the Notes and the certificate of authentication
to be borne by the Notes (the "CERTIFICATE OF AUTHENTICATION") are to be
substantially in such forms as may be approved by the Board of Directors (as
defined below) or set forth in any indenture supplemental to this Indenture;
and
WHEREAS, the Company and LG&E Energy Corp., a Kentucky
corporation and the parent of the Company ("ENERGY CORP."), have entered into
a Support Agreement, dated as of September 5, 1997 (as such Support Agreement
may be hereafter amended, modified or supplemented from time to time in
accordance with its terms and the provisions of this Indenture, the "SUPPORT
AGREEMENT"), a copy of which is attached as EXHIBIT G hereto, pursuant to
which Energy Corp. will agree, if, and only if, the obligation to do so is
made applicable pursuant to any indenture supplemental hereto relating to a
particular series of Notes hereunder, to provide funds to the Company in an
amount sufficient to permit the Company to make timely payment of principal
of and premium, if any, and interest on such series of Notes;
WHEREAS, all things necessary to make this Indenture the
valid, binding and legal obligations of the Company, and to constitute these
presents a valid indenture and agreement according to its terms, have been
done and performed or will be done and performed prior to the issuance of the
Notes, and the execution of this Indenture and the issuance hereunder of the
Notes have been or will be prior to issuance in all respects duly authorized,
and the Company, in the exercise of the legal right and power in it vested,
executes this Indenture and proposes to make, execute, issue and deliver the
Notes;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in consideration of the premises, of the purchase
and acceptance of the Notes by the holders thereof, the Company covenants and
agrees with the Trustee, for the equal and proportionate benefit (subject to
the provisions of this Indenture) of the respective holders from time to time
of the Notes, without any discrimination, preference or priority of any one
Note over any other by reason of priority in the time of issue, sale or
negotiation thereof, or otherwise, except as provided herein, as follows:
<PAGE>
ARTICLE ONE
Definitions
SECTION 1.01. CERTAIN TERMS DEFINED.
(a) The terms defined in this Section (except as in this
Indenture otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture, any Board Resolution and of any
indenture supplemental hereto shall have the respective meanings specified in
this Section. All other terms used in this Indenture which are defined in
the Trust Indenture Act, or which are by reference in the Trust Indenture Act
defined in the Securities Act (except as herein otherwise expressly provided
or unless the context otherwise requires), shall have the meanings assigned
to such terms in the Trust Indenture Act and in the Securities Act as in
force at the date of the execution of this instrument.
"Accredited Investor Notes" has the meaning set forth in
Section 2.02(d).
"Affiliate" of any specified person means any other
Person directly or indirectly controlling or controlled by or under direct of
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Members" has the meaning set forth in Section
2.02(e)(ii).
"Attributable Debt" means, as to any particular Sale and
Leaseback Transaction, at the time of determination, the present value
(discounted at the rate per annum of 10%, compounded semiannually) of the
obligation of the lessee of the property subject to such Sale and Leaseback
Transaction for rental payments under the remaining term of the lease
included in such transaction, including any period for which such lease has
been extended or may, at the option of the lessor, be extended or until the
earliest date on which the lessee may terminate such lease upon payment of a
penalty (in which case the rental payments shall include such penalty), after
excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, assessments, water, utilities and similar charges.
"Authenticating Agent" means an authenticating agent with
respect to all or any series of the Notes, as the case may be, appointed with
respect to all or any series of the Notes, as the case may be, by the Trustee
pursuant to Section 2.11.
"Authorized Officer" means the Chief Executive Officer,
the President, a Vice President, the Treasurer, an Assistant Treasurer, the
Controller, an Assistant Controller, the Secretary or an Assistant Secretary
of the Company.
2
<PAGE>
"Board of Directors" means the Board of Directors of the
Company, or any committee of such Board duly authorized to act on behalf
thereof hereunder.
"Board Resolution" means a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification.
"Business Day" means, unless otherwise specified in an
indenture supplemental hereto, with respect to any series of Notes, any day
other than a Saturday, Sunday, a legal holiday or a day on which banking
institutions in The City of New York are authorized or obligated to close.
"Capitalized Lease" means any lease of property, real or
personal, the obligation for which is required, in accordance with GAAP, to
be capitalized on the balance sheet of the lessee.
"Cedel" has the meaning set forth in Section 2.02(b).
"Certificate of Authentication" has the meaning set forth
in the recitals to this Indenture.
"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, the body (if any) performing such duties at such time.
"Company" means LG&E Capital Corp., a corporation duly
organized and existing under the laws of the Commonwealth of Kentucky, or,
subject to the provisions of Article Ten, its successors and assigns.
"Consolidated Current Liabilities" means, with respect to
any Person, as of the date of determination thereof, the current liabilities
(excluding, however, any commercial paper notes or other Indebtedness for
which such Person and/or any of its Subsidiaries have a commitment by one or
more financial institutions to provide financing sufficient to pay such
Indebtedness at maturity) of such Person determined on a consolidated basis
in accordance with GAAP.
"Consolidated Net Tangible Assets" means, with respect to
any Person, as of the date of determination thereof, Consolidated Total
Assets less the sum of (i) Consolidated Current Liabilities and (ii)
Intangible Assets.
"Consolidated Total Assets" means, with respect to any
Person, as of the date of determination thereof, the total amount of all
assets of such Person determined on a consolidated basis in accordance with
GAAP.
3
<PAGE>
"Corporate Trust Office" means the office of the Trustee
at which at any particular time its corporate trust business shall be
principally administered, which office at the date of the execution of this
Indenture is located at 101 Barclay Street, 21st Floor, New York, New York
10286, Attention: Corporate Trust Trustee Administration.
"Default" means any event, act or condition that with
notice or lapse of time, or both, would constitute an Event of Default.
"Depositary" means, with respect to Notes of any series
for which the Company shall determine that such Notes will be issued as a
Global Note, The Depository Trust Company, New York, New York, another
clearing agency or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to either Section 2.01 or 2.06.
"Dollars" or "$" means any lawful coin or currency of the
United States of America which at the time of any payment or transfer is
legal tender for the payment of all public and private debts.
"Energy Corp." means LG&E Energy Corp., a Kentucky
corporation, and any successor entity thereto.
"Euroclear" has the meaning set forth in Section 2.02(b).
"Event of Default" means, with respect to Notes of a
particular series, any event specified in Section 6.01, continued for the
period of time, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Federal Bankruptcy Code" means the Federal Bankruptcy
Code of 1978, as amended from time to time.
"GAAP" means generally accepted accounting principles in
the United States applied on a basis consistent with the principles, methods,
procedures and practices employed from time to time in the preparation of the
Company's audited financial statements, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession.
"Global Note" has the meaning set forth in Section
2.02(e)(i).
"Governmental Obligations" means direct obligations of
the United States for the payment of which its full faith and credit is
pledged, or obligations of a person controlled or supervised by and acting as
an agency or instrumentality of the United States and the payment of which is
unconditionally guaranteed by the United States, and shall also include a
depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific
4
<PAGE>
payment of interest on or principal of any such Government Obligation held by
such custodian for the account of a holder of a depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt.
"Indebtedness" means, with respect to any Person at any
date of determination (without duplication), all liabilities, obligations and
indebtedness of such Person (i) for borrowed money, (ii) evidenced by bonds,
indentures, notes or other similar instruments, (iii) to pay the deferred
purchase price of property or services, (iv) as lessee under Capitalized
Leases (to the extent the aggregate rentals due and to become due thereunder
are, in accordance with GAAP, reflected as a liability on the consolidated
balance sheet of such Person), (v) under reimbursement agreements or similar
agreements with respect to the issuance of letters of credit (other than
obligations in respect of letters of credit (to the extent undrawn) opened to
provide for the payment of goods or services purchased or other obligations
incurred in the ordinary course of business), and (vi) under direct
guaranties and indemnities in respect of, or to assure an obligee against
failure to make payment in respect of, liabilities, obligations or
indebtedness of others of the kinds referred to in clause (i) through (v)
above, in each case to the extent reasonably quantifiable; provided that for
all purposes of this Indenture "Indebtedness" shall not include any
Non-Recourse Indebtedness or Trade Obligations.
"Indenture" means this instrument as originally executed
or, if amended or supplemented as herein provided, as so amended or
supplemented.
"Intangible Assets" means, with respect to any Person, as
of the date of determination thereof, all assets of such Person properly
classified as intangible assets determined on a consolidated basis in
accordance with GAAP.
"Interest Payment Date" means, when used with respect to
any installment of interest on a Note of a particular series, the date
specified in such Note, a Board Resolution (or Officer's Certificate) or an
indenture supplemental hereto with respect to that series as the fixed date
on which an installment of interest with respect to Notes of that series is
due and payable.
"Legend" has the meaning set forth in Section 2.06(d).
"LG&E" means Louisville Gas and Electric Company, a
Kentucky corporation, and any successor entity thereto.
"Lien" means any lien (statutory or other), mortgage,
pledge, hypothecation, assignment, encumbrance or other security agreement
(including, without limitation, the interest of a vendor or lessor under any
conditional sale, Capitalized Lease or other title retention agreement).
"Material Consolidated Subsidiary" means for any Person a
Subsidiary whose financial statements shall be consolidated with the
financial statements of such Person in accordance with GAAP, with assets,
income or net worth which constituted 10% or more of the assets, income or
net worth, respectively, of such Person and all of its Subsidiaries computed
as of the last day of the fiscal quarter most recently completed prior to
determination of whether such Subsidiary is a Material Consolidated
Subsidiary.
5
<PAGE>
"Non-Recourse Indebtedness" means, any Indebtedness of
any Person which is a special purpose entity or which Indebtedness is
nonrecourse to such Person, other than with respect to the interest of such
Person in the collateral, if any, securing such Indebtedness.
"Note" or "Notes" means any Note or Notes, as the case
may be, authenticated and delivered under this Indenture.
"Note Register" and "Note Registrar" have the respective
meanings set forth in Section 2.06(a).
"Noteholder," "holder of Notes," "registered holder" or
other similar term means the person or persons in whose name or names a
particular Note shall be registered on the books of the Company kept for that
purpose in accordance with the terms of this Indenture.
"Officer's Certificate" means a certificate signed by an
Authorized Officer.
"Opinion of Counsel" means a written opinion of legal
counsel, who may be an employee of or regular counsel for the Company,
reasonably acceptable to the Trustee. Each such opinion shall include the
statements provided for in Section 13.05, if and to the extent required by
the provisions thereof.
"Original Issue Date" of any Note (or portion thereof)
means the earlier of (a) the date of such Note or (b) the date of any Note
(or portion thereof) in exchange for which such Note was issued (directly or
indirectly) on registration of transfer, exchange or substitution.
"Outstanding" means, when used with reference to Notes of
any series, subject to the provisions of Section 8.04, as of any particular
time, all Notes of that series theretofore authenticated and delivered by the
Trustee under this Indenture, except (a) Notes theretofore canceled by the
Trustee or any paying agent, or delivered to the Trustee or any paying agent
for cancellation or which have previously been canceled; (b) Notes or
portions thereof for the payment or redemption of which moneys or
Governmental Obligations in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the Company) or
shall have been set aside and segregated in trust by the Company (if the
Company shall act as its own paying agent); provided, however, that if such
Notes or portions of such Notes are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given as provided in
Article Three, or provision satisfactory to the Trustee shall have been made
for giving such notice; (c) Notes in lieu of or in substitution for which
other Notes shall have been authenticated and delivered pursuant to the terms
of Section 2.08; and (d) Notes paid pursuant to Section 2.03 or (if
certificated) surrendered for payment pursuant to Section 2.09.
"Person" means any individual, corporation, partnership,
limited liability company, association, trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Predecessor Note" of any particular Note means every
previous Note evidencing all or a portion of the same debt as that evidenced
by that particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.08 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost,
destroyed or stolen Note.
6
<PAGE>
"Regulation S" has the meaning set forth in Section
2.02(b).
"Relevant Parties" has the meaning specified in Section
6.01(a)(5).
"Responsible Officer" means, when used with respect to
the Trustee, any vice president, assistant secretary, assistant treasurer,
any trust officer, any corporate trust officer or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of
his or her knowledge of and familiarity with the particular subject.
"Restricted Regulation S Global Note" has the meaning set
forth in Section 2.02(b).
"Rule 144" has the meaning set forth in Section
2.06(b)(iii).
"Rule 144A" has the meaning set forth in Section 2.02(c).
"Rule 144A Global Note" has the meaning set forth in
Section 2.02(c).
"Rule 144A Information" has the meaning specified in
Section 4.08(b).
"Sale and Leaseback Transaction" has the meaning
specified in Section 4.09.
"Securities Act" means the Securities Act of 1933, as
amended.
"Stated Maturity" means, with respect to any debt
security or any installment of interest thereon, the date specified in such
debt security as the fixed date on which any principal of such debt security
or any such installment of interest is due and payable.
"Subsidiary" of a Person means (i) any corporation more
than 50% of the outstanding voting stock of which is owned, directly or
indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries or (ii) any partnership,
association, joint venture or similar business organization more than 50% of
the ownership interests having ordinary voting power of which shall at the
time be so owned or controlled. For the purposes of this definition, "voting
stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Company.
"Support Agreement" means the Support Agreement dated as
of September 5, 1997, between Energy Corp. and the Company as amended,
modified and supplemented from time to time in accordance with the terms
thereof.
"Trade Obligations" means future obligations for the
payment of goods or services or other obligations (other than obligations for
borrowed money) incurred in the ordinary course of its energy marketing
business.
7
<PAGE>
"Trust Indenture Act," subject to the provisions of
Sections 9.01 and 9.02, means the Trust Indenture Act of 1939, as amended and
in effect at the date of execution of this Indenture.
"Trustee" means The Bank of New York, a New York banking
corporation, and, subject to the provisions of Article Seven, shall also
include its successors and assigns, and if at any time there is more than one
person acting in such capacity hereunder, "Trustee" means each such person.
The term "Trustee" as used with respect to a particular series of the Notes
means the trustee with respect to that series.
"Unrestricted Regulation S Global Note" has the meaning
set forth in Section 2.02(b).
(b) In this Indenture, unless otherwise indicated, the
singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes are to be construed
as including all statutory provisions consolidating, amending or replacing
the statute referred to; references to "writing" include printing, typing
lithography and other means of reproducing words in a tangible visible form;
the words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to articles, sections
(or subdivisions of sections), exhibits, annexes or schedules are to this
Indenture unless otherwise indicated; references to agreements and other
contractual instruments shall be deemed to include all subsequent written
amendments, extensions and other modifications to such instruments; and
references to persons and business entities include their respective
permitted successors and assigns and references to governmental entities
include governmental entities succeeding to their respective functions and
capacities.
ARTICLE TWO
The Notes and the Support Agreement
SECTION 2.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is unlimited.
The Notes may be issued in one or more series up to the
aggregate principal amount of Notes of that series from time to time
authorized by or pursuant to a Board Resolution or pursuant to one or more
indentures supplemental hereto, prior to the initial issuance of Notes of a
particular series. Prior to the initial issuance of Notes of any series,
there shall be established in or pursuant to a Board Resolution delivered to
the Trustee, and, subject to Section 2.04 hereof, set forth in an Officer's
Certificate delivered to the Trustee, or established in one or more
indentures supplemental hereto:
(1) the title of the Notes of the series (which shall
distinguish the Notes of that series from all other Notes);
(2) any limit upon the aggregate principal amount of the
Notes of that series that may be authenticated and delivered
under this Indenture (except for Notes authenticated and
delivered upon registration of transfer of, in exchange for or
in lieu of other Notes of that series and except for any Notes
which, pursuant to Section 2.04(b) hereof, are deemed never to
have been authenticated and delivered hereunder);
8
<PAGE>
(3) the date or dates on which the principal of the
Notes of that series is payable;
(4) the rate or rates at which the Notes of that series
shall bear interest or the manner of calculation of such rate
or rates, if any;
(5) the date or dates from which such interest shall
accrue, the Interest Payment Dates on which such interest will
be payable or the manner of determination of such Interest
Payment Dates and the record date for the determination of
holders to whom interest is payable on any such Interest
Payment Dates;
(6) the period or periods within which, the price or
prices at which and the terms and conditions upon which Notes
of that series may be redeemed, in whole or in part, at the
option of the Company;
(7) the obligation, if any, of the Company to redeem or
purchase Notes of that series pursuant to any sinking fund or
analogous provisions (including payments made in cash in
anticipation of future sinking fund obligations) or at the
option of a holder thereof and the period or periods within
which, the price or prices at which and the terms and
conditions upon which, Notes of that series shall be redeemed
or purchased, in whole or in part, pursuant to such obligation;
(8) the form of the Note of that series including the
form of the Certificate of Authentication for that series;
(9) if denominations of other than $100,000 or integral
multiples of $1,000 in excess thereof, the denominations in
which Notes of that series shall be issuable;
(10) if other than the principal amount thereof, the
portion of the principal amount of the Notes of the series
which shall be payable upon declaration of the acceleration of
the maturity thereof pursuant to Section 6.01;
(11) whether the Notes are issuable in whole or in part
in the form of one or more Global Notes and, in such case, the
identity of the Depositary for that series and the related
procedures with respect to transfer and exchange of such
Global Notes;
(12) any provisions permitted by this Indenture relating
to Events of Default or covenants of the Company with respect
to such series of Notes; and
(13) any and all other terms with respect to that series
(which terms shall not be inconsistent with the terms of this
Indenture), including, without limitation, any terms required
(i) to establish one or more series of medium-term notes or
(ii) to cause any Notes of any series to be issued with or
without the benefit of the Support Agreement.
All Notes of any one series shall be substantially
identical except as to denomination and except as may otherwise be provided
in or pursuant to any such Board Resolution or in any indentures supplemental
hereto.
9
<PAGE>
If any of the terms of the series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record
of such action shall be certified by the Secretary or an Assistant Secretary
of the Company and delivered to the Trustee at or prior to the delivery of
the Officer's Certificate setting forth the terms of that series.
SECTION 2.02. FORM OF NOTES.
(a) The Notes of any series and the Certificate of
Authentication to be borne by such Notes shall be substantially of the tenor
and purport as set forth in one or more indentures supplemental hereto or as
provided in a Board Resolution and as set forth in an Officer's Certificate,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which Notes of that
series may be listed, or to conform to usage.
(b) Notes offered and sold in reliance on Regulation S
under the Securities Act ("REGULATION S") shall be issued in the form of one
or more permanent Global Notes for each series of Notes in definitive, fully
registered form without interest coupons substantially in the form of the
Note attached as EXHIBIT A hereto or as set forth in an indenture
supplemental hereto with such legends as may be applicable thereto in
accordance with such form, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Trustee at the Corporate
Trust Office, as custodian for the Depositary and registered in the name of a
nominee of the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided, for credit to their respective accounts
(or to such other accounts as they may direct) at Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System
("EUROCLEAR") or Cedel Bank, societe anonyme ("CEDEL"). Until the
termination of the restricted period (as defined in Regulation S) with
respect to the offer and sale of any such Notes, interests in any such Global
Note may only be held by the Agent Members for Euroclear and Cedel. Until
such time as the restricted period shall have terminated, any such Global
Notes shall be referred to herein as the "RESTRICTED REGULATION S GLOBAL
NOTES." After such time as the restricted period shall have terminated, such
Global Notes shall be referred to herein as "UNRESTRICTED REGULATION S GLOBAL
NOTES." The aggregate principal amount of the Restricted Regulation S Global
Notes and the Unrestricted Regulation S Global Notes of any series may from
time to time be increased or decreased by adjustments made on the records of
the Trustee, as custodian for the Depositary, as hereinafter provided. The
Company shall notify the Trustee of the termination of the restricted period
with respect to any series of Notes by furnishing to the Trustee a
certificate substantially in the form of Exhibit B hereto.
(c) Notes offered and sold in reliance on Rule 144A
under the Securities Act ("RULE 144A") shall be issued in the form of one or
more permanent Global Notes (the "RULE 144A GLOBAL NOTES") for each series of
Notes in definitive, fully registered form without interest coupons
substantially in the form of the Note attached as EXHIBIT A hereto or as set
forth in an indenture supplemental hereto with such legends as may be
applicable thereto in accordance with such form, which shall be deposited
with the Trustee, at the Corporate Trust Office, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Rule 144A Global
Notes with respect to any series of Notes may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian
for the Depositary, and the Depositary or its nominee, as the case may be, as
hereinafter provided.
10
<PAGE>
(d) Notes offered and sold to institutions that are
"accredited investors" within the meaning of Rule 501(a)(1), (2), (3) or (7)
of the Securities Act shall be issued in the form of certificated Notes (the
"ACCREDITED INVESTOR NOTES") in definitive, fully registered form without
interest coupons substantially in the form of the Note attached as EXHIBIT A
hereto or in an indenture supplemental hereto with such legends as may be
applicable thereto, duly executed by the Company and authenticated and
delivered by the Trustee as hereinafter provided.
(e) (i) This Section 2.02(e)(i) shall apply only to
Notes in global form ("GLOBAL NOTES") deposited with the Depositary.
The Company shall execute and the Trustee shall, in
accordance with this Section 2.02(e)(i), authenticate and deliver Global
Notes for each series of Notes that (a) shall be registered in the name of
the Depositary for such Global Notes or the nominee of such Depositary, (b)
shall be deposited on behalf of Agent Members (as defined herein) with the
Trustee as custodian for the Depositary and (c) shall bear legends
substantially to the following effect:
"UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF [INSERT NAME AND ADDRESS OF DEPOSITARY]
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE IS REGISTERED IN THE
NAME OF [INSERT NAME OF NOMINEE OF DEPOSITARY], OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY] (AND ANY
PAYMENT IS MADE TO [INSERT NAME OF NOMINEE OF DEPOSITARY])
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY]),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, [INSERT NAME OF NOMINEE OF
DEPOSITARY], HAS AN INTEREST HEREIN".
"TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF [INSERT NAME OF
DEPOSITARY] OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF".
(ii) This Section 2.02(e)(ii) shall apply only to the
Global Notes deposited on behalf of the purchasers of the Notes represented
thereby with the Trustee as custodian for the Depositary for credit to their
respective accounts (or to such other accounts as they may direct) at
Euroclear or Cedel insofar as interests in the Global Notes are held by the
Agent Members for Euroclear or Cedel.
11
<PAGE>
The provisions of the "Operating Procedures of the
Euroclear System" and the "Terms and Conditions Governing Use of Euroclear"
and the "Management Regulations" and "Instructions to Participants" of Cedel,
respectively, shall be applicable to such Global Notes insofar as interests
therein are held by the Agent Members for Euroclear and Cedel. Members of,
or participants in, a Depositary ("AGENT MEMBERS") shall have no rights under
this Indenture with respect to any Global Note held on their behalf by the
Depositary or under any Global Note, and the Depositary may be treated by the
Company, the Trustee, and any agent of the Company or the Trustee as the
absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
holder of any security.
(iii) This Section 2.02(e)(iii) shall apply only to the
Rule 144A Global Notes, any certificated Notes issued in accordance with
Section 2.05 hereof in exchange therefor (and any certificated securities
issued to qualified institutional buyers in exchange therefor) and to
Accredited Investor Notes.
The Company shall execute and the Trustee shall, in
accordance with this Section 2.02(e)(iii), authenticate and deliver Rule 144A
Global Notes, certificated Notes issued in accordance with Section 2.05
hereof in exchange therefor (and any certificated securities issued to
qualified institutional buyers in exchange therefor) and Accredited Investor
Notes for each series of Notes that shall bear legends substantially to the
following effect or as set forth in an indenture supplemental hereto:
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO LG&E CAPITAL CORP. (THE "ISSUER") OR THE
AGENTS, (B) SO LONG AS SUCH NOTE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE
144A) ("QIB") ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT OR
AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST
ALSO BE QIBS), AND TO WHOM NOTICE IS GIVEN THAT THE
RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE
WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES
ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") PURSUANT TO
12
<PAGE>
ANOTHER AVAILABLE EXEMPTION UNDER THE SECURITIES ACT OR
(F) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT IN EACH CASE
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION; AND
(2) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE NOTE
EVIDENCED HEREBY IS ISSUED IN CERTIFICATED FORM, IN
CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER. IN CONNECTION WITH ANY PROPOSED TRANSFER
OF THIS NOTE PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE ISSUER MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
SECTION 2.03. DENOMINATIONS, INTEREST AND PRINCIPAL.
The Notes shall be issuable as registered Notes and in minimum denominations
of $100,000 or integral multiples of $1,000 in excess thereof, subject to
Section 2.01(9). The Notes of a particular series shall bear interest payable
on the dates and at the rate or rates specified with respect to that series.
The principal of and the interest on the Notes of any series, as well as any
premium thereon in case of redemption thereof prior to maturity, shall be
payable in Dollars, at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, the City and State of New York
(which, unless changed, shall be a corporate trust office or agency of the
Trustee). For so long as any Notes are issued as a Global Note, payments of
principal and interest shall be made by the Company in immediately available
funds by wire transfer to the Depositary or its nominee. At the Company's
option, payments on the Notes of any series, if such Notes are issued in
certificated form, may also be made (i) by checks mailed by the Trustee to
the holders entitled thereto at their registered addresses or (ii) to a
holder of $1,000,000 or more in aggregate principal amount of the Notes who
has delivered a written request to the Trustee at least 14 days prior to the
relevant Interest Payment Date electing to have payments made by wire
transfer to a designated account in the United States of America, by wire
transfer of immediately available funds to such designated account; provided
that, in either case, the payment of principal with respect to any Note will
be made only upon surrender of that Note to the Trustee. Each Note shall be
dated the date of its authentication. Unless otherwise specified in an
indenture supplemental hereto, interest on the Notes shall be computed on the
basis of a 360-day year composed of twelve 30-day months and, for any period
shorter than a full calendar month, on the basis of the actual number of days
elapsed in such period.
The interest installment on a Note of any series which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date for Notes of that series shall be paid to the Person in whose name that
Note (or one or more Predecessor Notes) is registered at the close of
business on the regular record date for such interest installment. In the
event that any Note of a particular series or portion thereof is called for
redemption and the redemption date is subsequent to a regular record date
13
<PAGE>
with respect to any Interest Payment Date and prior to such Interest Payment
Date, interest on that Note will be paid upon presentation and surrender of
that Note as provided in Section 3.03.
Any interest on any Note of any series which is payable,
but is not punctually paid or duly provided for, on any Interest Payment Date
for Notes of the same series (herein called "Defaulted Interest") shall
forthwith cease to be payable to the registered holder on the relevant
regular record date by virtue of having been such holder; and such Defaulted
Interest shall be paid by the Company, at its election, as provided in clause
(1) or clause (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest on Notes to the Persons in whose names such
Notes (or their respective Predecessor Notes) are registered at
the close of business on a special record date for the payment
of such Defaulted Interest, which shall be fixed in the
following manner: the Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid
on each such Note and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior
to the date of the proposed payment, such money when deposited
to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon,
the Trustee shall fix a special record date for the payment of
such Defaulted Interest which shall not be more than 15 nor
less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly
notify the Company of such special record date and, in the name
and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special
record date therefor to be mailed, first-class postage prepaid,
to each holder of such Notes at such Noteholder's address as it
appears in the Note Register (as hereinafter defined), not less
than 10 days prior to such special record date. Notice of the
proposed payment of such Defaulted Interest and the special
record date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names
such Notes (or their respective Predecessor Notes) are
registered on such special record date and shall be no longer
payable pursuant to the following cause (2).
(2) The Company may make payment of any Defaulted
Interest on any Notes in any other lawful manner not
inconsistent with the requirements of any securities exchange
on which such Notes may be listed, and upon such notice as may
be required by such exchange if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by
the Trustee.
Unless otherwise set forth in a Board Resolution (or in
an Officer's Certificate) or one or more indentures supplemental hereto
establishing the terms of any series of Notes pursuant to Section 2.01
hereof, the term "regular record date" as used in this Section with respect
to a series of Notes with respect to any Interest Payment Date for
certificated Notes of that series shall mean either the 15th day of the month
immediately preceding the month in which an Interest Payment Date established
for that series pursuant to Section 2.01 hereof shall occur, if such Interest
Payment Date is the first day of a month, or the last day of the month
immediately preceding the month in which an Interest Payment Date established
for such series pursuant to Section 2.01 hereof shall occur, if such Interest
Payment Date is the 15th day of a month, whether or not such date is a
Business Day.
14
<PAGE>
Subject to the foregoing provisions of this Section, each
Note of a series delivered under this Indenture upon transfer of or in
exchange for or in lieu of any other Note of such series shall carry the
rights to interest accrued and unpaid, and to accrue, that were carried by
such other Note.
SECTION 2.04. PRINTING, EXECUTION AND AUTHENTICATION
OF NOTES.
(a) The Notes shall, subject to the provisions of
Section 2.07, be printed on steel engraved borders or fully or partially
engraved, or legibly typed, as the proper officers of the Company may
determine, and shall be signed on behalf of the Company by an Authorized
Officer and need not be attested. The signature of the Authorized Officer
upon the Notes may be in the form of a facsimile signature of a present or
any future Authorized Officer and may be imprinted or otherwise reproduced on
the Notes and for that purpose the Company may use the facsimile signature of
any person who shall have been an Authorized Officer, notwithstanding the
fact that at the time the Notes shall be authenticated and delivered or
disposed of that person shall have ceased to be an Authorized Officer.
(b) Only such Notes as shall bear thereon a Certificate
of Authentication substantially in the form established for such Notes,
executed manually by an authorized signatory of the Trustee, or by any
Authenticating Agent with respect to such Notes, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any purpose. Such
certificate executed by the Trustee, or by any Authenticating Agent appointed
by the Trustee with respect to such Notes, upon any Notes executed by the
Company shall be conclusive evidence that the Note so authenticated has been
duly authenticated and delivered hereunder and that the holder is entitled to
the benefits of this Indenture. Notwithstanding the foregoing, if any Note
shall have been authenticated and delivered hereunder but never issued and
sold by the Company, and the Company shall deliver such Note to the Trustee
for cancellation as provided in Section 2.09 hereof together with a written
statement (which need not comply with Section 13.05 hereof and need not be
accompanied by an Opinion of Counsel) stating that such Note has never been
issued and sold by the Company, for all purposes of this Indenture such Note
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes of any series
executed by the Company to the Trustee for authentication, together with a
written order of the Company for the authentication and delivery of such
Notes, signed by an Authorized Officer, and the Trustee in accordance with
such written order shall authenticate and make such Notes available for
delivery.
In authenticating such Notes and accepting the additional
responsibilities under this Indenture in relation to such Notes, the Trustee
shall be entitled to receive, and (subject to Section 7.01) shall be fully
protected in relying upon (i) an Opinion of Counsel and (ii) an Officer's
Certificate, each stating that the form and terms thereof have been
established in conformity with the provisions of this Indenture and all
conditions that must be met by the Company to issue the Notes under the
Indenture have been met, an Opinion of Counsel stating that such Notes are
legal, valid and binding obligations of the Company (subject to customary
exceptions) and, if the Notes are issued with the benefit of the Support
Agreement, the Notes are entitled to the benefits of the Support Agreement,
and an Officer's Certificate stating that the Company is not, and upon the
authentication by the Trustee of the series of Notes, will not be in default
under any of the terms of or covenants contained in the Indenture. Each
Opinion of Counsel and Officer's Certificate delivered pursuant to this
Section 2.04 shall include all statements prescribed by Section 13.05(b)
hereof. If all the Notes of any series are not to be issued at one time, it
15
<PAGE>
shall not be necessary to deliver an Opinion of Counsel and Officer's
Certificate at the time of issuance of each Note, but such opinion and
certificate shall be delivered at or before the time of issuance of the first
Note of such series to be issued. If all of the Notes of a series are not
authenticated and issued at one time, for each issuance of Notes after the
initial issuance of Notes, the Company shall be required only to deliver to
the Trustee the Note executed by the Company together with a written order to
the Trustee to authenticate such Note and to deliver such Note in accordance
with the instructions specified by such written order. Any such written
order shall constitute a representation and warranty by the Company that the
statements made in the Officer's Certificate delivered to the Trustee prior
to the authentication and issuance of the first Note of such series are true
and correct on the date thereof as if made on and as of the date thereof.
(c) Any of the Notes may be issued with appropriate
insertions, omissions, substitutions and variations, and may have imprinted
or otherwise reproduced thereon such legend or legends, not inconsistent with
the provisions of this Indenture, as may be required to comply with any law
or with any rules or regulations pursuant thereto, or with the rules of any
securities market in which the Notes are admitted to trading, or to conform
to general usage.
SECTION 2.05. GLOBAL NOTES.
(a) Except for a transfer pursuant to the
provisions of Section 2.06(b)(v) hereof, portions of a Global Note of any
series deposited with the Depositary pursuant to Section 2.02 shall be
transferred in certificated form to the beneficial owners thereof only if
such transfer complies with Section 2.06 and (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for such
Global Note or if at any time such Depositary ceases to be a "clearing
agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) an Event of
Default has occurred and is continuing with respect to the Notes of such
series and payment of principal thereof and interest thereon has been
accelerated and the owners of beneficial interests in the Global Notes with
fractional undivided interests aggregating not less than a majority interest
advise the Trustee, the Company and the Depositary through Agent Members in
writing that the continuation of a book-entry system through the Depositary
or its successors is no longer in their best interest or (iii) the Company
determines that the Notes of such series shall no longer be represented by
such Global Note.
(b) Portions of any Global Note of any series that are
transferable to the beneficial owners thereof pursuant to this Section 2.05
shall be surrendered by the Depositary to the Trustee at its New York office
for registration of transfer, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such
registration of transfer of each portion of such Global Note, an equal
aggregate principal amount of Notes of such series of authorized
denominations. Any portion of a Global Note whose registration is
transferred pursuant to this Section 2.05 shall be executed, authenticated
and delivered only in the denominations, if other than as specified in
Section 2.01(9), specified in the Board Resolution or indenture supplemental
hereto with respect to such series of Notes and registered in such names as
the Depositary shall direct. Any Note of any series delivered in exchange
for a portion of a Rule 144A Global Note of such series shall bear the Legend
regarding transfer restrictions applicable to Rule 144A Global Notes set
forth on the form of Note attached as Exhibit A hereto.
(c) Subject to the provisions of Section 2.02(e) above,
the registered holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
16
<PAGE>
interests through Agent Members, to take any action which a Noteholder is
entitled to take under this Indenture or the Notes of the applicable series.
(d) In the event of the occurrence of any of the events
specified in paragraph (a) of this Section 2.05, the Company shall promptly
make available to the Trustee a reasonable supply of certificated Notes of
each applicable series in definitive fully registered form without interest
coupons.
(e) The Global Notes of each series issued and
authenticated pursuant to Section 2.02(b) (both before and after the
expiration of the restricted period) and the Rule 144A Global Notes of each
series shall each be assigned separate securities identification numbers.
SECTION 2.06 REGISTRATION, REGISTRATION OF TRANSFER
AND EXCHANGE.
(a) The Company shall cause to be kept at each
office or agency to be maintained for the purpose as provided in Section 4.02
hereof in the Borough of Manhattan, the City and State of New York or such
other location as designated by the Company, a register or registers (herein
referred to as the "NOTE REGISTER") in which, subject to such reasonable
regulations as it may prescribe, it will register or cause to be registered,
and will register or cause to be registered the transfer of, Notes as in this
Article provided. The Trustee is hereby appointed "NOTE REGISTRAR" for the
purpose of registering Notes and transfers of Notes as herein provided. Any
successor Note Registrar shall be appointed as authorized by a Board
Resolution. If at any time the Trustee or the Company, respectively, shall
not be serving as Note Registrar, at all reasonable times such Notes Register
shall be open for inspection by the Trustee or the Company, as the case may
be.
Upon due presentation for registration of transfer of any
Note at each such office or agency, the Company shall execute and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Note or Notes of the same series in authorized denominations for a like
aggregate principal amount.
Any Note or Notes may be exchanged for a Note or Notes of
the same series in other authorized denominations, in an equal aggregate
principal amount. Notes to be exchanged shall be surrendered at the office
or agency of the Company designated for such purpose in the Borough of
Manhattan, the City and State of New York, and the Company shall execute and
the Trustee shall authenticate and make available for delivery in exchange
therefor the Note or Notes of the same series which the Noteholder making the
exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.
All Notes presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Company or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee,
duly executed by the Noteholder or its attorney duly authorized in writing.
The Company or Trustee shall not be required to exchange
or register a transfer of (a) any Notes of any series for a period of 15 days
next preceding the first mailing of notice of redemption of Notes of such
series to be redeemed, (b) any Note of any series selected, called or being
called for redemption except, in the case of any Note of such series where
public notice has been given that such Note is to be redeemed in part, the
portion thereof not so to be redeemed or (c) any Note of any series that, in
17
<PAGE>
accordance with its terms, has been surrendered for repayment at the option
of the Noteholder, except the portion, if any, of such Note not to be so
repaid.
All Notes of any series issued upon any registration of
transfer or exchange of Notes shall be valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Notes of such series surrendered upon such registration of
transfer or exchange.
(b) Notwithstanding any provision to the contrary
herein, so long as a Global Note of any series remains outstanding and is
held by or on behalf of the Depositary, transfers of a Global Note of such
series, in whole or in part, shall only be made (x) in the case of transfers
of portions of a Global Note of such series to beneficial owners thereof in
certificated form, in accordance with Section 2.05, and (y) in all other
cases, in accordance with this Section 2.06(b) (and subject, in each case, to
the provisions of any Legend (as defined herein) imprinted on such Global
Note).
(i) TRANSFERS OF GLOBAL NOTES AS SUCH. Subject to
clauses (ii) through (vi) of this Section 2.06(b), transfers of
a Global Note shall be limited to transfers of such Global Note
in whole, and not in part, to nominees of the Depositary or to
a successor of the Depositary or such successor's nominee.
(ii) RULE 144A GLOBAL NOTE OR ACCREDITED INVESTOR NOTE TO
A RESTRICTED REGULATION S GLOBAL NOTE. If a holder of a
beneficial interest in the Rule 144A Global Note of any series
deposited with the Depositary, or the holder of an Accredited
Investor Note of any series, as the case may be, wishes at any
time to exchange its interest in such Note for an interest in
the Restricted Regulation S Global Note or transfer its
interest in such Note to a Person who wishes to take delivery
thereof in the form of an interest in the Restricted Regulation
S Global Note, such holder may, subject to the rules and
procedures of the Depositary, exchange or transfer or cause the
exchange or transfer of such interest for an equivalent
beneficial interest in the Restricted Regulation S Global Note
of such series in accordance with, and subject to, this clause
(ii). Upon receipt by the Trustee at the Corporate Trust
Office of (1) instructions given in accordance with the
Depositary's procedures from an Agent Member directing the
Trustee to credit or cause to be credited a beneficial interest
in the Restricted Regulation S Global Note of any series in an
amount equal to (x) the beneficial interest in the Rule 144A
Global Note of such series or (y) the aggregate principal
amount of the Accredited Investor Note of such series, as the
case may be, to be exchanged or transferred, (2) a written
order given in accordance with the Depositary's procedures
containing information regarding the Euroclear or Cedel account
to be credited with such increase and the name of such account,
and (3) a certificate in the form of EXHIBIT C attached hereto
given by the holder of such interest stating that the exchange
or transfer of such interest has been made in compliance with
the transfer restrictions applicable to the Notes of such
series and pursuant to and in accordance with Regulation S, the
Trustee shall instruct the Depositary to reduce the Rule 144A
Global Note of such series by the aggregate principal amount of
the beneficial interest in the Rule 144A Global Note of such
series to be so exchanged or transferred or, in the case of an
Accredited Investor Note of such series, shall cancel such Note
surrendered for transfer or exchange in accordance with Section
2.09 hereof, and the Trustee shall instruct the Depositary,
concurrently with such reduction or cancellation to increase
the principal amount of the Restricted Regulation S Global Note
of such series by the aggregate principal amount of the
beneficial interest in the Rule 144A Global Note of such series
or, in the case of an Accredited Investor Note, by the
18
<PAGE>
aggregate principal amount of the Accredited Investor Note of
such series to be so exchanged or transferred, and to credit or
cause to be credited to the account of the Person specified in
such instructions (who shall be the Agent Member for Euroclear
or Cedel, or both, as the case may be) a beneficial interest in
the Restricted Regulation S Global Note of such series equal to
the reduction in the principal amount of the Rule 144A Global
Note of such series or to the aggregate principal amount of the
Accredited Investor Note of such series, as the case may be.
(iii) RULE 144A GLOBAL NOTE OR ACCREDITED INVESTOR
NOTE TO UNRESTRICTED REGULATION S GLOBAL NOTE. If a holder of
a beneficial interest in the Rule 144A Global Note of any
series deposited with the Depositary, or the holder of an
Accredited Investor Note of any series, as the case may be,
wishes at any time to exchange its interest in such Note for an
interest in the Unrestricted Regulation S Global Note of such
series or transfer its interest in such Note to a Person who
wishes to take delivery thereof in the form of an interest in
the Unrestricted Regulation S Global Note of such series, such
holder may, subject to the rules and procedures of the
Depositary, exchange or cause the exchange or transfer or cause
the transfer of such interest for an equivalent beneficial
interest in the Unrestricted Regulation S Global Note of such
series in accordance with, and subject to, this clause (iii).
Upon receipt by the Trustee at the Corporate Trust Office of
(1) instructions given in accordance with the Depositary's
procedures from an Agent Member directing the Trustee to credit
or cause to be credited a beneficial interest in the
Unrestricted Regulation S Global Note of a series in an amount
equal to (x) the beneficial interest in the Rule 144A Global
Note of such series or (y) the aggregate principal amount of
the Accredited Investor Note of such series, as the case may
be, to be exchanged or transferred, (2) a written order given
in accordance with the Depositary's procedures containing
information regarding the participant account of the Depositary
and, in the case of a transfer pursuant to and in accordance
with Regulation S, the Euroclear or Cedel account to be
credited with such increase and (3) a certificate in the form
of EXHIBIT D attached hereto given by the holder of such
interest stating that the exchange or transfer of such interest
has been made in compliance with the transfer restrictions
applicable to the Notes of such series and (A) in the case of
an exchange, that either (x) the Note being exchanged is not a
"restricted security" as defined in Rule 144 under the
Securities Act ("RULE 144"), or (y) the exchange is being made
to facilitate a contemporaneous transfer that complies with
this clause (iii), (B) in the case of a transfer pursuant to
Regulation S, that the Note is being transferred pursuant to
and in accordance with Regulation S, (C) in the case of a
transfer pursuant to Rule 144, that the Note is being
transferred pursuant to and in accordance with Rule 144 or (D)
in the case of a transfer pursuant to another exemption from
the Securities Act (including without limitation Rule 144A),
specifying the basis for such exemption, the Trustee shall
instruct the Depositary to reduce the Rule 144A Global Note of
such series by the aggregate principal amount of the beneficial
interest in the Rule 144A Global Note of such series to be so
exchanged or transferred or, in the case of an Accredited
Investor Note of such series, shall cancel such Note
surrendered for transfer or exchange in accordance with Section
2.09 hereof, and the Trustee shall instruct the Depositary,
concurrently with such reduction or cancellation, to increase
the principal amount of the Unrestricted Regulation S Global
Note of such series by the aggregate principal amount of the
beneficial interest in the Rule 144A Global Note of such series
or, in the case of an Accredited Investor Note, by the
aggregate principal amount of the Accredited Investor Note of
such series to be so exchanged or transferred, and to credit or
cause to be credited to the account of the Person specified in
such instructions a beneficial interest in the Unrestricted
Regulation S Global Note of such series equal to the reduction
19
<PAGE>
in the principal amount of the Rule 144A Global Note of such
series or to the aggregate principal of the Accredited Investor
Note of such series, as the case may be.
(iv) RESTRICTED REGULATION S GLOBAL NOTE, UNRESTRICTED
REGULATION S GLOBAL NOTE OR ACCREDITED INVESTOR NOTE TO RULE
144A GLOBAL NOTE. If a holder or a beneficial interest in the
Restricted Regulation S Global Note of any series or the
Unrestricted Regulation S Global Note of any series deposited
with the Depositary, or the holder of an Accredited Investor
Note of any series, as the case may be, wishes at any time to
exchange its interest in such Note for an interest in the Rule
144A Global Note of such series or transfer its interest in
such Note to a Person who wishes to take delivery thereof in
the form of an interest in the Rule 144A Global Note of such
series such holder may, subject to the rules and procedures of
Euroclear or Cedel and the Depositary, as the case may be,
exchange or transfer or cause the exchange or transfer of such
interest for an equivalent beneficial interest in the Rule 144A
Global Note of such series, in accordance with, and subject to,
this clause (iv). Upon receipt by the Trustee, at the
Corporate Trust Office of (1) instructions from Euroclear or
Cedel or the Depositary, as the case may be, directing the
Trustee to credit or cause to be credited a beneficial interest
in the Rule 144A Global Note of a series in an amount equal to
(x) the beneficial interest in the Restricted Regulation S
Global Note of such series or the Unrestricted Regulation S
Global Note of such series, or (y) the aggregate principal
amount of the Accredited Investor Note, to be exchanged or
transferred, such instructions to contain information regarding
the Agent Member's account with the Depositary to be credited
with such increase, and, with respect to an exchange or
transfer of an interest in the Unrestricted Regulation S Global
Note of such series or Restricted Regulation S Global Note of
such series, information regarding the Agent Member's account
with the Depositary to be debited with such decrease, and (2) a
certificate in the form of EXHIBIT E attached hereto given by
the holder of such interest and stating that the Person
exchanging or transferring such interest in the Restricted
Regulation S Global Note of such series, the Unrestricted
Regulation S Global Note of such series or the Accredited
Investor Note of such series, as the case may be, reasonably
believes that the Person acquiring such interest in the Rule
144A Global Note is a qualified institutional buyer (as defined
in Rule 144A) and is obtaining such beneficial interest in a
transaction meeting the requirements of Rule 144A, Euroclear or
Cedel or the Trustee, as the case may be, shall instruct the
Depositary to reduce the Restricted Regulation S Global Note of
such series or the Unrestricted Regulation S Global Note of
such series, as the case may be, by the aggregate principal
amount of the beneficial interest in the Restricted Regulation
S Global Note of such series or the Unrestricted Regulation S
Global Note of such series to be exchanged or transferred, or,
in the case of an Accredited Investor Note, shall cancel such
Note surrendered for transfer or exchange in accordance with
Section 2.09 hereof, and the Trustee shall instruct the
Depositary, concurrently with such reduction or cancellation to
increase the principal amount of the Rule 144A Global Note of
such series by the aggregate principal amount of the beneficial
interest in the Restricted Regulation S Global Note of such
series or the Unrestricted Regulation S Global Note of such
series, or by the aggregate principal amount of the Accredited
Investor Note of such series, as the case may be, to be so
exchanged or transferred, and to credit or cause to be credited
to the account of the Person specified in such instructions a
beneficial interest in the Rule 144A Global Note of such series
equal to the reduction in the principal amount of the
Restricted Regulation S Global Note of such series, the
Unrestricted Regulation S Global Note of such series, or to the
aggregate principal amount of the Accredited Investor Note of
such series, as the case may be.
20
<PAGE>
(v) RULE 144A GLOBAL NOTE, RESTRICTED REGULATION S
GLOBAL NOTE OR UNRESTRICTED REGULATION S GLOBAL NOTE TO
ACCREDITED INVESTOR NOTE. If a holder of a beneficial interest
in the Rule 144A Global Note of any series, the Restricted
Regulation S Global Note of any series or the Unrestricted
Regulation S Global Note of any series deposited with the
Depositary wishes at any time to exchange its interest in such
Global Note for an Accredited Investor Note or transfer its
interest in such Note to a Person who wishes to take delivery
thereof in the form of an Accredited Investor Note of such
series such holder may, subject to the rules and procedures of
Euroclear or Cedel and the Depositary, as the case may be,
exchange or transfer or cause the exchange or transfer of such
interest for an equivalent interest in an Accredited Investor
Note of such series, in accordance with, and subject to, this
clause (v). Upon receipt by the Trustee, at the Corporate
Trust Office, of a certificate in the form of EXHIBIT F
attached hereto given by the holder of such beneficial interest
and stating that the Person exchanging or transferring such
interest reasonably believes that the Person acquiring such
interest in an Accredited Investor Note of such series is an
institution that is an "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and
is obtaining such interest in a transaction exempt from the
Securities Act, Euroclear or Cedel or the Trustee, as the case
may be, shall instruct the Depositary to reduce the Restricted
Regulation S Global Note of such series, the Unrestricted
Regulation S Global Note of such series or the Rule 144A Global
Note of such series, as the case may be, by the aggregate
principal amount of the beneficial interest in such Global
Notes to be exchanged or transferred (such instructions to
contain information regarding the Agent Member's account with
the Depositary to be debited with such decrease), the Company
shall execute, and the Trustee shall authenticate and deliver
in the name of the Person specified in such instructions an
Accredited Investor Note of such series equal to the reduction
in the principal amount of the Restricted Regulation S Global
Note of such series, the Unrestricted Regulation S Global Note
of such series or the Rule 144A Global Note of such series, as
the case may be.
(vi) OTHER EXCHANGES. In the event that a Global Note is
exchanged for Notes in definitive registered form without
interest coupons pursuant to Section 2.05 hereof, such Notes
may be exchanged or transferred for one another only in
accordance with such procedures as are substantially consistent
with the provisions of clauses (ii) through (v) above
(including, without limitation, the certification requirements
intended to insure that such exchanges or transfers comply with
Rule 144A, Rule 144 or Regulation S and generally with the
Securities Act, as the case may be) and as may be from time to
time adopted by the Company and the Trustee.
(c) Successive registrations and registrations of
transfers and exchanges as aforesaid may be made from time to time as
desired, and each such registration shall be noted on the Note Register. No
service charge shall be made for any registration of transfer or exchange of
the Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith and any
other amounts required to be paid by the provisions of the Notes.
(d) If Notes are issued upon the registration of
transfer, exchange or replacement of Notes not bearing the legends required
by the form of Note attached as EXHIBIT A hereto (collectively, the
"LEGEND"), the Notes so issued shall not bear the Legend. If Notes are
issued upon the registration or transfer, exchange or replacement of Notes
bearing the Legend, or if a request is made to remove the Legend on a Note,
the Notes so issued shall bear the Legend, or the Legend shall not be
removed, as the case may be, unless there is delivered to the Company and the
Trustee such satisfactory evidence, which
21
<PAGE>
may include an opinion of counsel of recognized standing licensed to practice
law in the State of New York and experienced in matters involving the
Securities Act, as may be reasonably required by the Company that neither the
Legend nor the restrictions on transfer set forth therein are required to
ensure that transfers thereof comply with the provisions of Rule 144A, Rule
144 or Regulation S or that such Notes are not "restricted securities" within
the meaning of Rule 144. Upon provision of such satisfactory evidence, the
Trustee, at the direction of the Company, shall authenticate and deliver a
Note that does not bear the Legend. If a Legend is removed from the face of
a Note and the Note is subsequently held by an affiliate of the Company, the
Legend shall be reinstated.
Each Holder of a Note agrees to indemnify the Company and
the Trustee against any liability that may result from the transfer, exchange
or assignment of such Holder's Note in violation of any provision of this
Indenture and/or applicable United States federal or state securities law.
The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Note other than to require delivery of such
certificates and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by the terms of, this
Indenture, and to examine the same to determine substantial compliance as to
form with the express requirements hereof.
SECTION 2.07. TEMPORARY NOTES. Pending the preparation
of definitive Notes of any series, the Company may execute, and the Trustee
shall authenticate and deliver, temporary Notes (printed, lithographed or
typewritten) of any authorized denomination, and substantially in the form of
the definitive Notes in lieu of which they are issued, but with such
omissions, insertions and variations as may be appropriate for temporary
Notes, all as may be determined by the Company. Every temporary Note of any
series shall be executed by the Company and be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with like
effect, as the definitive Notes of that series in accordance with the terms
of Section 2.04 hereof. Without unnecessary delay the Company will execute
and will furnish definitive Notes of such series and thereupon any or all
temporary Notes of that series may be surrendered in exchange therefor
(without charge to the holders), at the office or agency of the Company
designated for the purpose in the Borough of Manhattan, the City and State of
New York, and the Trustee shall authenticate and such office or agency shall
make available for delivery in exchange for such temporary Notes an equal
aggregate principal amount of definitive Notes of that series, unless the
Company advises the Trustee to the effect that definitive Notes need not be
executed and furnished until further notice from the Company. Until so
exchanged, the temporary Notes of that series shall be entitled to the same
benefits under this Indenture as definitive Notes of that series
authenticated and delivered hereunder.
SECTION 2.08. MUTILATED, DESTROYED, LOST AND STOLEN
NOTES. In case any temporary or definitive Note shall become mutilated or be
destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon its request the Trustee (subject as
aforesaid) shall authenticate and make available for delivery, a new Note of
the same series bearing a number not contemporaneously outstanding, in
exchange and substitution for the mutilated Note, or in lieu of and in
substitution for the Note so destroyed, lost or stolen. In every case the
applicant for a substituted Note shall furnish to the Company and to the
Trustee such security or indemnity as may be required by them to save each of
them harmless and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company and to the Trustee evidence to their
satisfaction of the destruction, loss or theft of the applicant's Note and of
the ownership thereof. The Trustee may authenticate any such substituted
22
<PAGE>
Note and make available for delivery the same upon the written order of the
Company. Upon the issuance of any substituted Note, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and the expenses of the Trustee) connected therewith. In case any Note
which has matured or is about to mature or has been called for redemption
shall become mutilated or be destroyed, lost or stolen, the Company may,
instead of issuing a substituted Note, pay or authorize the payment of the
same (without surrender thereof except in the case of a mutilated Note) if
the applicant for such payment shall furnish to the Company and to the
Trustee such security or indemnity as they may require to save them harmless
and, in case of destruction, loss or theft, evidence to the satisfaction of
the Company and the Trustee of the destruction, loss or theft of such Note
and of the ownership thereof.
Every Note issued pursuant to the provisions of this
Section in substitution for any Note which is mutilated, destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the mutilated, destroyed, lost or stolen Note shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes of the same series duly issued hereunder. All Notes shall be held and
owned upon the express condition that the foregoing provisions are exclusive
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Notes, and shall preclude (to the extent lawful) any and all other
rights or remedies, notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
SECTION 2.09. CANCELLATIONS. All Notes surrendered for
the purpose of payment, redemption, exchange or registration of transfer
shall, if surrendered to the Company or any paying agent, be delivered to the
Trustee for cancellation or, if surrendered to the Trustee, shall be canceled
by it, and no Notes shall be issued in lieu thereof except as expressly
required or permitted by any of the provisions of this Indenture. On request
of the Company, the Trustee shall deliver to the Company canceled Notes held
by the Trustee. All canceled Notes held by the Trustee shall be disposed of
in accordance with the Trustee's policy of disposal of canceled Notes;
provided that the Trustee shall not be required to destroy canceled Notes.
If the Company shall otherwise acquire any of the Notes, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Notes unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.10. BENEFITS OF INDENTURE. Nothing in this
Indenture or in the Notes, express or implied, shall give or be construed to
give to any Person, other than the parties hereto and the holders of the
Notes, any legal or equitable right, remedy or claim under or in respect of
this Indenture, or under any covenant, condition or provision herein
contained; all such covenants, conditions and provisions being for the sole
benefit of the parties hereto and of the holders of the Notes.
SECTION 2.11. AUTHENTICATING AGENT. So long as any of
the Notes of any series remain Outstanding, there may be an Authenticating
Agent for any or all such series of Notes which the Trustee shall have the
right to appoint. The Authenticating Agent shall be authorized to act on
behalf of the Trustee to authenticate Notes of such series issued upon
exchange, transfer or partial redemption thereof, and Notes so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
All references in this Indenture to the authentication of Notes of any series
by the Trustee shall be deemed to include authentication by an Authenticating
Agent for such series except for authentication upon original issuance or
pursuant to Section 2.07 hereof. Each Authenticating Agent shall be
acceptable to the Company and shall be a bank
23
<PAGE>
or trust company or corporation which has a combined capital and surplus, as
most recently reported or determined by it, of not less than $50 million, and
which is otherwise authorized under such laws to conduct a trust business and
is subject to supervision or examination by Federal or state authorities. If
at any time any Authenticating Agent shall cease to be eligible in accordance
with these provisions, it shall resign immediately.
Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee
may at any time (and upon request by the Company shall) terminate the agency
of any Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint
an eligible successor Authenticating Agent acceptable to the Company and
shall mail written notice of such appointment to all Noteholders of the
series with respect to which such Authenticating Agent shall serve, as their
names and addresses appear in the Note Register. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall
become vested with all the rights, powers and duties of its predecessor
hereunder as if originally named as an Authenticating Agent pursuant hereto.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the
Notes may, and in the case of Global Notes pursuant to Section 2.02(c) shall,
use "CUSIP" numbers (if then generally in use), and, if so used, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to
holders of Notes; PROVIDED that any such notice may state that no
representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of
any change in the CUSIP numbers.
SECTION 2.13. SUPPORT AGREEMENT. Holders of Notes of a
particular series and the Trustee in respect thereof are entitled to the
benefits of the Support Agreement available to the Lenders (as defined in the
Support Agreement), if, and only if, provided for in an indenture
supplemental hereto or in an Officer's Certificate delivered to the Trustee
pursuant to Section 2.01 hereof, it being understood and agreed that the
Notes of such series shall constitute Obligations (as defined in the Support
Agreement) for the purposes of the Support Agreement.
ARTICLE THREE
Redemption of Notes, Repayment at the Option of
the Holder and Sinking Fund Provisions
SECTION 3.01. REDEMPTION OF NOTES; REPAYMENT AT THE
OPTION OF THE HOLDER. The Company may redeem the Notes of any series issued
hereunder on and after the dates and in accordance with the terms established
for that series pursuant to Section 2.01 hereof. The Notes may be repayable
by the Company at the option of the holders thereof on and after the dates in
accordance with the terms established for that series pursuant to Section
2.01 hereof.
24
<PAGE>
SECTION 3.02. NOTICES OF REDEMPTION.
(a) In case the Company shall desire to exercise such
right to redeem all or, as the case may be, a portion of the Notes of any
series in accordance with the right reserved so to do, it shall give notice
of such redemption to holders of the Notes of the series to be redeemed by
mailing, first-class postage prepaid, a notice of such redemption not less
than 30 days and not more than 60 days before the date fixed for redemption
of that series to such holders at their last addresses as they shall appear
upon the Note Register. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or
not the registered holder receives the notice. In any case, failure duly to
give such notice to the holder of any Note of any series designated for
redemption in whole or in part, or any defect in the notice, shall not affect
the validity of the proceedings for the redemption of any other Notes of that
series or any other series. In the case of any redemption of Notes prior to
the expiration of any restriction on such redemption or pursuant to an
election of the Company which is subject to a condition provided in the terms
of such Notes or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officer's Certificate evidencing compliance with any such
restriction or condition.
Each such notice of redemption shall identify the Notes
to be redeemed (including CUSIP numbers), specify the date fixed for
redemption and the redemption price at which Notes of that series are to be
redeemed, and shall state that payment of the redemption price of the Notes
to be redeemed will be made at the office or agency of the Company in the
Borough of Manhattan, the City and State of New York, upon presentation and
surrender of such Notes, that interest accrued to the date fixed for
redemption will be paid as specified in that notice, that from and after that
date interest will cease to accrue, and that the redemption is for a sinking
fund, if such is the case. If less than all the Notes of a series are to be
redeemed, the notice to the holders of Notes of that series to be redeemed
shall specify the particular Notes to be so redeemed. In case any Note is to
be redeemed in part only, the notice which relates to such Note shall state
the portion of the principal amount thereof to be redeemed, and shall state
that on and after the redemption date, upon surrender of such Note, a new
Note or Notes of that series in principal amount equal to the unredeemed
portion thereof will be issued.
(b) The Company shall give the Trustee at least 45 days'
advance notice (provided that such notice is required solely with respect to
a redemption at the option of the Company) of the date fixed for redemption
(unless shorter notice shall be acceptable to the Trustee) as to the
aggregate principal amount of Notes of the series to be redeemed, and
thereupon the Trustee shall select, by lot or in such other manner as it
shall deem appropriate and fair in its discretion and which may provide for
the selection of a portion or portions (equal to $100,000 or integral
multiples of $1,000 in excess thereof) of the principal amount of Notes of
such series of a denomination larger than $100,000, the Notes to be redeemed
and shall thereafter promptly notify the Company and the Note Registrar (if
other than itself) in writing of the numbers of the Notes to be redeemed.
The Company may, if and whenever it shall so elect, by
delivery of instructions signed on its behalf by an Authorized Officer,
instruct the Trustee or any paying agent to call all or any part of the Notes
of a particular series for redemption and to give notice of redemption in the
manner set forth in this Section, such notice to be in the name of the
Company or its own name as the Trustee or such paying agent may deem
advisable. In any case in which notice of redemption is to be given by the
Trustee or any such paying agent, the Company shall deliver or cause to be
delivered to, or permit to remain with, the Trustee or such paying agent, as
the same may be, such Note Register, transfer books or other records, or
25
<PAGE>
suitable copies or extracts therefrom, sufficient to enable the Trustee or
such paying agent to give any notice by mail that may be required under the
provisions of this Section.
SECTION 3.03. PRESENTATION AND SURRENDER OF NOTES.
(a) If the giving of notice of redemption shall have
been completed as above provided, the Notes or portions of Notes of the
series to be redeemed specified in such notice shall become due and payable
on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued to the date fixed for
redemption, and interest on such Notes or portions of Notes shall cease to
accrue on and after the date fixed for redemption, unless the Company shall
default in the payment of such redemption price and accrued interest with
respect to any such Note or portion thereof. On presentation and surrender
of such Notes on or after the date fixed for redemption at the place of
payment specified in the notice, such Notes shall be paid and redeemed at the
applicable redemption price for such series, together with interest accrued
thereon to the date fixed for redemption (but if the date fixed for
redemption is an interest payment date, the interest installment payable on
such date shall be payable to the registered holder at the close of business
on the applicable record date pursuant to Section 2.03).
(b) Upon presentation of any Note of such series which
is to be redeemed in part only, the Company shall execute, the Trustee shall
authenticate and the office or agency where the Note is presented shall make
available for delivery to the holder thereof, at the expense of the Company,
a new Note or Notes of the same series, of authorized denominations in
principal amount equal to the unredeemed portion of the Note so presented.
SECTION 3.04. SINKING FUND. The provisions of this
Section 3.04 and Sections 3.05 and 3.06 shall apply to any sinking fund for
the retirement of Notes of a series, except as otherwise specified as
contemplated by Section 2.01 for Notes of that series.
The minimum amount of any sinking fund payment provided
for by the terms of Notes of any series is herein referred to as a "mandatory
sinking fund payment," and any payment in excess of such minimum amount
provided for by the terms of Notes of any series is herein referred to as an
"optional sinking fund payment." If provided for by the terms of Notes of
any series, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 3.05. Each sinking fund payment shall be
applied to the redemption of Notes of any series as provided for by the terms
of Notes of that series.
SECTION 3.05. SATISFACTION OF SINKING FUND PAYMENT. The
Company (i) may deliver Outstanding Notes of a series (other than any
previously called for redemption) and (ii) may apply as a credit Notes of a
series which have been redeemed either at the election of the Company
pursuant to the terms of such Notes or through the application of permitted
optional sinking fund payments pursuant to the terms of such Notes, in each
case in satisfaction of all or any part of any sinking fund payment with
respect to the Notes of such series required to be made pursuant to the terms
of such Notes as provided for by the terms of that series; provided that such
Notes have not been previously so credited. Such Notes shall be received and
credited for such purpose by the Trustee at the redemption price specified in
such Notes for redemption through operation of the sinking fund and the
amount of such sinking fund payment shall be reduced accordingly.
26
<PAGE>
SECTION 3.06. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for any series
of Notes, the Company will deliver to the Trustee an Officer's Certificate
specifying the amount of the next ensuing sinking fund payment for that
series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by delivering and crediting Notes of that series
pursuant to Section 3.05 and the basis for such credit and will, together
with such Officer's Certificate, deliver to the Trustee any Notes to be so
delivered. Not less than 30 days before each such sinking fund payment date,
the Trustee shall select the Notes to be redeemed upon such sinking fund
payment date in the manner specified in Section 3.02 and cause notice to be
given in the name of and at the expense of the Company in the manner provided
in Section 3.02. Such notice having been duly given, the redemption of such
Notes shall be made upon the terms and in the manner stated in Section 3.03.
ARTICLE FOUR
Particular Covenants of the Company
Unless otherwise provided in a supplemental indenture
executed in accordance with Article Nine hereof, the covenants contained in
this Article Four shall apply to each series of the Notes. The Company
covenants and agrees for each series of the Notes as follows:
SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM AND
INTEREST. The Company will duly and punctually pay or cause to be paid the
principal of (and premium, if any) and interest on the Notes of that series
at the time and place and in the manner provided herein and established with
respect to such Notes.
SECTION 4.02. MAINTENANCE OF OFFICE AND AGENCY. So long
as any series of the Notes remains Outstanding, and thereafter as provided in
Article Eleven, the Company agrees to maintain an office or agency in the
Borough of Manhattan, the City and State of New York (which, unless changed,
shall be a corporate trust office or agency of the Trustee), with respect to
each such series and at such other location or locations as may be designated
as provided in this Section 4.02, where (i) Notes of that series may be
presented for payment, (ii) Notes of that series may be presented as
hereinabove authorized for registration of transfer and exchange and (iii)
notices and demands to or upon the Company in respect of the Notes of that
series and this Indenture may be given or served, such designation to
continue with respect to such office or agency until the Company shall, by
written notice signed by its Chief Executive Officer, its President, a Vice
President or its Treasurer and delivered to the Trustee, designate some other
office or agency for such purposes or any of them. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, notices and
demands may be made or served at the Corporate Trust Office of the Trustee,
and the Company hereby appoints the Trustee as its agent to receive all such
presentations, notices and demands.
SECTION 4.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN
TRUST.
(a) If the Company shall appoint one or more paying
agents, other than the Trustee, for all or any series of the Notes, the
Company will cause each such paying agent to execute and deliver
27
<PAGE>
to the Trustee an instrument in which such agent shall agree with the
Trustee, subject to the provisions of this Section, that it will:
(1) hold all sums held by it as such agent for the payment of
the principal of (and premium, if any) or interest on the Notes of
that series (whether such sums have been paid to it by the Company
or by any other obligor of such Notes) in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any failure by the Company (or
by any other obligor of such Notes) to make any payment of the
principal of (and premium, if any) or interest on the Notes of that
series when the same shall be due and payable;
(3) at any time during the continuance of any failure referred
to in the preceding paragraph (a)(2) above, upon the written request
of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such paying agent; and
(4) perform all other duties of paying agent as set forth in this
Indenture.
(b) If the Company shall act as its own paying agent with
respect to any series of the Notes, it will, on or before each due date of
the principal of (and premium, if any) or interest on Notes of that series
set aside, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay such principal (and premium, if any)
or interest so becoming due on Notes of that series until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of such action, or any failure (by it or any
other obligor on such Notes) to take such action. Whenever the Company shall
have one or more paying agents for any series of Notes, it will, no later
than 11:00 A.M. New York time on or prior to each due date of the principal
of (and premium, if any) or interest on any Notes of that series, deposit
with the paying agent a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due, such sum in immediately available funds to
be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such paying agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
(c) Anything in this Section 4.03 to the contrary
notwithstanding, (i) the agreement to hold sums in trust as provided in this
Section 4.03 is subject to the provisions of Section 11.06 and (ii) the
Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or direct any
paying agent to pay, to the Trustee all sums held in trust by the Company or
such paying agent, such sums to be held by the Trustee upon the same terms
and conditions as those upon which such sums were held by the Company or such
paying agent; and, upon such payment by any paying agent to the Trustee, such
paying agent shall be released from all further liability with respect to
such sums.
SECTION 4.04. APPOINTMENT OF TRUSTEE. The Company, whenever
necessary to avoid or fill a vacancy in the Office of Trustee, will appoint,
in the manner provided in Section 7.10, a Trustee, so that there shall at all
times be a Trustee hereunder.
SECTION 4.05. CONSOLIDATION, MERGER OR SALE. The Company will
not, while any of the Notes remain Outstanding, consolidate with, merge into,
merge into itself or sell or convey all or
28
<PAGE>
substantially all of its property to any other Person, unless the provisions
of Article Ten hereof are complied with.
SECTION 4.06. LIMITATION ON LIENS. If this covenant shall be
made applicable to the Notes of a particular series, so long as any of the
Notes of that series are outstanding, the Company covenants and agrees that
it will not create or suffer to exist, or permit any of its Subsidiaries to
create or suffer to exist, any Lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement, upon or with
respect to any of its property, whether now owned or hereafter acquired, or
assign, or permit any of its Subsidiaries to assign, any right to receive
income, in each case to secure or provide for the payment of any
Indebtedness, without effectively providing that the Outstanding Notes to
which this section shall have been made applicable (together with, if the
Company so determines, any other indebtedness or obligation then existing or
thereafter created ranking equally with the Notes) shall be secured equally
and ratably with (or prior to) such Indebtedness so long as such Indebtedness
shall be so secured, except that the foregoing provisions shall not apply to:
(a) Liens or security interests existing on such property at
the time of its acquisition (other than any such Lien or security
interest created in the contemplation of such acquisition or of such
Person becoming a Subsidiary);
(b) Liens created by purchase money mortgages or other
security interests upon or in any property acquired or held by the
Company or any Subsidiary in the ordinary course of business to
secure the purchase price of such property or to secure Indebtedness
incurred soley for the purpose of financing the acquisition of such
property;
(c) Liens or security interests upon or with respect to any
of the Company's interests in its Subsidiaries (other than direct
Subsidiaries of the Company) or any of the Company's Subsidiaries'
assets incurred solely to secure repayment of project financing for,
or utility obligations of, such Subsidiary;
(d) Margin deposits securing Indebtedness of up to
$10,000,000 at any one time outstanding relating to obligations
incurred in the ordinary course of its energy marketing business;
(e) Liens securing obligations, neither assumed by the Company
or any Subsidiary nor on account of which the Company or any
Subsidiary customarily pays interest, upon real estate upon or under
which the Company or any Subsidiary has a right-of-way, easement,
franchise or other servitude or of which the Company or any
Subsidiary is the lessee of the whole thereof or any interest
therein for the purpose of locating pipe lines, substations,
measuring stations, tanks or pumping or delivery equipment;
(f) Liens or security interests on assets of a Subsidiary
securing Indebtedness of such Subsidiary, provided that the
aggregate principal amount of outstanding Indebtedness of
Subsidiaries secured by Liens or security interests incurred
pursuant to this clause (f) shall not exceed $10,000,000 at any time;
(g) Liens on any assets of any Subsidiary of the Company in
favor of he Company or any Subsidiary of the Company; and
29
<PAGE>
(h) Extensions and renewals of any Lien or security interest
described in clauses (a) through (g) above, PROVIDED that (A) any
such extension or renewal shall be limited to the property
theretofore subject to such Lien or security interest and additions
and/or improvements thereto and (B) the principal amount of the
Indebtedness secured by such Lien or security interest shall not be
increased.
Notwithstanding the foregoing, the Company and one or more
Subsidiaries may issue, assume or guarantee Indebtedness secured by
Liens upon or with respect to any property of the Company or any
Subsidiary which would otherwise be subject to the foregoing
restrictions, provided that at the time of such issuance, assumption
or guarantee of Indebtedness, after giving effect thereto and to the
retirement of any Indebtedness which is concurrently being retired,
the sum of (i) the aggregate principal amount of all outstanding
Indebtedness secured by such Liens which could not have been issued,
assumed or guaranteed by the Company or a Subsidiary without equally
and ratably securing the Notes of each series then Outstanding,
except for the provisions of this paragraph, plus (ii) the
Attributable Debt of the Company and its Subsidiaries in respect of
Sale and Leaseback Transactions entered into pursuant to the final
paragraph under Section 4.09 below, does not at such time exceed 15%
of Consolidated Net Tangible Assets of the Company computed as of
the end of the most recent fiscal quarter preceding such issuance,
assumption or guarantee.
SECTION 4.07. CERTIFICATE TO TRUSTEE. So long as any of the
Notes are Outstanding, the Company shall furnish to the Trustee on or before
May 15 in each year (beginning with May 15, 1998) a brief certificate from
the principal executive, financial or accounting officer of the Company as to
his or her knowledge of the Company's compliance with all covenants under
this Indenture (such compliance to be determined without regard to any period
of grace or requirement of notice provided under this Indenture).
SECTION 4.08. REPORTS BY THE COMPANY.
(a) If the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, then the Company
shall file with the Trustee, and the Trustee shall provide Noteholders,
within 30 days after it files them with the Commission, copies of its annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) that the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act.
(b) As long as the Company is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, nor is
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act and
the Notes are "restricted securities" within the meaning of Rule 144 under
the Securities Act, upon the request of a Noteholder who is a "qualified
institutional buyer" (as defined in Rule 144A) or any owner of a beneficial
interest in a Note who is a "qualified institutional buyer" (as defined in
Rule 144A), the Company shall promptly furnish or cause to be furnished "Rule
144A Information" (as defined herein) to such Noteholder or beneficial owner
or to a prospective purchaser of such Note who is a "qualified institutional
buyer" (as defined in Rule 144A) designated by such Noteholder or beneficial
owner who is a "qualified institutional buyer" (as defined in Rule 144A).
"RULE 144A INFORMATION" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
30
<PAGE>
(c) So long as any of the Notes are Outstanding, in
addition to the requirement to furnish Rule 144A Information as provided in
subsection (b), the Company shall file with the Trustee and the Trustee shall
provide to all Noteholders and (upon the request thereof delivered to the
Company or the Trustee) to holders of an interest in any Global Note annual
consolidated financial statements of the Company prepared in accordance with
GAAP (together with notes thereto and, with respect to financial statements
for fiscal year 1998 and thereafter, a report thereon by an independent
accountant of established national reputation), such statements to be filed
with the Trustee within 120 days after the end of the fiscal year covered
thereby. In addition, the Company will file with the Trustee, and the
Trustee will provide upon written request to each holder (and beneficial
holder) of not less than 10% of the outstanding principal amount of the Notes
of any series, unaudited condensed consolidated balance sheets of the Company
as of the end of each of the first three fiscal quarters of each fiscal year
prepared on a basis consistent with the annual financial statements furnished
pursuant to clause (c)(i), such statements to be filed with the Trustee
within 60 days after the end of each such fiscal quarter.
(d) As long as Notes remain outstanding and the Support
Agreement is still in effect, the Company shall file with the Trustee, and
the Trustee shall provide to all holders of Notes that have the benefit of
the Support Agreement, within 30 days after they are filed with the
Commission, copies of Energy Corp.'s annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) that
Energy Corp. is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act.
Delivery of such reports, information and documents to
the Trustee is for informational purposes only and the Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officer's Certificates).
SECTION 4.09. RESTRICTIONS ON SALES AND LEASEBACKS. If
this covenant shall be made applicable to the Notes of a particular series,
the Company shall not and shall not permit any Subsidiary to enter into any
arrangement with any Person (not including arrangements between the Company
and a Subsidiary or between Subsidiaries) providing for the sale and leasing
back by the Company or any Subsidiary for a period, including renewal, in
excess of three years of any property which has been owned or operated for
more than nine months after the acquisition thereof or the completion of
construction and commencement of full operation thereof by the Company or any
Subsidiary (a "Sale and Leaseback Transaction"), unless:
(1) immediately after giving effect to such Sale and Leaseback
Transaction, no Event of Default, or event that with the giving of
notice or passage of time or both would constitute an Event of
Default, shall have occurred and be continuing, and
(2) an amount equal to the fair market value (as determined in
good faith by the Company's Board of Directors at the time of
entering into such arrangements) is received for the property so
sold and leased back and is (i) invested in, or is held in cash or
cash-equivalents for reinvestment in, other energy-related assets
owned or to be owned by the Company or its Subsidiaries or (ii)
applied to the payment or prepayment of Indebtedness of the Company
or any of its Subsidiaries (other than Indebtedness owed to the
Company or any of its Subsidiaries).
31
<PAGE>
Notwithstanding the foregoing, the Company and its
Subsidiaries, or any of them, may enter into a Sale and Leaseback Transaction
which would otherwise be prohibited by the above restriction, provided that
at the time of such transaction, after giving effect thereto, the sum of (i)
the aggregate amount of the Attributable Debt in respect of all Sale and
Leaseback Transactions existing at such time which could not have been
entered into except for the provisions of this paragraph, plus (ii) the
aggregate principal amount of outstanding Indebtedness secured by Liens in
reliance on the last paragraph under Section 4.06 above does not at such time
exceed 15% of Consolidated Net Tangible Assets of the Company computed as of
the end of the most recent fiscal quater preceding such Sale and Leaseback
Transaction.
SECTION 4.10. SUPPORT AGREEMENT. The Company covenants
and agrees with respect to any Notes that are entitled to the benefit of the
Support Agreement that (a) it will perform its obligations under the Support
Agreement, and request funds from Energy Corp. in accordance with the terms
of the Support Agreement in the event the Company is unable to make timely
payment, when due, of interest, principal or premium, if any, on the Notes,
and (b) it will not agree to any amendment or termination of the Support
Agreement as in effect on the date of this Indenture, except in accordance
with the terms of the Support Agreement as in effect on the date of this
Indenture.
ARTICLE FIVE
Noteholders' Lists and Reports by the Company
and the Trustee
SECTION 5.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. The Company will furnish or cause to be furnished to the Trustee
(a) not later than 10 days after each regular record date (as defined in
Section 2.03), a list, in such form as the Trustee may reasonably require, of
the names and addresses of the holders of each series of Notes as of such
regular record date; provided that the Company shall not be obligated to
furnish or cause to furnish such list at any time that the list shall not
differ in any respect from the most recent list furnished to the Trustee by
the Company and (b) at such other times as the Trustee may request in writing
within 30 days after the receipt by the Company of any such request, a list
of similar form and content as of a date not more than 15 days prior to the
time such list is furnished; PROVIDED, HOWEVER, no such list need be
furnished for any series for which the Trustee shall be the Note Registrar.
SECTION 5.02. INFORMATION FROM TRUSTEE.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 5.01 and as to the names and addresses of holders of Notes received
by the Trustee in its capacity as Note Registrar (if acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 5.01 upon receipt of a new list so furnished.
(c) In case three or more holders of Notes of a series (hereinafter
referred to as "applicants") holding not less than 10% in aggregate principal
amount of the Notes of such series apply in writing to the Trustee, and furnish
to the Trustee reasonable proof that each such applicant has owned
32
<PAGE>
a Note for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other holders of Notes of that series or holders of all
Notes with respect to their rights under this Indenture or under such Notes,
and is accompanied by a copy of the form of proxy or other communication
which such applicants propose to transmit, then the Trustee shall, within
five Business Days after the receipt of such application, at its election,
either:
(1) afford to such applicants access to the information
preserved at the time by the Trustee in accordance with the
provisions of Section 5.02(a); or
(2) inform such applicants as to the approximate number of
holders of Notes of such series or of all Notes, as the case may be,
whose names and addresses appear in the information preserved at the
time by the Trustee, in accordance with the provisions of Section
5.02(a), and as to the approximate cost of mailing to such
Noteholders the form of proxy or other communication, if any,
specified in such application.
(d) If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon the written request of such
applicants, mail to each holder of that series or of all Notes, as the case may
be, whose name and address appears in the information preserved at the time by
the Trustee in accordance with the provisions of Section 5.02(a), a copy of the
form of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing.
(e) Each and every holder of the Notes, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent nor any Note Registrar shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the holders of Notes in accordance with the provisions of Section 5.02(c),
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under Section 5.02(c).
ARTICLE SIX
Remedies of the Trustee and Noteholders
on Event of Default
SECTION 6.01. EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY;
WAIVER OF DEFAULT.
(a) Unless otherwise provided in a supplemental indenture executed in
accordance with Article Nine hereof, the Events of Default contained in this
Article Six shall apply to each series of the Notes. Whenever used herein with
respect to Notes of a particular series, "Event of Default" means any one or
more of the following events which has occurred and is continuing:
(1) default in the payment of the principal of (or any
premium on) any of the Notes of that series as and when the same
shall become due and payable, whether at maturity, upon redemption,
by declaration or otherwise, or in any payment required by any
sinking or analogous fund established with respect to that series;
33
<PAGE>
(2) default in the payment of any installment of interest
upon any of the Notes of that series, as and when the same shall
become due and payable, and continuance of such default for a period
of 30 days;
(3) (i) an event of default, as defined in any instrument of
the Company or any of its Material Consolidated Subsidiaries under
which there may be issued, or by which there may be secured or
evidenced, any Indebtedness of the Company or any Material
Consolidated Subsidiary of the Company, that has resulted in the
acceleration of such Indebtedness and such acceleration shall not
have been rescinded or annulled within 30 days of the occurrence
thereof, or any default occurring in the payment of such
Indebtedness at final maturity (and after the expiration of any
applicable grace period and such default shall not have been cured
within 90 days), other than such Indebtedness (x) which is payable
solely out of the property or assets of a partnership, joint venture
or similar entity of which the Company or any of its Subsidiaries or
Affiliates is a participant, or which is secured solely by a lien on
the property or assets owned or held by such entity, (y) which is
Non-Recourse Indebtedness of the Company or any Material
Consolidated Subsidiary of the Company, or (z) the principal of such
Indebtedness, which, when added to the principal of all other such
Indebtedness (exclusive of Indebtedness under clauses (x) and (y)
above), does not exceed the greater of $15,000,000 (or the
equivalent in another currency) and 2% of the Consolidated Net
Tangible Assets of the Company computed as of the end of the most
recent fiscal quarter; or
(ii) an event of default, as defined in any instrument of
Energy Corp. or LG&E under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of Energy Corp.
or LG&E, that has resulted in the acceleration of such Indebtedness
and such acceleration shall not have been rescinded or annulled
within 30 days of the occurrence thereof, or any default occurring
in the payment of such Indebtedness at final maturity (and after the
expiration of any applicable grace period and such default shall not
have been cured within 90 days), other than such Indebtedness (x)
which is payable solely out of the property or assets of a
partnership, joint venture or similar entity of which Energy Corp.
or any of its Subsidiaries or Affiliates is a participant, or which
is secured solely by a lien on the property or assets owned or held
by such entity, (y) which is Non-Recourse Indebtedness of Energy
Corp. or LG&E, as the case may be, or (z) the principal of such
Indebtedness, which, when added to the principal of all other such
Indebtedness (exclusive of Indebtedness under clauses (x) and (y)
above), does not exceed the greater of $25,000,000 (or the
equivalent in another currency) and 1% of the Consolidated Net
Tangible Assets of Energy Corp. computed as of the end of the most
recent fiscal quarter;
(4) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company with respect to that series contained in such Notes or
otherwise established with respect to that series of Notes pursuant
to Section 2.01 hereof or contained in this Indenture or the Support
Agreement, if applicable to that series of Notes (other than a
covenant or agreement which has been expressly included in this
Indenture solely for the benefit of one or more series of Notes
other than such series) for a period of 30 days after the date on
which written notice of
34
<PAGE>
such failure, requiring the same to be remedied and stating that such
notice is a "Notice of Default" hereunder, shall have been given to
the Company by the Trustee, by registered or certified mail, or to the
Company and the Trustee by the holders of at least 25% in principal
amount of the Notes of that series at the time outstanding;
(5) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company, Energy
Corp., LG&E or any Material Consolidated Subsidiary of the Company
(collectively, the "RELEVANT PARTIES") as bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation or
reorganization of any Relevant Party under the Federal Bankruptcy
Code or any other similar applicable Federal or state law, and such
decree or order shall have continued unvacated and unstayed for a
period of 90 days; an involuntary case shall be commenced under the
Federal Bankruptcy Code in respect of any Relevant Party and shall
continue undismissed for a period of 90 days or an order for relief
in such case shall have been entered; or a decree or order of a
court having jurisdiction in the premises shall have been entered
for the appointment on the ground of insolvency or bankruptcy of a
receiver, custodian, liquidator, trustee or assignee in bankruptcy
or insolvency of any Relevant Party or of its property, or for the
winding up or liquidation of its affairs, and such decree or order
shall have remained in force unvacated and unstayed for a period of
90 days;
(6) any Relevant Party shall institute proceedings to be
adjudicated a voluntary bankrupt, shall consent to the filing of a
bankruptcy proceeding against it, shall file a petition or answer or
consent seeking liquidation or reorganization under the Federal
Bankruptcy Code or other similar applicable Federal or state law,
shall consent to the filing of any such petition or shall consent to
the appointment on the ground of insolvency or bankruptcy of a
receiver or custodian or liquidator or trustee or assignee in
bankruptcy or insolvency of it or of its property, or shall make a
general assignment for the benefit of creditors;
(7) one or more final judgments, decrees or orders of any
court, tribunal, arbitration, administrative or other governmental
body or similar entity for the payment of money shall be rendered
against the Company or any Material Consolidated Subsidiary of the
Company or any of their respective properties in an aggregate amount
in excess of the greater of $15,000,000 or 2% of Consolidated Net
Tangible Assets of the Company computed as of the end of the most
recent fiscal quarter (excluding the amount thereof covered by (i)
insurance or (ii) a performance or similar bond) and such judgment,
decree or order shall remain unvacated, undischarged and unstayed
for more than 90 days, except while being contested in good faith by
appropriate proceedings; or
(8) one or more final judgments, decrees or orders of any
court, tribunal, arbitration, administrative or other governmental
body or similar entity for the payment of money shall be rendered
against Energy Corp. or LG&E or any of their respective properties
in an aggregate amount in excess of the greater of $25,000,000 or 1%
of the Consolidated Net Tangible Assets of Energy Corp. computed as
of the end of the most recent fiscal quarter (excluding the amount
thereof covered by (i) insurance or (ii) a performance or similar
bond) and such judgment, decree or order shall remain
35
<PAGE>
unvacated, undischarged and unstayed for more than 90 days, except
while being contested in good faith by appropriate proceedings; or
(9) at any time that any of the Notes are entitled to be to
the benefits of the Support Agreement, failure on the part of Energy
Corp. duly to observe or perform any of the covenants or agreements
on the part of Energy Corp. under the Support Agreement (after
giving effect to any applicable grace periods) for a period of 90
days after the date on which written notice of such failure,
requiring the same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given to Energy Corp.
by the Trustee, by registered or certified mail, or to Energy Corp.
and the Trustee by the holders of at least 25% in principal amount
of the Notes of that series at the time outstanding.
(b) In each and every such case, the Company shall file with the
Trustee written notice of the occurrence of any Event of Default within five
Business Days of the Company's becoming aware of any such Event of Default, and
unless the principal of all the Notes of that series shall have already become
due and payable, either the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes of that series then outstanding
hereunder, by notice in writing to the Company (and to the Trustee if given by
such Noteholders), may declare the principal of all the Notes of that series to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything contained in this
Indenture or in the Notes of that series or established with respect to that
series pursuant to Section 2.01 hereof to the contrary notwithstanding; provided
that in the case of an Event of Default described in Section 6.01(a)(5) hereof
(with respect to the Company and the Parent only), the entire principal amount
of all Outstanding Notes, all interest accrued and unpaid thereon, and all
premium (if any) and other amounts payable under the Notes and this Indenture,
if any, shall automatically become due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby waived.
(c) The provisions of subsection (b) of this Section, however, are
subject to the condition that if, at any time after the principal of the Notes
of that series shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained or
entered as hereinafter provided, the Company shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured installments of interest upon all
the Notes of that series and the principal of (and premium, if any, on) any and
all Notes of that series which shall have become due otherwise than by
acceleration (with interest upon such principal and premium, if any, and, to the
extent that such payment is enforceable under applicable law, upon overdue
installments of interest, at the rate per annum expressed in the Notes of that
series to the date of such payment or deposit) and the amount payable to the
Trustee under Section 7.06, and any and all defaults under the Indenture, other
than the nonpayment of principal on Notes of that series which shall not have
become due by their terms, shall have been remedied or waived as provided in
Section 6.06, then and in every such case the holders of the majority in
aggregate principal amount of the Notes of that series then outstanding, by
written notice to the Company and to the Trustee, may rescind and annul such
declaration and its consequences; but no such rescission and annulment shall
extend to or shall affect any subsequent default, or shall impair any right
consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right
with respect to Notes of that series under this Indenture and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been
36
<PAGE>
determined adversely to the Trustee, then and in every such case the Company
and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers
of the Company and the Trustee shall continue as though no such
proceedings had been taken.
SECTION 6.02. COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY
PROVE DEBT.
(a) The Company covenants that (1) in case default shall be made in
the payment of any installment of interest on any of the Notes of a series, and
such default shall have continued for a period of 30 days, or (2) in case
default shall be made in the payment of the principal of (or premium, if any,
on) any of the Notes of a series when the same shall have become due and
payable, whether upon maturity of the Notes of a series or upon redemption or
upon declaration or otherwise, or in any payment required by any sinking or
analogous fund established with respect to that series as and when the same
shall have become due and payable, then, upon demand of the Trustee, the Company
will pay to the Trustee, for the benefit of the holders of the Notes of that
series, the whole amount that then shall have become due and payable on all such
Notes for principal (and premium, if any) or interest, or both, as the case may
be, with interest upon the overdue principal (and premium, if any) and (to the
extent that payment of such interest is enforceable under applicable law) upon
overdue installments of interest at the rate per annum expressed in the Notes of
that series; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, and the amount payable
to the Trustee under Section 7.06.
(b) In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law or
in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree (i) against the Company, or any other obligor upon
the Notes of that series and collect in the manner provided by law out of the
property of the Company or any other obligor upon the Notes of that series
wherever situated the moneys adjudged or decreed to be payable or (ii) against
the Energy Corp., pursuant to Energy Corp.'s obligations under the Support
Agreement, and collect in the manner provided by law out of the property of
Energy Corp. (subject to the limitations set forth in the Support Agreement) the
moneys adjudged or decreed to be payable.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or other judicial
proceedings affecting the Company, any other obligor on such Notes or the
creditors or property of either, the Trustee shall have power to intervene in
such proceedings and take any action therein that may be permitted by the court
and shall (except as may be otherwise provided by law) be entitled to file such
proofs of claim and other papers and documents as may be necessary or advisable
in order to have the claims of the Trustee and of the holders of Notes of such
series allowed for the entire amount due and payable by the Company or such
other obligor under the Indenture at the date of institution of such proceedings
and for any additional amount which may become due and payable by the Company or
such other obligor after such date, and to collect and receive any moneys or
other property payable or deliverable on any such claim, and to distribute the
same after the deduction of the amount payable to the Trustee under Section
7.06; and any receiver, assignee or trustee in bankruptcy or reorganization is
hereby authorized by each of the holders of Notes of that series to make such
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of such payments directly to such Noteholders, to pay to the Trustee any
amount due it under Section 7.06.
(d) All rights of action and of asserting claims under this Indenture
or the Support Agreement, or under any of the terms established with respect to
Notes of that series, may be enforced by
37
<PAGE>
the Trustee without the possession of any of such Notes, or the production
thereof at any trial or other proceeding relative thereto, and any such suit
or proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after
provision for payment to the Trustee of any amounts due under Section 7.06,
be for the ratable benefit of the holders of the Notes of that series.
In case of an Event of Default hereunder, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law, in
equity, in bankruptcy or otherwise, whether for the specific enforcement of any
covenant or agreement contained in this Indenture or the Support Agreement or in
aid of the exercise of any power granted in this Indenture, or to enforce any
other legal or equitable right vested in the Trustee by this Indenture or by
law.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize, consent to, accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes of
that series or the rights of any holder thereof or to authorize the Trustee to
vote in respect of the claim of any Noteholder in any such proceeding.
SECTION 6.03. APPLICATION OF PROCEEDS. Any moneys collected by the
Trustee pursuant to Section 6.02 with respect to a particular series of Notes
shall be applied in the order following, at the date or dates fixed by the
Trustee and, in case of the distribution of such moneys on account of principal
(or premium, if any) or interest, upon presentation of the several Notes of that
series, and stamping thereon the payment, if only partially paid, and upon
surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and
of all amounts payable to the Trustee under Section 7.06;
SECOND: To the payment of the amounts then due and unpaid
upon Notes of that series for principal (and premium, if any) and
interest, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Notes for
principal (and premium, if any) and interest, respectively; and
THIRD: To the Company.
SECTION 6.04. LIMITATION OF SUITS BY NOTEHOLDERS. No holder of any
Note of any series shall have any right by virtue or by availing of any
provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
such holder previously shall have given to the Trustee written notice of an
Event of Default and of the continuance thereof with respect to Notes of that
series specifying such Event of Default, as hereinbefore provided, and unless
also the holders of not less than 25% in aggregate principal amount of the Notes
of such series then outstanding shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as trustee
hereunder and shall have offered to the Trustee such reasonable security and
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of security and indemnity, shall have failed to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by the taker and holder of every Note of that
series with every other such taker and holder
38
<PAGE>
and the Trustee, that no one or more holders of Notes of that series shall
have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture or the Support Agreement to affect, disturb or
prejudice the rights of the holders of any other of such Notes, or to obtain
or seek to obtain priority over or preference to any other such holder, or to
enforce any right under this Indenture or the Support Agreement, except in
the manner herein provided and for the equal, ratable and common benefit of
all holders of Notes of that series. For the protection and enforcement of
the provisions of this Section, each and every Noteholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provisions of this Indenture, however, the
right of any holder of any Note to receive payment of the principal of (and
premium, if any) and interest on such Note, as therein provided, on or after the
respective due dates expressed in such Note (or in the case of redemption, on
the redemption date), or to institute suit for the enforcement of any such
payment on or after such respective dates or redemption date, shall not be
impaired or affected without the consent of such holder.
SECTION 6.05. POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER OF DEFAULT.
(a) All powers and remedies given by this Article to the Trustee or
to the Noteholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any others thereof or of any other powers and remedies
available to the Trustee or the holders of the Notes, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained in this Indenture or otherwise established with respect to
such Notes.
(b) No delay or omission of the Trustee or of any holder of any of
the Notes to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed as a waiver of any such default or an acquiescence therein;
and, subject to the provisions of Section 6.04, every power and remedy given by
this Article or by law to the Trustee or to the Noteholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee or
by the Noteholders.
SECTION 6.06. CONTROL BY NOTEHOLDERS. The holders of a majority in
aggregate principal amount of the Notes of any series at the time outstanding,
determined in accordance with Section 8.04, shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee with
respect to that series; PROVIDED, HOWEVER, that such direction shall not be in
conflict with any rule of law or with this Indenture or unduly prejudicial to
the rights of holders of Notes of any other series at the time outstanding
determined in accordance with Section 8.04 not parties thereto and provided
further that such holders have offered to the Trustee reasonable indemnity
against expenses and liabilities. The holders of a majority in aggregate
outstanding principal amount of the Notes of all series at the time outstanding
affected thereby, determined in accordance with Section 8.04, may on behalf of
the holders of all of the Notes of such series, waive any past default or Event
of Default in the performance of any of the covenants contained herein or
established pursuant to Section 2.01 with respect to such series and its
consequences, except a default in the payment of the principal of, or premium,
if any, or interest on, any of the Notes of that series as and when the same
shall become due by the terms of such Notes, which default may be waived by the
unanimous consent of the holders affected. Upon any such waiver, the default
covered thereby shall be deemed to be cured for all purposes of this Indenture
and the Company,
39
<PAGE>
the Trustee and the holders of the Notes of that series shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 6.07. NOTICE OF DEFAULTS. The Trustee shall, within 90 days
after the occurrence of a default with respect to a particular series, transmit
by mail, first-class postage prepaid, to the holders of Notes of that series, as
their names and addresses appear upon the Note Register, notice of all defaults
with respect to that series actually known to the Trustee, unless such defaults
shall have been cured or waived before the giving of such notice (the term
"defaults" for the purposes of this Section being hereby defined to be the
events specified in subsections (1), (2), (3), (4), (5), (6), (7), (8) and (9)
of Section 6.01 (a), not including any grace periods provided for therein and
irrespective of the giving of notice provided for by subsections (4) and (9) of
Section 6.01(a)); provided, that, except in the case of default in the payment
of the principal of (or premium, if any) or interest on any of the Notes of that
series or in the payment of any sinking fund installment established with
respect to that series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the interests of the
holders of Notes of that series; provided further, that in the case of any
default of the character specified in Section 6.01(a)(4) and (9) (other than a
payment default under Section 6.01(a)(9)) with respect to Notes of that series,
no such notice to the holders of the Notes of that series shall be given until
at least 30 days after the occurrence thereof.
The Trustee shall not be deemed to have knowledge of any default,
except (i) a default under Section 6.01(a)(1), (a)(2) or a payment default under
Section 6.01(a)(9) as long as the Trustee is acting as paying agent for such
series of Notes or (ii) any default as to which the Trustee shall have received
written notice or a Responsible Officer charged with the administration of this
Indenture shall have actual knowledge or obtained written notice.
SECTION 6.08. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each holder of any Notes by his or her acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section shall
not apply to any suit instituted by the Trustee, any suit instituted by any
Noteholder, or group of Noteholders, holding more than 10% in aggregate
principal amount of the outstanding Notes of any series, or any suit instituted
by any Noteholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Note of such series, on or after the
respective due dates expressed in such Note or established pursuant to this
Indenture.
ARTICLE SEVEN
Concerning the Trustee
40
<PAGE>
SECTION 7.01. DUTIES AND RESPONSIBILITIES OF THE TRUSTEE PRIOR TO AND
DURING EVENT OF DEFAULT.
(a) The Trustee, prior to the occurrence of an Event of Default
with respect to Notes of a series and after the curing of all Events of Default
with respect to Notes of that series which may have occurred, shall undertake to
perform with respect to Notes of that series such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants shall be
read into this Indenture against the Trustee. In case an Event of Default with
respect to Notes of a series has occurred (which has not been cured or waived),
the Trustee shall exercise with respect to Notes of that series such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent individual would exercise or use
under the circumstances in the conduct of his or her own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(1)(x) the duties and obligations of the Trustee shall with
respect to Notes of that series be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable
with respect to Notes of that series except for the performance of
such duties and obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(y) in the absence of bad faith on the part of the Trustee,
the Trustee may with respect to Notes of that series conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or investigate
the accuracy of mathematical calculations or other facts stated
therein);
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers
of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less than a
majority in principal amount of the Notes of any series at the time
outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee under this Indenture
with respect to the Notes of that series; and
(4) none of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise
incur or risk personal financial liability in the performance of any
of its duties or in the exercise of any of its rights or
41
<PAGE>
powers, if there is reasonable ground for believing that the repayment
of such funds or liability is not reasonably assured to it under the
terms of this Indenture or adequate indemnity or security against such
risk is not reasonably assured to it.
(c) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 7.01.
SECTION 7.02. CERTAIN RIGHTS OF THE TRUSTEE. Except as otherwise
provided in Section 7.01:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by an Authorized Officer (unless other
evidence in respect thereof is specifically prescribed herein);
(c) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) is entitled to receive and may, in the
absence of bad faith on its part, rely upon an Officer's Certificate;
(d) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted hereunder in good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Noteholders, pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby; nothing herein contained shall, however, relieve
the Trustee of the obligation, upon the occurrence of an Event of Default with
respect to a series of the Notes (which has not been cured or waived) to
exercise with respect to Notes of that series such of the rights and powers
vested in it by this Indenture, and to use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs;
(f) If an Event of Default shall have occurred and be continuing, the
Trustee shall be under no obligation to follow any request, order or direction
of the Company if in the reasonable judgment of the Trustee the following of
such request, order or direction would not be in the best interests of all the
holders;
(g) The Trustee shall not be liable for any action taken or omitted
to be taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
42
<PAGE>
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, unless requested in writing to do so by the holders
of not less than a majority in principal amount of the outstanding Notes of the
particular series affected thereby (determined as provided in Section 8.04);
provided, however, that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in the making
of such investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable security or indemnity against such costs,
expenses or liabilities as a condition to so proceeding;
(i) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(j) The Trustee may (but shall not be required to) at any time bring
an action on behalf of the Noteholders against third parties.
SECTION 7.03. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF
SECURITIES OR APPLICATION OF PROCEEDS THEREOF.
(a) The recitals contained herein and in the Notes (other than
the Certificate of Authentication on the Notes) shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for the correctness of
the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Support Agreement or of the Notes.
(c) The Trustee shall not be accountable for the use or application
by the Company of any of the Notes or of the proceeds of the Notes, or for the
use or application of any moneys paid over by the Trustee in accordance with any
provision of this Indenture or the Support Agreement or established pursuant to
Section 2.01, or for the use or application of any moneys received by any paying
agent other than the Trustee.
SECTION 7.04. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS,
ETC. The Trustee or any paying agent or Note Registrar, in its individual or
any other capacity, may become the owner or pledgee of Notes with the same
rights it would have if it were not Trustee, paying agent or Note Registrar.
SECTION 7.05. MONEYS HELD BY TRUSTEE. Subject to the provisions of
Section 11.06, all moneys received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
moneys received by it hereunder except such as it may agree in writing with the
Company to pay thereon.
SECTION 7.06. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS
PRIOR CLAIM.
(a) The Company covenants and agrees to pay to the Trustee from time
to time, and the Trustee shall be entitled to, such compensation as the Company
and the Trustee may agree upon in
43
<PAGE>
writing (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by
it in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances reasonably incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the documented expenses and disbursements of
its counsel and of all persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad
faith. The Company also covenants to indemnify the Trustee for, and to hold
it harmless against, any loss, damage, claim, loss, liability or expense,
including taxes (other than taxes based on the income of the Trustee)
incurred without negligence or bad faith on the part of the Trustee and
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses reasonably incurred of defending
itself against any claim of liability in the premises.
(b) The obligations of the Company under this Section to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for documented
expenses, disbursements and advances shall constitute additional indebtedness
hereunder and shall survive the termination of this Indenture and the
resignation or removal of the Trustee. Such additional indebtedness shall be a
senior lien to that of the Notes upon all property and funds held or collected
by the Trustee as such, except funds held in trust for the benefit of the
holders of particular Notes, and the Notes are hereby subordinated to each such
senior lien.
(c) When the Trustee incurs expenses or renders services in
connection with an Event of Default, the expenses (including the reasonable
charges and expenses of its counsel) and compensation for its services are
intended to constitute expenses of administration under applicable Federal or
State bankruptcy, insolvency or similar law.
SECTION 7.07. RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE,
ETC. Except as otherwise provided in Section 7.01, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting to take any action hereunder, it shall be entitled
to receive, and such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad
faith on the part of the Trustee, be deemed to be conclusively provided and
established by an Officer's Certificate delivered to the Trustee and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered
or omitted to be taken by it under the provisions of this Indenture upon the
faith thereof.
SECTION 7.08. CONFLICTING INTEREST. If the Trustee has acquired or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
SECTION 7.09. PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. There
shall at all times be a Trustee with respect to the Notes issued hereunder which
shall at all times be a corporation organized and doing business under the laws
of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or other person permitted to act as
trustee by the Commission, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $100 million,
and subject to supervision or examination by Federal, State, Territorial or
District
44
<PAGE>
of Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. The Company may not, nor may any person directly or
indirectly controlling, controlled by, or under common control with the
Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section
7.10.
SECTION 7.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE.
(a) The Trustee or any successor hereafter appointed may at any time
resign with respect to the Notes of one or more series by giving written notice
thereof to the Company. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee with respect to Notes of that series
by written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 30 days after the
mailing of such notice of resignation, the resigning Trustee may petition, at
the expense of the Company, any court of competent jurisdiction for the
appointment of a successor trustee with respect to Notes of that series, or any
Noteholder of that series who has been a bona fide holder of a Note or Notes for
at least six months may, subject to the provisions of Section 6.08, on behalf of
himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of Section
7.08 after written request therefor by the Company or by any Noteholder who
has been a bona fide holder of a Note or Notes for at least six months; or
(2) the Trustee shall cease to be eligible in accordance with the
provisions of Section 7.09 and shall fail to resign after written request
therefor by the Company or by any such Noteholder; or
(3) the Trustee shall become incapable of acting, shall be adjudged a
bankrupt or insolvent, a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, the Company may remove the Trustee with respect to all
Notes and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 6.08, unless the Trustee's duty to
resign is stayed as provided herein, any Noteholder who has been a bona fide
holder of a Note or Notes for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee. If a notice of
removal shall have been delivered to the Trustee and no successor
45
<PAGE>
trustee shall have been appointed and have accepted appointment within 30
days after the Trustee's receipt of such notice of removal, the Trustee may
petition any court of competent jurisdiction for the appointment of a
successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Notes of any series at the time outstanding may at any time remove the Trustee
with respect to that series and appoint a successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the removal of the Trustee, the removed Trustee may petition, at the
expense of the Company, any court of competent jurisdiction for the appointment
of a successor trustee with respect to Notes of that series, or any Noteholder
of that series who has been a bona fide holder of a Note or Notes for at least
six months may, subject to the provisions of Section 6.08, on behalf of himself
and all others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon after such notice, if any, as
it may deem proper and prescribe, appoint a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Notes of a series pursuant to any of the
provisions of this Section shall become effective upon acceptance of appointment
by the successor trustee as provided in Section 7.11.
(e) Any successor trustee appointed pursuant to this Section may be
appointed with respect to the Notes of one or more series or all of such series,
and at any time there shall be only one Trustee with respect to the Notes of any
particular series.
SECTION 7.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with
respect to all Notes, every such successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder, subject to any prior lien
provided for in Section 7.06(b).
(b) In case of the appointment hereunder of a successor trustee with
respect to the Notes of one or more (but not all) series, the Company, the
retiring Trustee and each successor trustee with respect to the Notes of one or
more series shall execute and deliver an indenture supplemental hereto wherein
each successor trustee shall accept such appointment and which shall (1) contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Notes of that or those series to
which the appointment of such successor trustee relates, (2) contain such
provisions as shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Notes of that or those series as to which the retiring Trustee is not retiring
shall continue to be vested in the retiring Trustee and (3) add to or change any
of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
it being understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust, that each such Trustee
shall be
46
<PAGE>
trustee of a trust or trusts hereunder separate and apart from any trust or
trusts hereunder administered by any other such Trustee and that no Trustee
shall be responsible for any act or failure to act on the part of any other
Trustee hereunder; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein, such retiring Trustee shall with
respect to the Notes of that or those series to which the appointment of such
successor trustee relates have no further responsibility for the exercise of
rights and powers or for the performance of the duties and obligations vested
in the Trustee under this Indenture, and each such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee with respect to the Notes
of that or those series to which the appointment of such successor trustee
relates; but, on request of the Company or any successor trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
trustee, to the extent contemplated by such supplemental indenture, the
property and money held by such retiring Trustee hereunder with respect to
the Notes of that or those series to which the appointment of such successor
trustee relates.
(c) Upon request of any such successor trustee or retiring Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor trustee all such rights, powers and
trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article.
(e) Upon acceptance of appointment by a successor trustee as provided
in this Section, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first-class postage prepaid, to the Noteholders, as
their names and addresses appear upon the Note Register. If the Company fails
to transmit such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 7.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, any corporation resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be qualified under the provisions of
Section 7.08 and eligible under the provisions of Section 7.09, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. In case any
Notes shall have been authenticated, but not delivered, by the Trustee then in
office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Notes.
SECTION 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If
and when the Trustee shall become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Company (or
any other obligor upon the Notes).
47
<PAGE>
ARTICLE EIGHT
Concerning the Noteholders
SECTION 8.01. ACTS OF NOTEHOLDERS. Whenever in this Indenture it
is provided that the holders of a majority or specified percentage in
aggregate principal amount of the Notes of a particular series may take any
action (including the making any demand or request, the giving of any notice,
consent or waiver or the taking of any other action), the fact that at the
time of taking any such action the holders of such majority or specified
percentage of that series have joined therein may be evidenced by any
instrument or any number of instruments of similar tenor executed by such
holders of Notes of that series in person or by agent or proxy appointed in
writing.
If the Company shall solicit from the Noteholders of any series any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officer's
Certificate, fix in advance a record date for that series for the
determination of Noteholders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other action, but the
Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or
other action may be given before or after the record date, but only the
Noteholders of record at the close of business on the record date shall be
deemed to be Noteholders for the purposes of determining whether Noteholders
of the requisite proportion of outstanding Notes of that series have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
outstanding Notes of that series shall be computed as of the record date;
provided that no such authorization, agreement or consent by such Noteholders
on the record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after
the record date.
SECTION 8.02. TRUSTEE MAY REQUIRE PROOF OF OWNERSHIP. Subject to
the provisions of Section 7.01, proof of the execution of any instrument by a
Noteholder (such proof will not require notarization) or his, her or its
agent or proxy and proof of the holding by any person of any of the Notes
shall be sufficient if made in the following manner:
(a) the fact and date of the execution by any such person of any
instrument may be proved in any reasonable manner acceptable to the
Trustee;
(b) the ownership of Notes shall be proved by the Note Register of
such Notes or by a certificate of the Note Registrar thereof; or
(c) the Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
SECTION 8.03. NOTEHOLDERS TO BE TREATED AS OWNERS. Prior to the
due presentment for registration of transfer of any Note, the Company, the
Trustee, any paying agent and any Note Registrar may deem and treat the
Person in whose name such Note shall be registered upon the books of the
Company as the absolute owner of such Note (whether or not such Note shall be
overdue and notwithstanding any notice of ownership or writing thereon made
by anyone other than the Note Registrar) for the purpose of receiving payment
of or on account of the principal of and premium, if any, and (subject to
Section 2.03) interest on such Note and for all other purposes; and neither
the Company
48
<PAGE>
nor the Trustee nor any paying agent nor any Note Registrar shall be affected
by any notice to the contrary. All such payments so made to any such Person,
or upon such Person's order, shall be valid and, to the extent of the sum or
sums so paid, effectual to satisfy and discharge the liability for monies
payable upon or in respect of any such Note.
SECTION 8.04. NOTES HELD BY COMPANY DEEMED NOT OUTSTANDING. In
determining whether the holders of the requisite aggregate principal amount
of Notes of a particular series have concurred in any direction, consent or
waiver under this Indenture, Notes of that series which are owned by the
Company or any other obligor on the Notes of that series or by any person
directly or indirectly controlling or controlled by or under common control
with the Company or any other obligor on the Notes of that series shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination, except that for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, consent or waiver, only
Notes of such series which a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. Notes so owned may be regarded
as outstanding for the purposes of this Section, if the pledgee shall
establish to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not a person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In case of a dispute as
to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
SECTION 8.05. RIGHT OF REVOCATION OF ACTION TAKEN. At any time
prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.01, of the taking of any action by the holders of the majority or
percentage in aggregate principal amount of the Notes of a particular series
specified in this Indenture in connection with such action, any holder of a
Note of that series which is shown by the evidence to be included in the
Notes the holders of which have consented to such action may, by filing
written notice with the Trustee, and upon proof of holding as provided in
Section 8.02, revoke such action so far as concerns such Note. Except as
aforesaid, any such action taken by the holder of any Note shall be
conclusive and binding upon such holder and upon all future holders and
owners of such Note, and of any Note issued in exchange therefor, on
registration of transfer thereof or in place thereof, irrespective of whether
or not any notation in regard thereto is made upon such Note. Any action
taken by the holders of a majority or greater percentage in aggregate
principal amount of the Notes of a particular series specified in this
Indenture in connection with such action shall be conclusively binding upon
the Company, the Trustee and the holders of all the Notes of that series.
ARTICLE NINE
Supplemental Indentures; Amendments to Support Agreement
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS. In addition to any supplemental indenture otherwise authorized
by this Indenture, the Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto, without the consent of the Noteholders, for
one or more of the following purposes:
49
<PAGE>
(a) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the Company
contained herein or otherwise established with respect to the Notes;
(b) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the protection of the holders of
the Notes of all or any series as the Board of Directors shall reasonably
consider to be for the protection of the holders of Notes of all or any
series, and to make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions, conditions or
provisions a default or an Event of Default with respect to that series
permitting the enforcement of all or any of the several remedies provided
in this Indenture as herein set forth; provided, however, that in respect
of any such additional covenant, restriction, condition or provision, such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the
case of other defaults), may provide for an immediate enforcement upon such
default or may limit the remedies available to the Trustee upon such
default or may limit the right of the holders of a majority in aggregate
principal amount of the Notes of such series to waive such default;
(c) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture as shall not be
inconsistent with the provisions of this Indenture and shall not adversely
affect the interests of the holders of the Notes of any series;
(d) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
when there is no Note outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(e) to modify or supplement this Indenture or any indenture
supplemental hereto in such manner as to permit the qualification thereof
under the Trust Indenture Act or any other similar Federal statute
hereafter in effect.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations which may be therein contained, but
the Trustee shall not be obligated to enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section may be executed by the Company and the Trustee without the consent of
the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 9.02.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent (evidenced as provided in Section 8.01) of the holders of
not less than a majority in aggregate principal amount of the Notes of each
series affected by such supplemental indenture or indentures at the time
outstanding, the Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to
50
<PAGE>
the provisions of the Trust Indenture Act as then in effect) for the purpose
of adding any provisions to, or changing in any manner or eliminating any of
the provisions of, this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the holders of the Notes of that series
under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture
shall (i) extend the fixed maturity of any Notes of any series, reduce the
principal amount thereof, reduce the rate or extend the time of payment of
interest thereon or reduce any premium payable upon the redemption thereof
without the consent of the holder of each Note then outstanding and affected
thereby or (ii) reduce the aforesaid percentage of Notes, the holders of
which are required to consent to any such supplemental indenture, or modify
any provision of Section 6.01(c) (except to increase the percentage of the
principal amount of Notes required to rescind and annul any declaration of
amounts due and payable under the Notes) without the consent of the holder of
each Note then outstanding and affected thereby.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Noteholders required to
consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the Noteholders of any
series affected thereby under this Section to approve the particular form of
any proposed supplemental indenture, but it shall be sufficient if such
consent shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Trustee shall transmit by mail, first-class postage prepaid, a notice,
setting forth in general terms the substance of such supplemental indenture,
to the Noteholders of all series affected thereby as their names and
addresses appear upon the Note Register. Any failure of the Trustee to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
SECTION 9.03. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article or of Article 10, this Indenture shall, with respect to that series,
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Notes of
the series affected thereby shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of
this Indenture for any and all purposes.
SECTION 9.04. NOTATION OF NOTES IN RESPECT OF SUPPLEMENTAL
INDENTURE. Notes of any series affected by a supplemental indenture,
authenticated and delivered after the execution of such supplemental
indenture pursuant to the provisions of this Article or of Article 10, may
bear a notation in form approved by the Company, provided such form meets the
requirements of any exchange upon which such series may be listed, as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Notes of that series so modified as to conform, in the opinion
of the Board of Directors, to any modification of this Indenture contained in
any such supplemental indenture may be prepared by the Company, authenticated
by the Trustee and delivered in exchange for the Notes of that series then
outstanding.
51
<PAGE>
SECTION 9.05. DOCUMENTS TO BE GIVEN TO TRUSTEE. The Trustee,
subject to the provisions of Section 7.01, is entitled to receive an Opinion
of Counsel as conclusive evidence that any supplemental indenture executed
pursuant to this Article is authorized or permitted by, and conforms to, the
terms of this Article and that it is proper for the Trustee under the
provisions of this Article to join in the execution thereof.
SECTION 9.06. AMENDMENTS TO SUPPORT AGREEMENT.
(a) The Company and Energy Corp. may from time to time and at any
time enter into an amendment to the Support Agreement, without the prior
written consent of the holders of outstanding Notes, (i) to add to the
covenants of the Company or Energy Corp. such further covenants,
restrictions, conditions or provisions for the protection of the holders of
the Notes of all or any series that have the benefit of the Support Agreement
as the Board of Directors shall reasonably consider to be for the protection
of such holders of Notes, (ii) to cure any ambiguity or to correct or
supplement any provision contained in the Support Agreement which may be
defective or inconsistent with any other provision contained in the Support
Agreement, provided that the amendment shall not adversely affect the rights
of any holder of Outstanding Notes of any series that have the benefit of the
Support Agreement or (iii) to evidence the succession of another corporation
to the Company, to the extent such succession is in accordance with the terms
of this Indenture, and the assumption by any such successor of the covenants
of the Company contained herein or otherwise established with respect to the
Notes .
(b) With the consent (evidenced as provided in Section 8.01) of
the holders of not less than a majority in aggregate principal amount of the
Notes of each series affected by such amendment at the time outstanding, the
Company and Energy Corp., when authorized by a Board Resolution, may from
time to time and at any time enter into an amendment to the Support Agreement
for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Support Agreement or of modifying
in any manner the rights of the holders of the Notes of that series under the
Support Agreement; PROVIDED, HOWEVER, that no such amendment shall, without
the prior written consent of the holder of each Note then Outstanding and
affected thereby (i) reduce the amount payable or increase the time in which
Energy Corp. has to make payment under the Support Agreement in respect of
the obligations of Energy Corp. to the holders of Notes of such series, (ii)
reduce the aforesaid percentage of Notes, the holders of which are required
to consent to any such amendment, or (iii) except with respect to any
amendment to any of Sections 2, 3 and 4 of the Support Agreement, adversely
affect the rights of any holder of an Outstanding Note.
It shall not be necessary for the consent of the Noteholders of any
series affected thereby under this Section to approve the particular form of
any proposed amendment to the Support Agreement, but it shall be sufficient
if such consent shall approve the substance thereof.
Promptly after the execution by the Company and Energy Corp. of any
amendment to the Support Agreement pursuant to the provisions of this
Section, the Company shall transmit by mail, first-class postage prepaid, a
notice, setting forth in general terms the substance of such amendment, to
the Noteholders of all series affected thereby as their names and addresses
appear upon the Note Register. Any failure to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such amendment.
52
<PAGE>
(c) Upon the execution of any amendment to the Support Agreement
pursuant to the provisions of this Article, the Support Agreement shall, with
respect to all series of Notes affected thereby, be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under the Support
Agreement of the Company, Energy Corp. and the holders of Notes of any series
affected thereby shall thereafter be determined, exercised and enforced
hereunder and thereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such amendment shall be
and be deemed to be part of the terms and conditions of the Support Agreement
for any and all purposes.
(d) Notes of any series affected by an amendment to the Support
Agreement, authenticated and delivered after the execution of such amendment
pursuant to the provisions of this Article, may bear a notation in form
approved by the Company, provided such form meets the requirements of any
exchange upon which such series may be listed, as to any matter provided for
in such amendment. If the Company shall so determine, new Notes of that
series so modified as to conform, in the opinion of the Board of Directors,
to any modification of the Support Agreement may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Notes of that
series then outstanding.
(e) The Trustee, subject to the provisions of Section 7.01, is
entitled to receive an Opinion of Counsel as conclusive evidence that any
amendment executed pursuant to this Article is authorized or permitted by,
and conforms to, the terms of this Article and the Support Agreement.
ARTICLE TEN
Consolidation, Merger and Sale
SECTION 10.01. CONSOLIDATION, MERGER AND SALE OF SUBSTANTIALLY ALL
OF COMPANY'S ASSETS. Nothing contained in this Indenture or in any of the
Notes shall prevent any consolidation or merger of the Company with or into
any other Person (whether or not affiliated with the Company), or any merger
or consolidation of any Person (whether or not affiliated with the Company)
with or into the Company or successive consolidations or mergers in which the
Company or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or lease of the assets or other
property of the Company or its successor or successors substantially as an
entirety to any other Person (whether or not affiliated with the Company or
its successor or successors), provided that (a) no Event of Default shall
result from such consolidation, merger, sale or lease and (b) the Company is
the surviving or continuing corporation, or the surviving or continuing
corporation or corporation that acquires the Company's assets by sale,
conveyance, transfer or lease is incorporated under the laws of the United
States of America or Canada and expressly assumes the payment and performance
of all obligations of the Company under the Indenture and the Notes.
SECTION 10.02. SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or lease and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the due and punctual payment of the
principal of and premium, if any, and interest on all of the Notes of all
series outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture and the Support Agreement, if
53
<PAGE>
applicable, or established with respect to each series of the Notes pursuant
to Section 2.01 to be performed by the Company with respect to each series,
such successor corporation shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein as the party of
the first part, and thereupon the predecessor corporation shall be relieved
of all obligations and covenants under this Indenture, the Support Agreement
and the Notes, except the provisions of Section 7.06 to the extent such
provisions relate to matters occurring before any such consolidation, merger,
sale, conveyance, transfer or other disposition. Such successor corporation
thereupon may cause to be signed, and may issue either in its own name or in
the name of the Company or any other predecessor obligor on the Notes, any or
all of the Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee; and, upon the order of
such successor company, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Notes which previously shall have been
signed and delivered by the officers of the predecessor Company to the
Trustee for authentication, and any Notes which such successor corporation
thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All the Notes so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Notes theretofore or thereafter
issued in accordance with the terms of this Indenture as though all of such
Notes had been issued at the date of the execution hereof.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition, such changes in phraseology and form (but not
in substance) may be made in the Notes thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the Notes
shall prevent the Company from merging into itself or acquiring by purchase
or otherwise all or any part of the property of any other corporation
(whether or not affiliated with the Company).
SECTION 10.03. OPINION OF COUNSEL TO TRUSTEE. The Trustee,
subject to the provisions of Section 7.01, is entitled to receive an Opinion
of Counsel as conclusive evidence that any such consolidation, merger, sale,
conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article.
ARTICLE ELEVEN
Satisfaction and Discharge of Indenture;
Unclaimed Moneys
SECTION 11.01. SATISFACTION AND DISCHARGE OF INDENTURE. If at any
time: (a) the Company shall have delivered to the Trustee for cancellation
all Notes of a series theretofore authenticated (other than any Notes which
shall have been destroyed, lost or stolen and which shall have been replaced
or paid as provided in Section 2.08) and Notes for whose payment money or
Governmental Obligations have theretofore been deposited in trust or
segregated and held in trust by the Company (and thereupon repaid to the
Company or discharged from such trust, as provided in Section 11.06); (b) all
such Notes of a particular series not theretofore delivered to the Trustee
for cancellation shall have become due and payable and the Company shall
deposit or cause to be deposited with the Trustee as trust funds the entire
amount in moneys or Governmental Obligations sufficient; or (c) a combination
thereof, sufficient in the opinion of a nationally recognized firm of
independent public
54
<PAGE>
accountants expressed in a written certification thereof delivered to the
Trustee, to pay at maturity or upon redemption all Notes of that series not
theretofore delivered to the Trustee for cancellation, including principal
(and premium, if any) and interest due or to become due to such date of
maturity or date fixed for redemption, as the case may be, and if the Company
shall also pay or cause to be paid all other sums payable hereunder with
respect to that series by the Company, then this Indenture shall thereupon
cease to be of further effect with respect to that series except for the
provisions of Sections 2.06, 2.08, 4.02 and 7.10, which shall survive until
the date of maturity or redemption date, as the case may be, and Sections
7.06 and 11.06 which shall survive to such date and thereafter, and the
obligations of LG&E Energy under the Support Agreement shall cease to be of
further effect with respect to the series and the Noteholders of such series
shall and shall be deemed to have consented to the termination of the
provisions of the Support Agreement as they relate to the Notes of that
series, and the Trustee, on demand of the Company and at the cost and expense
of the Company, shall execute proper instruments acknowledging satisfaction
of and discharging this Indenture with respect to such series (and
acknowledging termination of the provisions of the Support Agreement as they
relate to that series).
SECTION 11.02. COVENANT DEFEASANCE. If at any time all such Notes
of a particular series not heretofore delivered to the Trustee for
cancellation or which have not become due and payable as described in Section
11.01 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all such Notes of that
series not theretofore delivered to the Trustee for cancellation, including
principal (and premium, if any) and interest due or to become due to such
date of maturity or date fixed for redemption, as the case may be, and if the
Company shall also pay or cause to be paid all other sums payable hereunder
by the Company with respect to that series, then after the date such moneys
or Governmental Obligations, as the case may be, are deposited with the
Trustee the obligations of the Company under this Indenture with respect to
such series shall cease to be of further effect except for the provisions of
Sections 2.06, 2.08, 4.02 and 7.10 hereof which shall survive until such
Notes shall mature and be paid and Section 7.06 and 11.06 which shall survive
to such date and thereafter, and the obligations of LG&E Energy under the
Support Agreement shall cease to be of further effect with respect to that
series and the Noteholders of such series shall and shall be deemed to have
consented to the termination of the provisions of the Support Agreement as
they relate to the Notes of that series. The release of the Company from its
obligations under this Indenture, as provided for in this Section 11.02,
shall be subject to the further condition that the Company first shall have
caused to be delivered to the Trustee an Opinion of Counsel to the effect
that Noteholders of a series with respect to which a deposit has been made in
accordance with this Section 11.02 will not realize income, gain or loss for
Federal income tax purposes as a result of such deposit and release, and will
be subject to Federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and release had
not occurred.
SECTION 11.03. DEFEASANCE AND DISCHARGE. If, in addition to
satisfying the conditions set forth in Section 11.01 or 11.02 (except for the
requirement of an Opinion of Counsel), the Company delivers to the Trustee an
Opinion of Counsel to the effect that (a) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (b)
since the date of this Indenture there has been a change in applicable
Federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Noteholders of a series with
respect to which a deposit has been made in accordance with Section 11.01 or
11.02 will not realize income, gain or loss for Federal income tax purposes
as a result of such deposit, defeasance and discharge and will be subject to
Federal income tax on the same amount, in the same manner and at the same
times, as would have been the case if such deposit, defeasance and discharge
had not occurred and (c) the deposit shall not result in
55
<PAGE>
the Company, the Trustee or the trust being deemed an "investment company"
under the Investment Company Act of 1940, as amended, then, in such event,
the Company will be deemed to have paid and discharged the entire
indebtedness on that series and the holder thereof shall thereafter be
entitled to receive payment solely from the trust fund described above.
SECTION 11.04. DEPOSITED MONEY AND GOVERNMENTAL OBLIGATIONS TO BE
HELD IN TRUST. All moneys or Governmental Obligations deposited with the
Trustee pursuant to Sections 11.01 or 11.02 shall be held in trust and shall
be available for payment as due, either directly or through any paying agent
(including the Company acting as its own paying agent), to the holders of the
particular series of Notes for the payment or redemption of which such moneys
or Governmental Obligations have been deposited with the Trustee.
SECTION 11.05. DEPOSITED MONEYS HELD IN TRUST. In connection with
the satisfaction and discharge of this Indenture all moneys or Governmental
Obligations then held by any paying agent under the provisions of this
Indenture shall, upon demand of the Company, be repaid to the Company or paid
to the Trustee and thereupon such paying agent shall be released from all
further liability with respect to such moneys or Governmental Obligations.
SECTION 11.06. REPAYMENT TO THE COMPANY; MISCELLANEOUS. Any
moneys or Governmental Obligations deposited with any paying agent or the
Trustee, or then held by the Company, in trust for payment of principal of or
premium or interest on the Notes of a particular series that are not applied
but unclaimed by the holders of such Notes for at least two years after the
date upon which the principal of (and premium, if any) or interest on such
Notes shall have respectively become due and payable, shall, upon written
notice from the Company, be repaid to the Company on May 31 of each year or
(if then held by the Company) shall be discharged from such trust; and
thereupon the paying agent and the Trustee shall be released from all further
liability with respect to such moneys or Governmental Obligations, and the
holder of any of the Notes entitled to receive such payment shall thereafter,
as an unsecured general creditor, look only to the Company for the payment
thereof and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall, pursuant to an Officer's
Certificate, cause to be published once, at the Company's expense, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the Governmental
Obligations deposited pursuant to this Article or the principal and interest
received in respect thereof other than any such tax, fee or other charge
which by law is for the account of the Holders of Outstanding Notes.
ARTICLE TWELVE
Immunity of Incorporators, Stockholders, Officers
and Directors
56
<PAGE>
SECTION 12.01. INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
OF COMPANY EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any
obligation, covenant or agreement of this Indenture or of any Note, or for
any claim based thereon or otherwise in respect thereof, shall be had against
any incorporator, stockholder, officer or director, past, present or future
as such, of the Company, Energy Corp. or of any predecessor or successor
corporation, either directly or through the Company, Energy Corp. or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the Support
Agreement and the obligations issued hereunder and thereunder are solely
corporate obligations, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors as such, of the Company, Energy Corp. or of any
predecessor or successor corporation, or any of them, because of the creation
of the indebtedness hereby or thereby authorized, or under or by reason of
the obligations, covenants or agreements contained in this Indenture and the
Support Agreement or in any of the Notes or implied therefrom; and that any
and all such personal liability of every name and nature, either at common
law, in equity or by constitution or statute, of, and any and all such rights
and claims against, every such incorporator, stockholder, officer or director
as such, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in
this Indenture and the Support Agreement or in any of the Notes or implied
therefrom, are hereby expressly waived and released as a condition of, and as
a consideration for, the execution of this Indenture, the issuance of such
Notes and the execution of the Support Agreement.
ARTICLE THIRTEEN
Miscellaneous Provisions
SECTION 13.01. SUCCESSORS AND ASSIGNS OF COMPANY BOUND BY
INDENTURE. All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind its successors
and assigns, whether so expressed or not.
SECTION 13.02. ACTS BY SUCCESSORS AND ASSIGNS OF COMPANY. Any act
or proceeding by any provision of this Indenture authorized or required to be
done or performed by any board, committee or officer of the Company shall and
may be done and performed with like force and effect by the corresponding
board, committee or officer of any corporation that shall at the time be the
lawful sole successor of the Company.
SECTION 13.03. NOTICES AND DEMANDS ON COMPANY, TRUSTEE AND
NOTEHOLDERS. Except as otherwise expressly provided herein, any notice or
demand which by any provision of this Indenture is required or permitted to
be given or served by the Trustee or by the holders of Notes to or on the
Company may be given or served by being deposited first-class postage prepaid
in a post-office letter box addressed (until another address is filed in
writing by the Company with the Trustee), as follows: LG&E Capital Corp., 220
West Main Street, Louisville, KY 40202, Attention: Treasurer. Any notice,
election, request or demand by the Company or any Noteholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
57
<PAGE>
SECTION 13.04. GOVERNING LAW. THIS INDENTURE AND EACH NOTE SHALL,
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BE DEEMED
TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THAT STATE,
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SUCH
SECTION 5-1401).
SECTION 13.05. OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL;
STATEMENTS TO BE CONTAINED THEREIN.
(a) Upon any application or demand by the Company to the Trustee
to take any action under any of the provisions of this Indenture, at the
request of the Trustee, the Company shall furnish to the Trustee an Officer's
Certificate stating that all conditions precedent provided for in this
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied with, except that in the case of any
such application or demand as to which the furnishing of such documents is
specifically required by any provision of this Indenture, relating to such
particular application or demand, no additional certificate or opinion need
be furnished.
(b) Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant in this Indenture (other than the certificate provided pursuant to
Section 4.07 of this Indenture) shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and (4) a statement as to whether or
not, in the opinion of such person, such condition or covenant has been
complied with.
SECTION 13.06. OPINION OF COUNSEL REQUIRED. Simultaneously with
the execution of this Indenture, the Company shall deliver to the Trustee an
Opinion of Counsel stating that, in the opinion of such counsel, (a) this
Indenture has been duly authorized by and lawfully executed and delivered on
behalf of the Company, is in full force and effect and is legal, valid and
binding upon the Company in accordance with its terms, except to the extent
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights and (b) the Notes have been authorized, executed and
delivered by the Company and constitute legal, valid and binding obligations
of the Company in accordance with their terms.
SECTION 13.07. LEGAL HOLIDAYS. Except as provided pursuant to
Section 2.01 pursuant to a Board Resolution, and as set forth in an Officer's
Certificate, or established in one or more supplemental to this Indenture, in
any case where the date of maturity of interest or principal of any Note or
the date of redemption of any Note shall not be a Business Day then payment
of interest or principal (and premium, if any) may be made on the next
succeeding Business Day with the same force and effect as if made on the
nominal date of maturity or redemption, and no interest shall accrue for the
period after such nominal date.
58
<PAGE>
SECTION 13.08. COUNTERPARTS. This Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute one and the same instrument.
SECTION 13.09. SEPARABILITY CLAUSE. In case any one or more of
the provisions contained in this Indenture or in the Notes of any series
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Indenture or of such Notes, but this Indenture and
such Notes shall be construed as if such invalid or illegal or unenforceable
provision had never been contained herein or therein.
SECTION 13.10. ASSIGNMENT. The Company will have the right at all
times without the consent of the Noteholders to assign any of its rights or
obligations under this Indenture to a direct or indirect wholly-owned
subsidiary of the Company; provided that, in the event of any such
assignment, the Company will remain liable for all such obligations. Subject
to the foregoing, the Indenture is binding upon and inures to the benefit of
the parties thereto and their respective successors and assigns. The
Indenture may not otherwise be assigned by the parties hereto.
The Bank of New York, as Trustee, hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove
set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, all as of the day and year first above written.
LG&E Capital Corp.
By:___________________________
Name:
Title:
The Bank of New York
as Trustee
By:___________________________
Name:
Title:
59
<PAGE>
EXHIBIT A
(FORM OF FACE OF NOTE)
[INCLUDE IF NOTE IS A GLOBAL NOTE DEPOSITED WITH THE DEPOSITORY -- UNLESS
THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME AND
ADDRESS OF DEPOSITARY] , TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE IS REGISTERED IN THE NAME OF
[INSERT NAME OF NOMINEE OF DEPOSITARY] OR IN SUCH OTHER NAME AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY] (AND ANY PAYMENT
IS MADE TO [INSERT NAME OF NOMINEE OF DEPOSITARY] OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY]), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, [INSERT NAME OF NOMINEE OF
DEPOSITARY], HAS AN INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF [INSERT NAME OF DEPOSITARY] OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06
OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.]
[INCLUDE IF NOTE IS A RULE 144A GLOBAL NOTE, RESTRICTED REGULATION S GLOBAL
NOTE, ANY CERTIFICATED NOTE ISSUED IN ACCORDANCE WITH SECTION 2.05 OF THE
INDENTURE IN EXCHANGE FOR A GLOBAL NOTE (AND ANY CERTIFICATED NOTES ISSUED TO
QUALIFIED INSTITUTIONAL BUYERS IN EXCHANGE THEREFOR), OR AN ACCREDITED INVESTOR
NOTE -- THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO LG&E
CAPITAL CORP. (THE "ISSUER"), (B) SO LONG AS SUCH NOTE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS
(WHICH OTHERS MUST ALSO BE QIBS), AND TO WHOM NOTICE IS GIVEN THAT THE RESALE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) OUTSIDE THE UNITED
STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") PURSUANT TO ANOTHER AVAILABLE EXEMPTION
UNDER THE SECURITIES ACT OR (F) PURSUANT TO A REGISTRATION STATEMENT THAT HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, IN
<PAGE>
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER JURISDICTION; AND (2) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE NOTE EVIDENCED
HEREBY IS ISSUED IN CERTIFICATED FORM, IN CONNECTION WITH ANY TRANSFER OF THE
NOTE EVIDENCED HEREBY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER. IN CONNECTION
WITH ANY PROPOSED TRANSFER OF THIS NOTE PURSUANT TO CLAUSE (C), (D) OR (E)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE ISSUER MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.]
<TABLE>
<CAPTION>
<S> <C>
No.______________ $__________________
[CUSIP No.________] [Common Code_______]
[CINS No._________] [ISIN No.__________]
</TABLE>
LG&E CAPITAL CORP.
____% NOTES DUE ___________
LG&E CAPITAL CORP., a corporation duly organized and
existing under the laws of the State of Kentucky (herein referred to as the
"Company," which term includes any successor corporation under the
Indenture), for value received, hereby promises to pay to _________ or
registered assigns, the principal sum equal to ___________ Dollars
($____________), on ______________, and to pay interest on such principal sum
from and including __________ or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid
or duly provided for, payable semiannually in arrears on __________ and
__________ of each year [if applicable-insert other payment dates for floating
rate Notes], commencing on __________, at the rate of ____% per annum
[if applicable-insert method of calculation of interest rate for floating rate
Notes] until the principal hereof shall have become due and payable, and on any
overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment
of interest at the same rate per annum. [The amount of interest payable on any
Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months.] In the event that any date on which interest is payable
on this Note is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), with the
same force and effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for on any Interest Payment
Date will, as provided in the Indenture, be paid
A-2
<PAGE>
to the person in whose name this Note (or one or more Predecessor Notes, as
defined in the Indenture) is registered at the close of business on the
__________ or __________, respectively, preceding that Interest Payment Date
(each, a "Record Date"). Any such interest installment not punctually paid
or duly provided for on any Interest Payment Date shall forthwith cease to be
payable to the registered holder on the relevant Record Date, and may be paid
to the person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on a special record date to be fixed by
the Trustee for the payment of such defaulted interest, notice whereof shall
be given to the registered holders of this series of Notes not less than 10
days prior to such special record date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may then be listed, and upon such notice as may
be required by such exchange, all as more fully provided in the Indenture
hereinafter referred to. The principal of (and premium, if any) and the
interest on this Note shall be payable at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New
York, in Dollars; PROVIDED, HOWEVER, that [include if Note is in certificated
form -- payment of interest may be made at the option of the Company by check
mailed to the registered holder at such address as shall appear in the Note
Register or, with respect to a registered holder of $1,000,000 or more in
aggregate principal amount of Notes who has delivered a written request to the
Trustee at least 14 days prior to the relevant Interest Payment Date electing
to have payments made by wire transfer to a designated account in the United
States, by wire transfer of immediately available funds to such designated
account] [include if Note is in global form -- payment of principal and
interest shall be made by the Company in immediately available funds by wire
transfer to the Depositary or its nominee].
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Note are continued on the reverse side hereof and
such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be
executed.
LG&E Capital Corp.
By__________________________
CERTIFICATE OF AUTHENTICATION
Dated: ___________
This is one of the Notes of the series of Notes described in
the within-mentioned Indenture.
The Bank of New York,
as Trustee,
The Bank of New York, By _______________________
as Trustee or as Authentication Agent
By__________________________ _________________________
Authorized Signatory Authorized Signatory
A-3
<PAGE>
A-4
<PAGE>
(REVERSE)
____% NOTES DUE ___________
This Note is one of a duly authorized series of notes of the Company
(herein sometimes referred to as the "Notes"), specified in the Indenture (as
described below), all issued or to be issued in one or more series under and
pursuant to an Indenture dated as of January 15, 1998 duly executed and
delivered between the Company and The Bank of New York, as Trustee (the
"Trustee"), (such Indenture, as amended and supplemented, being referred to
herein as the "Indenture") to which Indenture reference is hereby made for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Notes. By the terms of the Indenture, the Notes are issuable in series which
may vary as to amount, date of maturity, rate of interest and in other
respects as in the Indenture provided. [This series of Notes is limited to the
aggregate principal amount of $___________.]
[This Note is not subject to redemption prior to maturity.] [If
applicable, insert - The Notes may be redeemed in whole or in part (if in part,
by lot or by such other method as the Trustee shall deem fair or appropriate)
prior to maturity at the option of the Company, at any time and from time to
time, upon mailing a notice of such redemption not less than 30 nor more than 60
days prior to the date fixed for redemption to the holders of Notes, all as
provided in the Indenture, at a redemption price equal to [_______________]] [if
applicable -- the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption, plus the applicable premium.]
In the event of redemption of this Note in part only, a new Note or
Notes of this series for the unredeemed portion hereof will be issued in the
name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, with respect
to the Notes of this series shall have occurred and be continuing, the
principal of all of the Notes of this series may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of the Notes of this series upon compliance by the
Company with certain conditions set forth therein.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures
for the purpose of adding any provisions to, changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying in any manner the rights of the holders of the
Notes; PROVIDED, HOWEVER, that no such supplemental indenture shall (i)
extend the fixed maturity of any Notes of any series, reduce the principal
amount thereof, reduce the rate or extend the time of payment of interest
thereon or reduce any premium payable upon the redemption thereof, without
the consent of the holder of each Note then outstanding and affected thereby
or (ii) reduce the aforesaid percentage of Notes, the holders of which are
required to consent to any such supplemental indenture, or (iii) modify any
provision of Section 6.01(c) of the Indenture (except to increase the
percentage of the principal amount of Notes required to rescind and annul any
declaration of amounts due and payable under the Notes) without the consent
of the holder of each Note then outstanding and affected thereby. The
Indenture also contains provisions permitting the holders of a majority in
aggregate principal
A-5
<PAGE>
amount of the Notes of all series at the time outstanding affected thereby,
on behalf of the holders of the Notes of such series, to waive any past
default or Event of Default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture with
respect to such series, and its consequences, except a default in the payment
of the principal of or premium, if any, or interest on any of the Notes of
such series, which default may be waived by the unanimous consent of the
holders affected. Any such consent or waiver by the registered holder of
this Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Note and of any Note issued in exchange herefor or in place hereof (whether
by registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any,
and interest on this Note at the time and place and at the rate and in the
money herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Note is transferable by the registered holder hereof on the
Note Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company designated for such purpose
in the Borough of Manhattan, The City of New York duly endorsed by or
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and the Trustee duly executed by the registered
holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Notes of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee, any paying agent and any Note Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or
not this Note shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Note Registrar) for the purpose
of receiving payment of or on account of the principal hereof and premium, if
any, and interest due hereon and for all other purposes, and neither the
Company nor the Trustee nor any paying agent nor any Note Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
stockholder, officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Notes of this series are issuable in registered form without
coupons in denominations of $100,000 and integral multiples of $1,000 in
excess thereof. As provided in the Indenture and subject to certain
limitations herein and therein set forth, Notes of this series so issued are
exchangeable for a like aggregate principal amount of Notes of this series of
a different authorized denomination, as requested by the holder surrendering
the same.
A-6
<PAGE>
This Note shall, pursuant to Section 5-1401 of the New York General
Obligations Law, be deemed to be a contract made under the laws of the State
of New York, and for all purposes shall be construed in accordance with the
laws of that state, without regard to the conflicts of laws principals
thereof (other than such Section 5-1401).
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-7
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto ________________________________________________________________________
whose taxpayer identification number is ______________________________________
and whose address including postal/zip code is
________________________________________________________ the within Note and all
rights thereunder, hereby irrevocably constituting and appointing
_________________________________________ attorney-in-fact to transfer said Note
on the books of the Company with full power of substitution in the premises.
[Include if Note is a Rule 144A Global Note, Restricted Regulation S
Global Note, any certificated Note issued in accordance with Section 2.05 of the
Indenture in exchange for a Global Note (and any certificated Notes issued to
qualified institutional buyers in exchange therefor), or an Accredited Investor
Note:]
In connection with the transfer of this Note, the undersigned
certifies that:
(Check one)
/ / (a) This Note is being transferred to a person the undersigned
reasonably believes is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) (a "QIB")
acquiring such Notes for its own account or as a fiduciary
or agent for others (which others are also QIBs) and such
person has been given notice that the transfer is being made
in reliance on Rule 144A.
/ / (b) This Note is being transferred outside the United States in
compliance with Rule 904 of Regulation S under the
Securities Act.
/ / (c) This Note is being transferred to an institutional
"accredited investor" (within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) pursuant to
another available exemption under the Securities Act.
/ / (d) This Note is being transferred to LG&E Capital Corp.
/ / (e) This Note is being transferred pursuant to the exemption
from registration provided by Rule 144 under the Securities
Act.
A-8
<PAGE>
/ / (f) This Note is being transferred pursuant to a registration
statement that has been declared effective under the
Securities Act.
Dated: ___________________ Name:__________________________
By:____________________________
Title:_________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatsoever.
SIGNATURE GUARANTEED
__________________________________________
A-9
<PAGE>
EXHIBIT B
FORM OF RESTRICTED PERIOD CERTIFICATE
LG&E Capital Corp.
[DATE]
The Depository Trust Company
55 Water Street
New York, NY 10041
The Bank of New York,
as Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E CAPITAL CORP. __________ (THE "NOTES")
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of January 15, 1998
(the "Indenture") between LG&E Capital Corp. and The Bank of New York, as
Trustee. Capitalized terms used and not defined herein shall have the
meanings given them in the Indenture.
This letter is related to $_____________ principal amount of the Notes
represented by the Restricted Regulation S Global Security, held by the
Trustee pursuant to Section 2.06 of the Indenture. We hereby certify that
the offering of the Notes has closed and that the restricted period (as
defined in Regulation S) with respect to the offer and sale of the Notes has
terminated.
LG&E Capital Corp.
By:_________________________
Name:
Title:
cc: Euroclear
CEDEL Bank
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL NOTE
OR ACCREDITED INVESTOR NOTE TO RESTRICTED REGULATION S GLOBAL NOTE
(Transfers or exchanges pursuant to
Section 2.06(b)(ii) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ___________ (the "Notes")
Reference is hereby made to the Indenture dated as of January 15, 1998
(the "Indenture") between LG&E Capital Corp. and The Bank of New York, as
Trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $__________________ principal amount of the
Notes which are held in the form of
[the Rule 144A Global Note (CUSIP No. [__________] with the Depositary]
[an Accredited Investor Note] in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested a transfer or exchange of such
beneficial interest in the Notes [Note] for an interest in the Restricted
Regulation S Global Note (CINS No. ___________) to be held with [Euroclear]
[Cedel Bank] (Common Code _____________) through the Depositary.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer or exchange has been
effected in accordance with the transfer restrictions set forth in the
Indenture and the Notes and pursuant to and in accordance with Regulation S
under the Securities Act, and accordingly the Transferor does hereby certify
that:
(1) the offer of the Notes was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States,]*
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States,]*
C-1
<PAGE>
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable,
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:______________________________
Name:
Title:
Dated:_____________________, 199_
cc: LG&E Capital Corp.
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
C-2
<PAGE>
EXHIBIT D
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL NOTE
OR ACCREDITED INVESTOR NOTE TO UNRESTRICTED
REGULATION S GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.06(b)(iii) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ___________ (the "Notes")
Reference is hereby made to the Indenture dated as of
January 15, 1998 (the "Indenture") between LG&E Capital Corp. and The Bank of
New York, as Trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________________ principal
amount of the Notes which are held in the form of
[the Rule 144A Global Note (CUSIP No. [__________] with the Depositary]
[an Accredited Investor Note] in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested an exchange or transfer of such
[beneficial interest in the Notes] [Note] for an interest in the Unrestricted
Regulation S Global Security (CUSIP No. ___________).
In connection with such request and in respect of such
Notes, the Transferor does hereby certify that such transfer or exchange has
been effected in accordance with the transfer restrictions set forth in the
Indenture and the Notes and:
(i) with respect to transfers made in reliance on Regulation S under the
Securities Act, the Transferor does hereby certify that:
(1) the offer of the Notes was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States,]*
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States,]*
D-1
<PAGE>
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable,
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(ii) with respect to transfers made in reliance on Rule 144 under the
Securities Act, certify that the Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act,
(iii) with respect to transfers made in reliance on another exemption from
the Securities Act, the following is the basis for the exemption:
_______________, and
(iv) with respect to an exchange, either (x) the Note being exchanged is not
a "restricted security" as defined in Rule 144 under the Securities Act or
(u) the exchange is being made to facilitate a contemporaneous transfer that
complies with Section 2.06(b)(iii) of the Indenture.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:____________________________________
Name:
Title:
Dated: _____________________, 199_
cc: LG&E Capital Corp.
____________________
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
D-2
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM
RESTRICTED REGULATION S GLOBAL NOTE, UNRESTRICTED REGULATION S
GLOBAL NOTE OR ACCREDITED NOTE TO RULE 144A GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.06(b)(iv) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ____________ (the "Notes")
Reference is hereby made to the Indenture dated as of
January 15, 1998 (the "Indenture") between LG&E Capital Corp. and The Bank of
New York, as Trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________________ principal
amount of the Notes which are held in the form of [the [Restricted]
[Unrestricted] Regulation S Global Note with [Euroclear] [Cedel Bank] (Common
Code _____________)] [with the Depositary (CUSIP No. _______)]
[an Accredited Investor Note] in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested a transfer or exchange of such
[beneficial interest] [Note] for an interest in the Rule 144A Global Note.
In connection with such request, and in respect of such
Notes, the Transferor does hereby certify that such Notes are being
transferred or exchanged in accordance with (i) the transfer restrictions set
forth in the Indenture and the Notes and (ii) Rule 144A under the Securities
Act to a transferee that the Transferor reasonably believes is purchasing the
Notes for its own account or an account with respect to which the transferee
exercises sole investment discretion and the transferee and any such account
is a "qualified institutional buyer" within the meaning of Rule 144A, in each
case in a transaction meeting the requirements of Rule 144A and in accordance
with any applicable securities laws of any state of the United States or any
other jurisdiction.
E-1
<PAGE>
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:____________________________________
Name:
Title:
Dated: _____________________, 199_
cc: LG&E Capital Corp.
E-2
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR
EXCHANGE FROM RULE 144A GLOBAL NOTE, RESTRICTED
REGULATION S GLOBAL NOTE OR UNRESTRICTED
REGULATION S GLOBAL NOTE TO ACCREDITED INVESTOR NOTE
(Exchanges or transfers pursuant to
Section 2.06(b)(v) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ___________ (the "Notes")
Reference is hereby made to the Indenture dated as of
January 15, 1998 (the "Indenture") between LG&E Capital Corp. and The Bank of
New York, as Trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________________ principal
amount of the Notes which are held in the form of the
[Rule 144A Global Note (CUSIP No. [__________] with the Depositary]
[Restricted] [Unrestricted] Regulation S Global Note (CUSIP No. [__________]
with [Euroclear] [Cedel Bank] in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested an exchange or transfer of such
beneficial Global Notes for an Accredited Investor Note.
In connection with such request with respect to a
transfer or exchange for an Accredited Investor Note, the Transferor does
hereby certify that such exchange or transfer has been effected in accordance
with the transfer restrictions set forth in the Rule 144A Global Note, the
Restricted Regulation S Global Note and the Unrestricted Regulation S Global
Note (as the case may be) and, with respect to transfers made in reliance on
Rule 144 under the Securities Act, certify that the Notes are being
transferred in a transaction permitted by Rule 144 under the Securities Act.
In connection with such request with respect to a
transfer or exchange for an Accredited Investor Note, and in respect of such
Rule 144A Global Note, Restricted Regulations S Global Note and Unrestricted
Regulation S Global Note (as the case may be), the Transferor does hereby
certify that such Global Note is being transferred or exchanged in accordance
with (i) the transfer restrictions set forth in the Indenture and the Notes
and (ii) the Securities Act to a transferee that the Transferor reasonably
believes is purchasing the Accredited Investor Note for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is an
F-1
<PAGE>
institution that is an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act, in each case purchasing
Accredited Investor Notes in a transaction exempt from the Securities Act,
and in accordance with any applicable securities laws of any state of the
United States or any other jurisdiction.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:____________________________________
Name:
Title:
Dated: _____________________, 199_
cc: LG&E Capital Corp.
F-2
<PAGE>
EXHIBIT G
SUPPORT AGREEMENT
G-1
<PAGE>
Exhibit 10.73
LG&E CAPITAL CORP.
AND
THE BANK OF NEW YORK,
as Trustee
________________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of January 15, 1998
TO
INDENTURE
Dated as of January 15, 1998
________________________
Medium-Term Notes Due Nine Months
or More from Date of Issue, Series A
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of the 15th day of January,
1998 (the "FIRST SUPPLEMENTAL INDENTURE"), between LG&E CAPITAL CORP., a
corporation duly organized and existing under the laws of the State of
Kentucky (hereinafter sometimes referred to as the "COMPANY"), and The Bank
of New York, a New York banking corporation, as trustee (hereinafter
sometimes referred to as the "TRUSTEE") (under the Indenture dated as of
January 15, 1998, as supplemented, between the Company and the Trustee (the
"INDENTURE")).
WHEREAS, the Company executed and delivered the Indenture to the
Trustee to provide for the future issuance of its notes (the "NOTES"), which
Notes are to be issued from time to time in such series as may be determined
by the Company under the Indenture, in an unlimited aggregate principal
amount which may be authenticated and delivered thereunder as in the
Indenture provided, and which Notes are subject to the terms of the Support
Agreement, as defined in the Indenture; and
WHEREAS, pursuant to the terms of the Indenture, the Company
desires to provide for the establishment of a series of its Notes to be
designated as hereinafter provided, the form and substance of the Notes and
the terms, provisions and conditions thereof to be set forth as provided in
the Indenture and this First Supplemental Indenture; and
WHEREAS, the Company desires and has requested the Trustee to join
with it in the execution and delivery of this First Supplemental Indenture,
and all requirements necessary to make this First Supplemental Indenture a
valid instrument, in accordance with its terms, and to make said Notes, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed and fulfilled, and the
execution and delivery hereof have been in all respects duly authorized;
NOW, THEREFORE, in consideration of the purchase and acceptance of
the Notes by the holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Notes and the terms,
provisions and conditions thereof, the Company covenants and agrees with the
Trustee as follows:
ARTICLE ONE
Definitions and Other Provisions of
General Application
SECTION 1.01. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Indenture.
SECTION 1.02. The terms defined in this Section, for all purposes
of this First Supplemental Indenture, shall have the respective meanings
specified in this Section.
"ADMINISTRATIVE PROCEDURES" shall have the meaning ascribed to such
term in Section 2.01 of this First Supplemental Indenture.
"AGENTS" means the Persons acting as Agents under the Private
Placement Agency Agreement dated February 3, 1998 between the Company and
the Agents thereunder.
"ANNUAL REDEMPTION PERCENTAGE REDUCTION" shall mean the percentage
specified as such in the applicable Note Terms Certificate.
<PAGE>
"BUSINESS DAY" means any day, other than a Saturday, Sunday, a legal
holiday or a day on which banking institutions in The City of New York are
authorized or obligated to close; provided, however, that, with respect to
Medium-Term Notes as to which LIBOR is an applicable Interest Rate Basis,
such day is also a London Business Day.
"CALCULATION AGENT" shall mean an agent appointed from time to time by
the Company for the purpose of determining the rates of interest in effect
from time to time with respect to one or more issues of the Medium-Term
Notes and calculating the amount of interest payable from time to time with
respect thereto. Unless otherwise specified in the Note Terms Certificate
with respect to an issue of the Medium-Term Notes, the Calculation Agent
shall be the Trustee.
"CALCULATION DATE", as it pertains to any Interest Determination Date,
shall, unless otherwise specified in the applicable Note Terms Certificate,
mean the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Stated Maturity, as the case may
be.
"FIXED RATE NOTES" shall have the meaning ascribed to such term in
Section 2.01 of this First Supplemental Indenture.
"FLOATING RATE NOTES" shall have the meaning ascribed to such term in
Section 2.01 of this First Supplemental Indenture.
"INDEX MATURITY" shall mean the period to maturity of the instrument
or obligation with respect to which the related Interest Rate Basis or
Bases will be calculated.
"INITIAL REDEMPTION DATE" shall mean the date set forth on the face of
a Medium-Term Note that is the first date on which a Medium-Term Note that
is subject to redemption prior to its Stated Maturity at the option of the
Company may be redeemed.
"INITIAL REDEMPTION PERCENTAGE" shall mean, with respect to a
Medium-Term Note that is redeemable prior to its Stated Maturity at the
option of the Company, the percentage specified in the applicable Note Terms
Certificate, which Initial Redemption Percentage shall decline at each
anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the
Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed.
"INTEREST DETERMINATION DATE" shall mean, (i) with respect to the
CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate and
the Prime Rate, the second Business Day immediately preceding the applicable
Interest Reset Date; (ii) with respect to the Eleventh District Cost of Funds
Rate, the last working day of the month immediately preceding the applicable
Interest Reset Date on which the Federal Home Loan Bank of San Francisco
publishes the Index; (iii) with respect to LIBOR, the second London Business
Day immediately preceding the applicable Interest Reset Date; and (iv) with
respect to the Treasury Rate, the day in the week in which the Interest Reset
Date occurs on which Treasury Bills are normally auctioned (except that if
the auction is held on the Friday of the immediately preceding week, the
Interest Determination Date shall be that Friday and that if the Interest
Determination Date would otherwise fall on an Interest Reset Date, then such
Interest Reset Date will be postponed to the next succeeding Business Day).
The Interest Determination Date pertaining to a Floating Rate Note the
interest rate of which is determined by reference to two or more Interest
Rate Bases shall be the second Business Day next preceding the Interest Reset
Date for such Floating
2
<PAGE>
Rate Note on which each Interest Rate Basis is determinable; each Interest
Rate Basis shall be determined as of such date, and the applicable interest
rate shall take effect on the applicable Interest Reset Date.
"INTEREST PAYMENT DATE" shall have the meanings ascribed to such term
in Sections 2.05 and 2.06 of this First Supplemental Indenture.
"INTEREST PERIOD" shall have the meaning ascribed to such term in
Section 2.04 of this First Supplemental Indenture.
"INTEREST RATE BASIS" has the meaning set forth in Section 1.03
hereof.
"INTEREST RESET DATE" shall mean the date or dates specified in the
applicable Note Terms Certificate on which the rate of interest on a
Floating Rate Note will be reset.
"INTEREST RESET PERIOD" shall mean the period, whether daily, weekly,
monthly, quarterly, semiannual or annual, or other specified basis, between
Interest Reset Dates relating to a Floating Rate Note, as specified in the
applicable Note Terms Certificate.
"LONDON BUSINESS DAY" means a day on which dealings in Dollars are
transacted in the London interbank market.
"MAXIMUM INTEREST RATE" shall have the meaning ascribed to such term
in Section 2.06 of this First Supplemental Indenture.
"MEDIUM-TERM NOTES" has the meaning specified in Section 2.01 hereof.
"MINIMUM INTEREST RATE" shall have the meaning ascribed to such term
in Section 2.06 of this First Supplemental Indenture.
"NOTE TERMS CERTIFICATE" shall have the meaning ascribed to such term
in Section 2.01 of this First Supplemental Indenture.
"OPTIONAL REPAYMENT DATE" shall mean the date set forth on the face of
a Medium-Term Note that is the first date on which a Medium-Term Note that
is subject to prepayment prior to its Stated Maturity at the option of the
holder may be repaid.
"PERIODIC OFFERING" means an offering of Notes of a series from time
to time, the specific terms of which Notes, including, without limitation,
the rate or rates of interest, if any, thereon, the stated maturity or
maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Issuer or its agents upon the issuance
of such Notes.
"RECORD DATE" shall, unless otherwise specified in the applicable Note
Terms Certificate, mean the fifteenth calendar day (whether or not a
Business Day) immediately preceding the related Interest Payment Date with
respect to any Medium-Term Note.
3
<PAGE>
"REDEMPTION PRICE" shall mean, with respect to a Medium-Term Note that
is redeemable prior to its Stated Maturity at the option of the Company, an
amount equal to the Initial Redemption Percentage specified in the
applicable Note Terms Certificate, as adjusted by any applicable Annual
Redemption Percentage Reduction, multiplied by the unpaid principal amount
to be redeemed.
"SPREAD" shall mean the number of basis points to be added to or
subtracted from the related Interest Rate Basis or Bases applicable to a
Floating Rate Note.
"SPREAD MULTIPLIER" shall mean the percentage of the related
Interest Rate Basis or Bases applicable to a Floating Rate Note by which such
Interest Rate Basis or Bases shall be multiplied to determine the applicable
interest rate on such Floating Rate Note.
"STATED MATURITY" shall have the meaning ascribed to such term in
Section 2.01 of this First Supplemental Indenture.
SECTION 1.03. The rate of interest of a Floating Rate Note is
determined by reference to one or more of the CD Rate, the CMT Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR, the Prime Rate and the Treasury Rate or such other interest
rate basis as may be specified in the Note Terms Certificate (each, an "INTEREST
RATE BASIS"). Each of the following terms is defined in EXHIBIT A attached
hereto and by this reference incorporated herein: the "CD Rate," the "CMT
Rate," the "Commercial Paper Rate," the "Eleventh District Cost of Funds Rate,"
the "Federal Funds Rate," "LIBOR," the "Prime Rate," and the "Treasury Rate," as
well as each of the defined terms used in such definitions.
ARTICLE TWO
General Terms and Conditions of
the Medium-Term Notes
SECTION 2.01. There shall be and is hereby authorized a series of
Notes designated the "Medium-Term Notes Due Nine Months or More From Date of
Issue, Series A," limited in aggregate principal amount to $500,000,000 (the
"MEDIUM-TERM NOTES") (or the equivalent thereof in one or more foreign or
composite currencies), which may be sold and issued from time to time as set
forth in any written order of the Company for the authentication and delivery
of Medium-Term Notes pursuant to Section 2.04(b) of the Indenture (a "NOTE
TERMS CERTIFICATE"). Forms of a Fixed Rate Note and a Floating Rate Note,
excluding in each case terms and provisions to be included therein pursuant
to a Note Terms Certificate, are attached hereto as EXHIBITS B-1 and B-2,
respectively, and by this reference incorporated herein. The Medium-Term
Notes shall mature on their Stated Maturity, unless the principal thereof (or
any installment of principal thereof) becomes due and payable prior to such
Stated Maturity, whether by the declaration of acceleration of maturity,
notice of redemption at the option of the Company, notice of the holder's
option to elect repayment or otherwise. The Medium-Term Notes may be
authenticated and issued in one or more issues or tranches of Medium-Term
Notes of like tenor and terms. The entire series of Medium-Term Notes shall
be deemed to be subject to a Periodic Offering; the procedures for
authentication and delivery of one or more issues or tranches of Medium-Term
Notes subject to such Periodic Offering to which reference is made in Section
2.04 of the Indenture are set forth in the Administrative Procedures (the
"ADMINISTRATIVE PROCEDURES") authorized and adopted by the Board of Directors
of the Company and attached hereto as EXHIBIT B-3; and the Trustee, upon
compliance by the Company with the requirements of Section 2.04 of the
Indenture, shall authenticate and deliver Medium-Term Notes in accordance
with the Administrative Procedures. To the extent that the terms of
4
<PAGE>
any such issue or tranche are not set forth in the Indenture, as supplemented
and amended by this First Supplemental Indenture, they shall be established
by means of the Note Terms Certificate. In accordance with the procedures
set forth in the Indenture and the Administrative Procedures, and to the
extent the following terms and provisions are set forth in a Note Terms
Certificate:
(a) Each Medium-Term Note shall be dated a date determined in
accordance with the Administrative Procedures, which date may vary among
the Notes;
(b) each Medium-Term Note will mature on a day nine months or more
from its date of issue (its "STATED MATURITY") determined in accordance
with the Administrative Procedures, which Stated Maturity may vary among
the Medium-Term Notes;
(c) each Medium-Term Note shall bear interest, if any, at a fixed
rate (a "FIXED RATE NOTE") or at a floating rate (a "FLOATING RATE NOTE"),
and the interest rate for a Fixed Rate Note or the Interest Rate Basis for
determining the floating interest rate for a Floating Rate Note shall be
established in accordance with the Administrative Procedures, which
interest rate or Interest Rate Basis may vary among the Medium-Term Notes;
(d) interest on each Fixed Rate Note and each Floating Rate Note
shall accrue from its date of issue;
(e) the floating interest rate on each Floating Rate Note shall be
reset on such date or dates as shall be established in accordance with the
Administrative Procedures, which date or dates may vary among the
Medium-Term Notes;
(f) interest on each Medium-Term Note shall be payable in arrears on
the date or dates specified therein and determined in accordance with the
applicable Note Terms Certificate, which date or dates may vary among the
Medium-Term Notes; provided that, unless otherwise specified in the
applicable Note Terms Certificate, the Interest Reset Dates will be, in the
case of Floating Rate Notes which reset: (i) daily, each Business Day;
(ii) weekly, the Tuesday of each week (except for weekly reset Floating
Rate Notes as to which the Treasury Rate is an applicable Interest Rate
Basis where the Interest Reset Date falls on an Interest Determination
Date, such Interest Reset Date will be postponed to the next succeeding
Business Day); (iii) monthly, the third Tuesday of each month (with the
exception of monthly reset Floating Rate Notes as to which the Eleventh
District Cost of Funds Rate is an applicable Interest Rate Basis, which
will reset on the first calendar day of the month); (iv) quarterly, the
third Tuesday of March, June, September and December of each year;
(v) semiannually, the third Tuesday of the two months specified in the
applicable Note Terms Certificate; and (vi) annually, the third Tuesday of
the month specified in the applicable Note Terms Certificate; provided,
however, that, with respect to Floating Rate/Fixed Rate Notes, the rate of
interest thereon will not reset after the applicable Fixed Rate
Commencement Date;
(g) each Medium-Term Note may be subject to redemption, in whole or
in part, prior to its Stated Maturity at the option of the Company to the
extent so provided in accordance with the Administrative Procedures; and
5
<PAGE>
(h) each Medium-Term Note may be subject to repayment, in whole or in
part, prior to its Stated Maturity Date at the option of the holder thereof
to the extent so provided in accordance with the Administrative Procedures.
SECTION 2.02. The Medium-Term Notes shall be issued either (i) as
Global Notes and registered in the name of the Depositary or its nominee,
subject to the appointment of a successor Depositary as provided in the
Indenture or (ii) in definitive form and registered in the name of the holder
thereof. The Medium-Term Notes represented by the Global Notes will not be
exchangeable for, and will not otherwise be issuable as, Notes in
certificated form, except as provided in the Indenture.
SECTION 2.03. Unless otherwise specified in an applicable Note
Terms Certificate, the Medium-Term Notes created hereby shall be issued in
fully registered form, without interest coupons, in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof.
SECTION 2.04. Unless otherwise specified in an applicable Note Terms
Certificate:
(a) Each interest-bearing Medium-Term Note shall bear interest from
the date of its issue at the rate per annum, in the case of a Fixed Rate
Note, or pursuant to the interest rate formula, in the case of a Floating
Rate Note, in each case as specified in the Medium-Term Note;
(b) Interest payments in respect of Fixed Rate Notes and Floating
Rate Notes shall be made in an amount equal to the interest accrued from
and including the immediately preceding Interest Payment Date in respect of
which interest has been paid or duly made available for payment (or from
and including the date of issue, if no interest has been paid or duly made
available for payment) to but excluding the applicable Interest Payment
Date or the Stated Maturity, as the case may be (each, an "INTEREST
PERIOD"); and
(c) Interest on Fixed Rate Notes and Floating Rate Notes will be paid
in arrears on each Interest Payment Date and on the Stated Maturity. The
first payment of interest on any such Medium-Term Note originally issued
between a Record Date and the related Interest Payment Date shall be made
on the Interest Payment Date immediately following the next succeeding
Record Date to the holder on such next succeeding Record Date.
Any such interest installment not punctually paid or duly provided for on any
Interest Payment Date shall forthwith cease to be payable to the registered
holder on the relevant Record Date, and may be paid to the person in whose name
the Medium-Term Note (or one or more predecessor Notes) is registered at the
close of business on a special record date to be fixed by the Trustee for the
payment of such defaulted interest, notice whereof shall be given to the
registered holders of the Medium-Term Notes not less than 10 days prior to such
special record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Medium-Term Note may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture.
SECTION 2.05. Interest on Fixed Rate Notes will be payable on January
15 and July 15 of each year or on such other date or dates specified in the
applicable Note Terms Certificate (each, an "INTEREST PAYMENT DATE" with respect
to Fixed Rate Notes) and on the Stated Maturity with respect to all or part of
the principal thereof. If any Interest Payment Date or the Stated Maturity of a
Fixed Rate Note falls on a day that is not a Business Day, the required payment
of principal, premium, if any, and/or interest will be made on the next
succeeding Business Day as if made on the date such payment was due,
6
<PAGE>
and no interest will accrue on such payment for the period from and after
such Interest Payment Date or the Stated Maturity, as the case may be, to the
date of such payment on the next succeeding Business Day. Unless otherwise
specified in the applicable Note Terms Certificate, interest on Fixed Rate
Notes shall be computed on the basis of a 360-day year of twelve 30-day
months.
SECTION 2.06. Interest on Floating Rate Notes shall be payable on
the date or dates specified in the applicable Note Terms Certificate (each,
an "INTEREST PAYMENT DATE" with respect to Floating Rate Notes); provided
that, except as provided below or in the applicable Note Terms Certificate,
interest will be payable, in the case of Floating Rate Notes which reset:
(i) daily, weekly or monthly, on the third Tuesday of each month or on the
third Wednesday of March, June, September and December of each year, as
specified in the applicable Note Terms Certificate; (ii) quarterly, on the
third Tuesday of March, June, September and December of each year; (iii)
semiannually, on the third Tuesday of the two months of each year specified
in the applicable Note Terms Certificate; and (iv) annually, on the third
Tuesday of the month of each year specified in the applicable Note Terms
Certificate and, in each case, on the Stated Maturity. Interest on Floating
Rate Notes shall be determined as follows:
(a) Any Floating Rate Note (a "REGULAR FLOATING RATE NOTE"), other
than a Floating Rate/Fixed Rate Note, an Inverse Floating Rate Note or a
Note that is subject to an addendum attached thereto or to
"Other/Additional Provisions," shall, except as otherwise provided in the
applicable Note Terms Certificate, bear interest at the rate determined by
reference to the applicable Interest Rate Basis or Bases (i) plus or minus
the applicable Spread, if any, and/or (ii) multiplied by the applicable
Spread Multiplier, if any. Commencing on the initial Interest Reset Date
for such Note (the "INITIAL INTEREST RESET DATE"), the rate at which
interest on such Regular Floating Rate Note shall be payable shall be reset
as of each Interest Reset Date;
(b) If a Medium-Term Note is designated as a Floating Rate/Fixed Rate
Note, such Medium-Term Note shall, except as otherwise provided in the
applicable Note Terms Certificate, bear interest at the rate determined by
reference to the applicable Interest Rate Basis or Bases (i) plus or minus
the applicable Spread, if any, and/or (ii) multiplied by the applicable
Spread Multiplier, if any. Commencing on the Initial Interest Reset Date,
the rate at which interest on such Floating Rate/Fixed Rate Note shall be
payable shall be reset as of each Interest Reset Date; provided, however,
that the interest rate in effect for the period commencing on, and
including, the date specified in the applicable Note Terms Certificate (the
"FIXED RATE COMMENCEMENT DATE") to the Stated Maturity shall be the Fixed
Interest Rate, if such rate is specified in the Note Terms Certificate or,
if no such Fixed Interest Rate is specified, the interest rate in effect
thereon on the day immediately preceding the Fixed Rate Commencement Date;
and
(c) If a Medium-Term Note is designated as an Inverse Floating Rate
Note, such Medium-Term Note shall, except as otherwise provided in the
applicable Note Terms Certificate, bear interest at the Fixed Interest Rate
minus the rate determined by reference to the applicable Interest Rate
Basis or Bases (i) plus or minus the applicable Spread, if any, and/or (ii)
multiplied by the applicable Spread Multiplier, if any; provided, however,
that, unless otherwise specified in the applicable Note Terms Certificate,
the interest rate thereon shall not be less than zero. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Inverse
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date;
provided, however, that, in each case, the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date shall
be the initial interest rate of such Medium-Term Note (the "INITIAL INTEREST
RATE"). Unless otherwise specified in an applicable Note Terms Certificate, the
interest
7
<PAGE>
rate in effect on each day shall be (i) if such day is an Interest Reset
Date, the interest rate determined as of the Interest Determination Date
immediately preceding such Interest Reset Date or (ii) if such day is not an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the most recent Interest Reset Date.
If any Interest Reset Date for any Floating Rate Note would otherwise be a
day that is not a Business Day, such Interest Reset Date shall be postponed
to the next succeeding Business Day, except that in the case of a Floating
Rate Note as to which LIBOR is an applicable Interest Rate Basis and such
Business Day falls in the next succeeding calendar month, such Interest Reset
Date shall be the immediately preceding Business Day. If the Stated Maturity
of a Floating Rate Note falls on a day that is not a Business Day, the
required payment of principal, premium, if any, and interest will be made on
the next succeeding Business Day as if made on the date such payment was due
and no interest will accrue on such payment for the period from and after the
Stated Maturity to the date of such payment on the next succeeding Business
Day. Notwithstanding the foregoing, a Floating Rate Note may also have
either or both of the following: a maximum interest rate, or ceiling, that
may accrue during any Interest Period (a "MAXIMUM INTEREST RATE") and a
minimum interest rate, or floor, that may accrue during any Interest Period
(a "MINIMUM INTEREST RATE"). In addition to any Maximum Interest Rate that
may apply to any Floating Rate Note, the interest rate on Floating Rate Notes
will in no event be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application.
Interest accrued on a Floating Rate Note shall be calculated by multiplying
its principal amount by an accrued interest factor. Such accrued interest
factor shall be computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise provided in the
applicable Note Terms Certificate, the interest factor for each such day
shall be computed by dividing the interest rate applicable to such day by
360, in the case of Floating Rate Notes for which an applicable Interest Rate
Basis is the CD Rate, the Commercial Paper Rate, the Eleventh District Cost
of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the
actual number of days in the year in the case of Floating Rate Notes for
which an applicable Interest Rate Basis is the CMT Rate or the Treasury Rate.
Unless otherwise specified in the applicable Note Terms Certificate, if the
interest rate is to be calculated with reference to two or more Interest Rate
Bases, such interest rate shall be calculated in each Interest Period in the
same manner as if only the applicable Interest Rate Basis specified in the
applicable Note Terms Certificate applied. All percentages resulting from
any calculation on Floating Rate Notes will be rounded to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all amounts used in or resulting from
such calculation on Floating Rate Notes will be rounded to the nearest cent
(with one-half cent being rounded upwards). If the Trustee hereunder is also
acting as Calculation Agent, the Calculation Agent will, at the request of
any holder of Medium-Term Notes, provide to such holder the interest rate
then in effect on the Medium-Term Notes and, if determined, the interest rate
which will become effective as of the next Interest Reset Date.
SECTION 2.07. To the extent an applicable Note Terms Certificate
provides for an Initial Redemption Date, Notes shall be redeemable on any date
on and after such Initial Redemption Date but prior to their Stated Maturity in
whole or in part at the option of the Company in accordance with the provisions
of Article Three of the Indenture; provided, however, that any partial
redemption of Notes shall be in increments of $100,000 or integral multiples of
$1,000 in excess of $100,000 and that any remaining principal amount thereof
shall be at least $100,000. Any such redemption shall be at the applicable
Redemption Price, together with unpaid interest accrued to the date of
redemption.
SECTION 2.08. To the extent an applicable Note Terms Certificate
provides for one or more Optional Repayment Dates, Medium-Term Notes shall be
subject to repayment at the option of the holders thereof on any such Optional
Repayment Date in whole or in part; provided, however, that any
8
<PAGE>
partial repayment of Medium-Term Notes shall be in increments of $100,000 or
integral multiples of $1,000 in excess of $100,000 and that any remaining
principal amount thereof shall be at least $100,000. Any such repayment
shall be at a repayment price of 100% of the unpaid principal amount to be
repaid on such Optional Repayment Date, together with unpaid interest accrued
to the date of repayment. For any Note to be repaid, such Note shall be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office not more than 60
nor less than 30 calendar days prior to the date of repayment. Exercise of
such repayment option by the holder will be irrevocable. In the case of a
repayment of a Note in part only, a new Note or Notes of like tenor and terms
for the unrepaid portion thereof shall be issued by the Company to the holder
thereof, without charge, upon the surrender of the partially repaid Note.
SECTION 2.09. All Medium-Term Notes issued hereunder and all
Medium-Term Notes issued upon registration of transfer of, or in exchange
for, such Medium-Term Notes, shall be subject to the restrictions on transfer
provided in Section 2.04, 2.05 and 2.06 of the Indenture and Exhibits C, D
and E of this First Supplemental Indenture and the legends set forth on the
Medium-Term Notes, PROVIDED that in the event of a conflict between such
legends and any provision of this First Supplemental Indenture and the
Indenture, such legends shall control. Such restrictions on transfer and
legends shall not be removed except in accordance with the Indenture.
SECTION 2.10. The Medium-Term Notes shall be entitled to the
benefits of the Indenture and this First Supplemental Indenture, and the
holders of the Medium-Term Notes and the Trustee are entitled to the benefits
of the Support Agreement available to Lenders (as defined in the Support
Agreement), it being understood and agreed that the Medium-Term Notes
constitute Obligations (as defined in the Support Agreement) for purposes of
the Support Agreement.
SECTION 2.11. The covenants provided by Sections 4.06 and 4.09 of
the Indenture shall be applicable to the Medium-Term Notes.
ARTICLE THREE
Original Issue of Notes
Medium-Term Notes in the aggregate principal amount of $500,000,000
may, upon execution of this First Supplemental Indenture, or from time to
time thereafter, be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver such
Medium-Term Notes to or upon the delivery of the Note Terms Certificate to
the Trustee, signed by any Authorized Officer of the Company.
ARTICLE FOUR
Miscellaneous Provisions
SECTION 4.01. Except as otherwise expressly provided in this First
Supplemental Indenture or in the forms of Medium-Term Notes or otherwise clearly
required by the context hereof or thereof, all terms used herein or in the forms
of Medium-Term Notes that are defined in the Indenture shall have the several
meanings respectively assigned to them thereby.
SECTION 4.02. The Indenture, as supplemented by this First
Supplemental Indenture, is in all respects ratified and confirmed, and this
First Supplemental Indenture shall be deemed part of the Indenture in the manner
and to the extent herein and therein provided.
9
<PAGE>
SECTION 4.03. The recitals herein contained are made by the
Company and not by the Trustee, and the Trustee assumes no responsibility for
the correctness thereof. The Trustee makes no representation as to the
validity or sufficiency of this First Supplemental Indenture.
SECTION 4.04. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH
MEDIUM-TERM NOTE SHALL, PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW, BE DEEMED A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THAT STATE, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER
THAN SUCH SECTION 5-1401).
SECTION 4.05. Nothing in this First Supplemental Indenture or in
the Medium-Term Notes, express or implied, shall give to any person, other
than the parties hereto and their successors hereunder and the holders, any
benefit or legal or equitable right, remedy or claim under this First
Supplemental Indenture.
SECTION 4.06. This First Supplemental Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
LG&E CAPITAL CORP.
By:_______________________________________
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:________________________________
Name:
Title:
11
<PAGE>
EXHIBIT A
INTEREST RATE DEFINITIONS
Unless otherwise specified in the applicable Note Terms
Certificate, the Calculation Agent shall determine each Interest Rate Basis
in accordance with the following provisions.
CD RATE. Unless otherwise specified in the applicable Note Terms
Certificate, "CD Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined
with reference to the CD Rate (a "CD RATE INTEREST DETERMINATION DATE"), the
rate on such date for negotiable United States dollar certificates of deposit
having the Index Maturity specified in the applicable Note Terms Certificate
as published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication ("H.15(519)") under the heading "CDS (Secondary Market)," or if
not published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on such CD Rate Interest Determination Date for negotiable
United States dollar certificates of deposit of the Index Maturity specified
in the applicable Note Terms Certificate as published by the Federal Reserve
Bank of New York in its daily statistical release "Composite 3:30 P.M.
Quotations for U.S. Government Securities" or any successor publication
("COMPOSITE QUOTATIONS") under the heading "Certificates of Deposit." If
such rate is not yet published in either H.15(519) or Composite Quotations by
3:00 P.M., New York City time, on the related Calculation Date, then the CD
Rate on such CD Rate Interest Determination Date shall be calculated by the
Calculation Agent as the arithmetic mean of the secondary market offered
rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United
States dollar certificates of deposit in The City of New York (which may
include the Agents or their affiliates) selected by the Calculation Agent for
negotiable United States dollar certificates of deposit of major United
States money center banks for negotiable certificates of deposit with a
remaining maturity closest to the Index Maturity specified in the applicable
Note Terms Certificate in an amount that is representative for a single
transaction in that market at that time; provided, however, that, if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate determined as of such CD Rate Interest
Determination Date shall be the CD Rate in effect immediately prior to such
CD Rate Interest Determination Date.
CMT RATE. Unless otherwise specified in the applicable Note Terms
Certificate, "CMT Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is
determined with reference to the CMT Rate (a "CMT RATE INTEREST DETERMINATION
DATE"), the rate displayed on the Designated CMT Telerate Page under the
caption ". . . Treasury Constant Maturities . . . Federal Reserve Board
Release H.15 . . . Mondays Approximately 3:45 P.M.," under the column for the
Designated CMT Index Maturity for (i) if the Designated CMT Telerate Page is
7055, the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the weekly or monthly average, as
specified in the applicable Note Terms Certificate, for the week or the
month, as applicable, ended immediately preceding the week or the month, as
applicable, in which the related CMT Rate Interest Determination Date falls.
If such rate is no longer displayed on the relevant page or is not displayed
by 3:00 P.M., New York City time, on the related Calculation Date, then the
CMT Rate for such CMT Rate Interest Determination Date shall be such treasury
constant maturity rate for the Designated CMT Index Maturity for such CMT
Rate Interest Determination Date as published in H.15(519). If such rate is
no longer published or is not published by 3:00 P.M., New York City time, on
the related Calculation Date, then the CMT Rate for such CMT Rate Interest
Determination Date shall be such treasury constant maturity rate for the
Designated CMT Index Maturity (or such other United States Treasury rate for
the Designated CMT Index Maturity) for such
<PAGE>
CMT Rate Interest Determination Date as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of the Treasury and as the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in H.15(519). If such information is not provided by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate
on the CMT Rate Interest Determination Date shall be calculated by the
Calculation Agent as a yield to maturity, based on the arithmetic mean of the
secondary market offered rates as of approximately 3:30 P.M., New York City
time, on such CMT Rate Interest Determination Date reported, according to
their written records, by three leading United States government securities
dealers in The City of New York (which may include the Agents or their
affiliates) (each, a "REFERENCE DEALER") selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for the most recently issued direct noncallable fixed rate
obligations of the United States ("TREASURY NOTES") with an original maturity
of approximately the Designated CMT Index Maturity and a remaining term to
maturity of not less than such Designated CMT Index Maturity minus one year.
If the Calculation Agent is unable to obtain three such Treasury Note
quotations, the CMT Rate on such CMT Rate Interest Determination Date shall
be calculated by the Calculation Agent as a yield to maturity based on the
arithmetic mean of the secondary market offered rates as of approximately
3:30 P.M., New York City time, on such CMT Rate Interest Determination Date
of three Reference Dealers in The City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for Treasury
Notes with an original maturity of the number of years that is the next
highest to the Designated CMT Index Maturity and a remaining term to maturity
closest to the Designated CMT Index Maturity and in an amount of at least
$100 million. If three or four (and not five) of such Reference Dealers are
quoting as described above, then the CMT Rate shall be based on the
arithmetic mean of the offered rates obtained and neither the highest nor the
lowest of such quotes shall be eliminated; provided, however, that, if fewer
than three Reference Dealers so selected by the Calculation Agent are quoting
as mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date shall be the CMT Rate in effect on such CMT Rate
Determination Date. If two Treasury Notes with an original maturity as
described in the second preceding sentence have remaining terms to maturity
equally close to the Designated CMT Index Maturity, the Calculation Agent
shall obtain quotations for the Treasury Note with the shorter remaining term
to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service (or any successor service) on the page specified in the
applicable Note Terms Certificate (or any other page as may replace such page
on such service) for the purpose of displaying Treasury Constant Maturities
as reported in H.15(519). If no such page is specified in the applicable
Note Terms Certificate, the Designated CMT Telerate Page shall be 7052.
"Designated CMT Index Maturity" means the original period to
maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30
years) specified in the applicable Note Terms Certificate with respect to
which the CMT Rate will be calculated or, if no such maturity is specified in
the applicable Note Terms Certificate, 2 years.
COMMERCIAL PAPER RATE. Unless otherwise specified in the
applicable Note Terms Certificate, "Commercial Paper Rate" means, with
respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Commercial
Paper Rate (a "COMMERCIAL PAPER RATE INTEREST DETERMINATION DATE"), the Money
Market Yield (as hereinafter defined) on such date of the rate for the
commercial paper having the Index
2
<PAGE>
Maturity specified in the applicable Note Terms Certificate as published in
H.15(519) under the heading "Commercial Paper--Nonfinancial." If such rate
is not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date shall be the Money Market Yield of the rate for commercial
paper having the Index Maturity specified in the applicable Note Terms
Certificate as published in Composite Quotations under the heading
"Commercial Paper" (with an Index Maturity of one month or three months being
deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Commercial Paper Rate on such Commercial Paper
Rate Interest Determination Date shall be calculated by the Calculation Agent
as the Money Market Yield of the arithmetic mean of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in
The City of New York (which may include the Agents or their affiliates)
selected by the Calculation Agent for commercial paper having the Index
Maturity specified in the applicable Note Terms Certificate placed for an
Index Maturity specified in the applicable Note Terms Certificate placed for
an industrial issuer whose bond rating is "Aa," or the equivalent, from a
nationally recognized statistical rating organization; provided, however,
that, if the dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Commercial Paper Rate determined as of such
Commercial Paper Rate Interest Determination Date will be the Commercial
Paper Rate in effect immediately prior to such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D X 360 x 100
---------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable Interest Reset Period.
ELEVENTH DISTRICT COST OF FUNDS RATE. Unless otherwise specified
in the applicable Note Terms Certificate, "Eleventh District Cost of Funds
Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to the Eleventh District Cost of Funds Rate (an "ELEVENTH DISTRICT COST OF
FUNDS RATE INTEREST DETERMINATION DATE"), the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding
the month in which such Eleventh District Cost of Funds Rate Interest
Determination Date falls, as set forth under the caption "11th District" on
Telerate page 7058 as of 11:00 A.M., San Francisco time, on such Eleventh
District Cost of Funds Rate Interest Determination Date. If such rate does
not appear on Telerate Page 7058 on such Eleventh District Cost of Funds Rate
Interest Determination Date, then the Eleventh District Cost of Funds Rate on
such Eleventh District Cost of Funds Rate Interest Determination Date shall
be the monthly weighted average cost of funds paid by member institutions of
the Eleventh Federal Home Loan Bank District that was most recently announced
(the "INDEX") by the Federal Home Loan Bank ("FHLB") of San Francisco as such
cost of funds for the calendar month immediately preceding such Eleventh
District Cost of Funds Rate Interest Determination Date. If the FHLB of San
Francisco fails to announce the Index on or prior to such Eleventh District
Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination
3
<PAGE>
Date will be the Eleventh District Cost of Funds Rate in effect on such
Eleventh District Cost of Funds Rate Interest Determination Date.
"Telerate Page 7058" means the display designated as "7058" (or such
other page as may replace the 7058 page on that service for the purpose of
displaying the monthly weighted average cost of funds paid by member
institutions of the Eleventh Federal Home Loan Bank District) on the Dow Jones
Telerate Service (or any successor service).
FEDERAL FUNDS RATE. Unless otherwise specified in the applicable Note
Terms Certificate, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "FEDERAL FUNDS RATE
INTEREST DETERMINATION DATE"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date shall be calculated by the Calculation Agent as the
arithmetic mean of the rates for the last transaction in overnight United States
dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent prior to 9:00 A.M., New York City
time, on such Federal Funds Rate Interest Determination Date; provided, however,
that, if the brokers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Rate determined as of such Federal
Funds Rate Interest Determination Date shall be the Federal Funds Rate in effect
on such Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Note Terms
Certificate, "LIBOR" means the rate determined in accordance with the following
provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR INTEREST DETERMINATION DATE"), LIBOR will be either:
(a) if "LIBOR Reuters" is specified in the applicable Note Terms
Certificate, the arithmetic mean of the offered rates (unless the
Designated LIBOR Page by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in Dollars having
the Index Maturity specified in such Note Terms Certificate, commencing on
the applicable Interest Reset Date, that appear (or, if only a single rate
is required as aforesaid, appears) on the Designated LIBOR Page as of
11:00 A.M., London time, on such LIBOR Interest Determination Date, or
(b) if "LIBOR Telerate" is specified in the applicable Note Terms
Certificate or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified
in the applicable Note Terms Certificate as the method for calculating
LIBOR, the rate for deposits in Dollars having the Index Maturity specified
in such Note Terms Certificate, commencing on such Interest Reset Date,
that appears on the Designated LIBOR Page as of 11:00 A.M., London time,
on such LIBOR Interest Determination Date. If fewer than two such offered
rates so appear, or if no such rate so appears, LIBOR on such LIBOR
Interest Determination Date shall be determined in accordance with the
provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or if no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of
4
<PAGE>
each of four major reference banks (which may include affiliates of
the Agents) in the London interbank market, as selected by the Calculation
Agent, to provide the Calculation Agent with its offered quotations for
deposits in Dollars for the period of the Index Maturity specified in the
applicable Note Terms Certificate, commencing on the applicable Interest
Reset Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date and in a principal amount that is not less than $1,000,000 and is
representative for a single transaction in such market at such time. If
at least two such quotations are provided, then LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic mean of
such quotations. If fewer than two such quotations are so provided,
then LIBOR on such LIBOR Interest Determination Date shall be the
arithmetic mean of the rates quoted in The City of New York at
approximately 11:00 A.M., New York City time, on such LIBOR Interest
Determination Date by three major banks (which may include
affiliates of the Agents) in The City of New York, selected by the
Calculation Agent for loans in Dollars to leading European banks, having
the Index Maturity specified in the applicable Note Terms Certificate and
in a principal amount that is not less than $1,000,000 and is
representative for a single transaction in such market at such time;
provided, however, that, if the banks so selected by the Calculation Agent
are not quoting as mentioned in this sentence, LIBOR determined as of such
LIBOR Interest Determination Date shall be LIBOR in effect immediately
prior to such LIBOR Interest Determination Date.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Note Terms Certificate, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in each Note Terms
Certificate (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for Dollars, or
(b) if "LIBOR Telerate" is specified in the applicable Note Terms Certificate or
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable Note
Terms Certificate as the method for calculating LIBOR, the display on the Dow
Jones Markets Limited (or any successor service) on the page specified in such
Note Terms Certificate (or any other page as may replace such page on such
service) for the purpose of displaying the London interbank rates of major banks
for the Dollars.
PRIME RATE. Unless otherwise specified in the applicable Note Terms
Certificate, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "PRIME RATE INTEREST DETERMINATION DATE"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan". If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate on such Prime Rate Interest Determination Date shall be the arithmetic mean
of the prime rates or base lending rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of business
on such Prime Rate Interest Determination Date by four major money center banks
(which may include affiliates of the Agents) in The City of New York selected by
the Calculation Agent. If fewer than four such quotations are so provided, then
the Prime Rate on such Prime Rate Interest Determination Date shall be the
arithmetic mean of four prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Rate Interest Determination Date as furnished in The City of New York by
the major money center banks, if any, that have provided such quotations and by
a reasonable number of substitute banks or trust companies (which may include
affiliates of the Agents) to
5
<PAGE>
obtain four such prime rate quotations, provided that such substitute banks
or trust companies are organized and doing business under the laws of the
United States, or any State thereof, each having total equity capital of at
least $500 million and being subject to supervision or examination by Federal
or State authority, selected by the Calculation Agent to provide such rate or
rates; provided, however, that, if the banks or trust companies so selected
by the Calculation Agent are not quoting as mentioned in this sentence, the
Prime Rate determined as of such Prime Rate Interest Determination Date shall
be the Prime Rate in effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor
Money Rate Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. Unless otherwise specified in the applicable Note
Terms Certificate, "Treasury Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined by reference to the Treasury Rate (a "TREASURY RATE INTEREST
DETERMINATION DATE"), the rate from the auction held on such Treasury Rate
Interest Determination Date (the "AUCTION") of direct obligations of the United
States ("TREASURY BILLS") having the Index Maturity specified in the applicable
Note Terms Certificate, as such rate is published in H.15(519) under the heading
"Treasury Bills-auction average (investment)" or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the auction average rate of
such Treasury Bills (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) as otherwise
announced by the United States Department of the Treasury. If the results of
the Auction of Treasury Bills having the Index Maturity specified in the
applicable Note Terms Certificate are not reported as provided by 3:00 P.M., New
York City time, on the related Calculation Date or if no such Auction is held,
then the Treasury Rate will be calculated by the Calculation Agent as a yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Rate Interest Determination Date, of three leading United
States government securities dealers (which may include the Agents or their
affiliates) selected by the Calculation Agent, for the issue of Treasury Bills
with a remaining maturity closest to the Index Maturity specified in the
applicable Note Terms Certificate; provided, however, that, if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Treasury Rate determined as of such Treasury Rate Interest Determination
Date will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Medium-Term Notes, including the
specification and determination of one or more Interest Rate Bases, the
calculation of the interest rate applicable to a Floating Rate Note, the
Interest Payment Dates, the Stated Maturity Date, any redemption or repayment
provisions or any other term relating thereto, may be modified and/or
supplemented as specified under "Other/Additional Provisions" on the face
thereof or in an addendum relating thereto, if so specified on the face thereof
and described in the applicable Note Terms Certificate.
AMORTIZING NOTES
The Company may from time to time offer Medium-Term Notes ("AMORTIZING
NOTES") with the amount of principal thereof and interest thereon payable in
installments over the term of such Medium-
6
<PAGE>
Term Notes. Unless otherwise specified in the applicable Note Terms
Certificate, interest on each Amortizing Note will be computed on the basis
of a 360-day year of twelve 30-day months. Payments with respect to
Amortizing Notes will be applied first to interest due and payable thereon
and then to the reduction of the unpaid principal amount thereof. Further
information concerning additional terms and provisions of Amortizing Notes
will be specified in the applicable Note Terms Certificate, including a table
setting forth repayment information for such Amortizing Notes.
7
<PAGE>
EXHIBIT B-1
[Form of Fixed Rate Note]
<PAGE>
EXHIBIT B-2
[Form of Floating Rate Note]
<PAGE>
EXHIBIT B-3
[Administrative Procedures]
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL NOTE
TO RESTRICTED REGULATION S GLOBAL NOTE
(Transfers or exchanges pursuant to
Section 2.06(b)(ii) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ___________ (the "Notes")
Reference is hereby made to the Indenture dated as of January 15,
1998 (the "Indenture") between LG&E Capital Corp. and The Bank of New York,
as Trustee, as supplemented by the First Supplemental Indenture dated as of
January 15, 1998. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $__________________ principal amount of the
Notes which are held in the form of the Rule 144A Global Note (CUSIP No.
[__________] with the Depositary in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested a transfer or exchange of
such beneficial interest in the Notes for an interest in the Restricted
Regulation S Global Note (CINS No. ___________) to be held with [Euroclear]
[Cedel Bank](Common Code _____________) through the Depositary.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer or exchange has been
effected in accordance with the transfer restrictions set forth in the
Indenture and the Notes and pursuant to and in accordance with Regulation S
under the Securities Act, and accordingly the Transferor does hereby certify
that:
(1) the offer of the Notes was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was an
institutional accredited investor outside the United States or the
Transferor and any person acting on its behalf reasonably believed that the
transferee was an institutional accredited investor outside the United
States,]*
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States,]*
C-1
<PAGE>
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable,
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:____________________________________
Name:
Title:
Dated:_____________________, 199_
cc: LG&E Capital Corp.
____________________
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
C-2
<PAGE>
EXHIBIT D
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL NOTE
TO UNRESTRICTED REGULATION S GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.06(b)(iii) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ___________ (the "Notes")
Reference is hereby made to the Indenture dated as of January 15,
1998 (the "Indenture") between LG&E Capital Corp. and The Bank of New York,
as Trustee, as supplemented by the First Supplemental Indenture dated as of
January 15, 1998. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $__________________ principal amount of the
Notes which are held in the form of the Rule 144A Global Note (CUSIP No.
[__________] with the Depositary in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested an exchange or transfer of
such beneficial interest in the Notes for an interest in the Unrestricted
Regulation S Global Security (CUSIP No. ___________).
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer or exchange has been
effected in accordance with the transfer restrictions set forth in the
Indenture and the Notes and:
(i) with respect to transfers made in reliance on Regulation S under the
Securities Act, the Transferor does hereby certify that:
(1) the offer of the Notes was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was an
institutional accredited investor outside the United States or the
Transferor and any person acting on its behalf reasonably believed that the
transferee was an institutional accredited investor outside the United
States,]*
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States,]*
D-1
<PAGE>
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable,
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(ii) with respect to transfers made in reliance on Rule 144 under the
Securities Act, certify that the Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act,
(iii) with respect to transfers made in reliance on another exemption from the
Securities Act, the following is the basis for the exemption: _______________,
and
(iv) with respect to an exchange, either (x) the Note being exchanged is not a
"restricted security" as defined in Rule 144 under the Securities Act or (u) the
exchange is being made to facilitate a contemporaneous transfer that complies
with Section 2.06(b)(iii) of the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
[Insert Name of Transferor]
By:____________________________________
Name:
Title:
Dated:_____________________, 199_
cc: LG&E Capital Corp.
____________________
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
D-2
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM
RESTRICTED REGULATION S GLOBAL NOTE OR UNRESTRICTED REGULATION S
GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.06(b)(iv) of the Indenture)
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: LG&E Capital Corp. ____________ (the "Notes")
Reference is hereby made to the Indenture dated as of January 15,
1998 (the "Indenture") between LG&E Capital Corp. and The Bank of New York,
as Trustee, as supplemented by the First Supplemental Indenture dated as of
January 15, 1998. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $__________________ principal amount of the
Notes which are held in the form of [the [Restricted] [Unrestricted]
Regulation S Global Note with [Euroclear] [Cedel Bank] (Common Code
_____________)] [with the Depositary (CUSIP No. _______)] in the name of
[insert name of transferor](the "Transferor"). The Transferor has requested
a transfer or exchange of such beneficial interest for an interest in the
Rule 144A Global Note.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred or
exchanged in accordance with (i) the transfer restrictions set forth in the
Indenture and the Notes and (ii) Rule 144A under the Securities Act to a
transferee that the Transferor reasonably believes is purchasing the Notes
for its own account or an account with respect to which the transferee
exercises sole investment discretion and the transferee and any such account
is a "qualified institutional buyer" within the meaning of Rule 144A, in each
case in a transaction meeting the requirements of Rule 144A and in accordance
with any applicable securities laws of any state of the United States or any
other jurisdiction.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer.
[Insert Name of Transferor]
E-1
<PAGE>
By:____________________________________
Name:
Title:
Dated:_____________________, 199_
cc: LG&E Capital Corp.
E-2
<PAGE>
EXHIBIT 10.74
LG&E ENERGY CORP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1998
As Amended and Restated
<PAGE>
LG&E ENERGY CORP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
INTRODUCTION
Effective May 1, 1987, Louisville Gas and Electric Company, a Kentucky
corporation with principal offices located at Louisville, Kentucky (hereinafter
referred to as the "Company"), established the Louisville Gas and Electric
Company Supplemental Executive Retirement Plan (hereinafter referred to as the
"Plan").
Effective January 1, 1998, the Company (n/k/a LG&E Energy Corp.) hereby
amends and restates the Plan as the LG&E Energy Corp. Supplemental Executive
Retirement Plan in order to incorporate various amendments made to the Plan
since its inception. The terms of the Plan are hereinafter set forth.
The purpose of the Plan continues to be to provide additional retirement
security to certain executive employees of the Company to supplement the
benefits payable under the Company's qualified retirement plans and the benefit
payable under the Federal Social Security program.
<PAGE>
ARTICLE 1
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified herein, unless a different meaning is plainly required by the
context, viz.,
Section 1.1 AVERAGE MONTHLY COMPENSATION shall mean the average of
Compensation as determined for the thirty-six (36) consecutive months
preceding the Member's disability, Early or Normal Retirement Date that yield
the highest average. If the Member has fewer than thirty-six (36) months of
continuous employment, his Average Monthly Compensation shall be the average
of Compensation for all consecutive months of continuous employment.
Section 1.2 BOARD OF DIRECTORS means the Board of Directors of LG&E
Energy Corp.
Section 1.3 COMMITTEE means the Benefit Committee appointed pursuant
to Article XII of the Retirement Income Plan for Employees of LG&E Energy
Corp. Who Are Not Members of a Bargaining Unit.
Section 1.4 COMPANY means LG&E Energy Corp., a Kentucky corporation
with principal offices located at Louisville, Kentucky.
Section 1.5 COMPENSATION means the Employee's total cash compensation
(base salary plus short term incentive pay) prior to any deferrals under any
qualified or non-qualified deferred compensation plan. Effective on the date
of the merger between KU Energy Corporation and LG&E Energy a Transferred
Participant's Compensation means the Employee's base compensation for the
months prior to said date which are included in Average Monthly Compensation.
Section 1.6 EARLY RETIREMENT DATE means, in the case of a Member who
has been credited with at least five (5) years of Service and whose age is at
least fifty (50), the first day of the month coincident with or otherwise
immediately following the later of the date the Member shall leave the employ
of the Employer or the date the Member reaches age fifty-five (55). The
Member may select the first day of any later month as his Early Retirement
Date.
Section 1.7 EFFECTIVE DATE means May 1, 1987. The effective date of
this amended and restated Plan is January 1, 1998.
Section 1.8 EMPLOYEE means any person who is an officer in the
regular full-time employ of the Company or a Participating Company, as
determined by the personnel rules and practices of the Company or
Participating Company.
Section 1.9 EMPLOYER means LG&E Energy Corp. and any subsidiary or
affiliated company.
<PAGE>
Section 1.10 MEMBER means any Employee who has satisfied the
requirements for membership set forth in Section 2.1.
Section 1.11 NORMAL RETIREMENT DATE means the first day of the month
coincident with or otherwise immediately following the Member's sixty-fifth
(65th) birthday.
Section 1.12 PARTICIPATING COMPANY means any subsidiary or affiliate
of the Company listed in Appendix A.
Section 1.13 PLAN means the LG&E Energy Corp. Supplemental Executive
Retirement Plan.
Section 1.14 PLAN YEAR means the twelve (12) month period beginning on
the first day of May and ending on the last day of April in the following
calendar year.
Section 1.15 SERVICE means the number of years of Service (as such
term is defined in the LG&E Energy Corp. and Louisville Gas and Electric
Company Retirement Income Plan or effective on the date of the merger of KU
Energy Corporation and LG&E Energy Corp., the Kentucky Utilities Company
Revised Retirement Plan, collectively the "Qualified Plans") with the Company
or a Participating Company, plus a Member's years of continuous employment
with LG&E Energy Corp. and any of its wholly owned subsidiaries to the extent
such years of continuous employment have not been counted as a year of
Service under the Qualified Plans.
Section 1.16 TOTALLY AND PERMANENTLY DISABLED refers to a Member's
total disability as defined in the Long-Term Disability Plan for Employees of
LG&E Energy Corp. Who Are Not Members of a Bargaining Unit, or effective on
the date of the merger of KU Energy Corporation and LG&E Energy Corp., the
Kentucky Utilities Company Long Term Disability Plan.
Section 1.17 TRANSFERRED PARTICIPANT means a participant who was formerly
employed by KU Energy Corporation or its subsidiaries.
<PAGE>
ARTICLE 2
ELIGIBILITY AND MEMBERSHIP
Section 2.1 ELIGIBILITY
The following employees were approved for membership on January 3, 1990:
Robert L. Royer
William W. Hancock, Jr.
Frederick Wright
C. Gregory Uligian
Frank L. Wilkerson
Milton L. Fowler
Charles A. Markel, III
Wendy Heck
In addition to the above, any other Employee shall become a Member of the
Plan on the first day of the month following the completion of one (1) year of
Service. An employee of the Company or a Participating Company who becomes an
Employee shall become a Member of the Plan on the first day of the month
following his becoming an Employee, provided that he has completed at least one
(1) year of Service.
<PAGE>
ARTICLE 3
RETIREMENT BENEFITS
Section 3.1 BENEFITS AT NORMAL RETIREMENT
Upon termination of his employment at or after his Normal Retirement
Date, a Member shall be entitled to retire and to receive a monthly
retirement income in an amount equal to sixty-four percent (64%) of his
Average Monthly Compensation, less (a) one hundred percent (100%) of his
retirement benefit payable at age sixty-five (65) as a straight life annuity
under the Qualified Plans (without regard to any assignment of benefits under
a qualified domestic relations order), (b) one hundred percent (100%) of his
Primary Social Security Benefit payable at age sixty-five (65) under the
Social Security law in effect at the beginning of the Plan Year in which
occurs the earlier of his Normal Retirement Date or date of severance for any
reason, (c) one hundred percent (100%) of any matching contribution or other
Employer contribution made on behalf of the Member under a defined
contribution plan sponsored by the Employer (provided the defined
contribution plan sponsored by the Employer was the Member's primary
retirement vehicle) and (d) effective on the date of the merger of KU Energy
Corporation and LG&E Energy Corp., the benefit provided under Article 12 of
the LG&E Corp. Nonqualified Savings Plan by converting the lump sum value of
the account established under that Article 12 to a life annuity payable at
age sixty-five (65) using a six percent (6%) interest rate and the 1983 Group
Annuity Mortality Table for the post-age sixty-five (65) time period only,
(e) one hundred percent (100%) of his retirement benefit payable at age
sixty-five (65) as a straight life annuity under any qualified defined
benefit plan or defined contribution plan (provided such qualified defined
contribution plan was the employer's primary vehicle for retirement security)
sponsored by an employer by whom the Member was employed at any time prior to
the date such Member became employed by the Company (without regard to any
assignment of benefits under a qualified domestic relations order). The
conversion of the Member's account balance at date of termination from his
prior employer or accrued benefit under any such qualified defined benefit or
defined contribution plan to a straight life annuity shall be based on the
adjustment factors set forth in the LG&E Energy Corp. and Louisville Gas and
Electric Company Retirement Income Plan (including the factors set forth in
Article VI of such Plan to convert an account balance). The Member's benefit
determined under the preceding provisions of this Section shall be multiplied
by a fraction not to exceed one (1), the numerator of which is the Member's
years of Service at his Normal Retirement Date, and the denominator of which
is fifteen (15).
Section 3.2 FORMS OF PAYMENT
The normal form of benefit payment (to which the formula indicated in
Section 3.1 applies) shall be a straight life annuity.
Prior to the Member's benefit commencement date, he may elect to receive
his benefit in the form of an actuarially equivalent (based on the factors
set forth in Section 3.1) joint and fifty percent (50%) survivor annuity,
which shall provide a reduced monthly benefit payable for the
<PAGE>
life of the Member and continued thereafter in an amount fifty percent (50%)
as large to a beneficiary designated in writing by the Member.
Section 3.3 BENEFITS AT EARLY RETIREMENT
A Member whose age is at least fifty (50) and who has been credited with
five (5) years or more of Service may, after giving the Company at least
three (3) months written notice, retire as of an Early Retirement Date.
Commencing at his Early Retirement Date, such Member shall be entitled to
receive a monthly retirement income calculated under the formula in Section
3.1with the numerator of the fraction to be the Member's years of Service at
his Early Retirement Date. In applying the formula, the retirement benefit
payable under the Retirement Income Plan will be the benefit payable at age
sixty-five (65), based on Average Monthly Compensation and Service to the
Member's Early Retirement Date. The Social Security benefit will be the
benefit payable at age sixty-five (65) based on the Employee's earnings to
his Early Retirement Date. The benefit payable under any other qualified
plan will be the benefit payable at age sixty-five (65). The amount so
determined shall be reduced in accordance with the following factors to
reflect the Member's age at the date his benefits commence:
<TABLE>
<CAPTION>
Age at Percentage of
Commencement Benefit payable
------------- ---------------
<S> <C> <C>
62 - 65 100%
61 96%
60 92%
59 86%
58 80%
57 74%
56 68%
55 62%
</TABLE>
Section 3.4 DISABILITY BENEFITS
In the event a Member who has completed five (5) or more years of
Service becomes Totally and Permanently Disabled before reaching age
sixty-five (65), he shall be entitled to a deferred benefit beginning at his
Normal Retirement Date computed in accordance with Section 3.1 but based on
the assumptions that his Compensation in effect at date of disability
continued without change and that the Member continued to earn Service to his
Normal Retirement Date.
<PAGE>
ARTICLE 4
SOURCE OF BENEFITS
Section 4.1 DISCHARGE OF EMPLOYER OBLIGATION
Benefits payable hereunder shall be paid exclusively from the general
assets of the Company, and no person entitled to payment hereunder shall have
any claim, right, security interest or other interest in any asset of the
Company which may be looked to for such payment. The Company's liability for
the payment of benefits hereunder shall be evidenced only by this Plan.
The Company shall have no obligation of any nature whatsoever to a
Member under the Plan except as otherwise expressly provided under the Plan.
<PAGE>
ARTICLE 5
TERMINATION OF EMPLOYMENT
Section 5.1 TERMINATION OF EMPLOYMENT
This Plan does not in any way obligate the Company or any subsidiary of
the Company to continue the employment of a Member with the Company, nor does
it limit the right of the Company or subsidiary at any time and for any
reason to terminate the Member's employment. Termination of a Member's
employment with the Company or any subsidiary for any reason, whether by
action of the Company, the subsidiary, or the Member, shall immediately
terminate his participation in the Plan and all future obligations of either
party hereunder; provided, however, that if the Member has completed at least
five (5) years of Service and reached at least age fifty (50), he shall be
vested in his benefit earned hereunder, with such benefit to be payable no
earlier than when the Member reaches age fifty-five (55). In no event shall
the Plan, by its terms or implications, constitute an employment contract of
any nature whatsoever between the Company, a Participating Company or any
other subsidiary, and a Member.
<PAGE>
ARTICLE 6
TERMINATION, AMENDMENT, MODIFICATION OR SUPPLEMENT OF PLAN
Section 6.1 EMPLOYER'S RIGHTS
The Company reserves the right to terminate, amend, modify or supplement
this Plan, wholly or partially, at any time; provided, however, that no
amendment to the Plan shall retroactively reduce benefits earned prior to the
effective date of the amendment.
Section 6.2 MEMBER'S RIGHTS IF PLAN TERMINATES
In the event the Company terminates this Plan, no action will be taken
to terminate any benefit payments to a Member or beneficiary that are in pay
status. For those Members who are not receiving benefit payments under the
Plan at the time of Plan termination, the Company shall determine the value
of the retirement benefit accrued to the date of termination and shall at
that time determine the timing for providing such benefits to the Member. In
the event of Plan termination, all Members shall become fully vested in all
benefits accrued to the date of Plan termination.
<PAGE>
ARTICLE 7
OTHER BENEFITS AND AGREEMENTS
Section 7.1 OTHER BENEFITS
The benefits provided for a member and a Member's beneficiary under the
Plan are in addition to any other benefits available to such member under any
plan or program of the Company, Participating Company or any other subsidiary
for their employees and, except as may otherwise be expressly provided for
herein, the Plan shall supplement and shall not supersede, modify or amend
any other plan or program of the Company, Participating Company or any other
subsidiary. Moreover, benefits under the Plan shall not be considered
compensation for the purpose of computing contributions or benefits under any
plan maintained by the Company, Participating Company or any other subsidiary
which is qualified under sections 401(a) and 501(a) of the Internal revenue
Code of 1986, as amended.
<PAGE>
ARTICLE 8
RESTRICTIONS ON BENEFITS
Section 8.1 RESTRICTIONS ON BENEFITS
No right or benefit under the Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge, and any attempt
to anticipate, alienate, sell, assign, pledge, encumber or charge the same
shall be void. No right or benefit shall in any manner be liable for or
subject to the debts, contracts, liabilities, or torts of the person entitled
to such benefit. If any Member or beneficiary under the Plan should become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge any right to a benefit hereunder, then such right or benefit, in
the discretion of the Company, shall cease and, in such event, the Company
may hold or apply the same or any part thereof for the benefit of such Member
or beneficiary, his or her spouse, children, or other dependents, or any of
them, in any manner and in such portion as the Company may deem proper.
Section 8.2 BENEFITS FORFEITABLE
A Member shall forfeit his interest under the Plan upon his commission
of and conviction for a criminal act against the Company or for any conduct,
before or after his retirement from the Company, that is, in the opinion of
the Committee, detrimental to the interests of the Company.
<PAGE>
ARTICLE 9
ADMINISTRATION OF THE PLAN
Section 9.1 GENERAL
The general administration of the Plan, as well as construction and
interpretation thereof, shall be vested in the Committee. The Committee may
delegate the routine administration duties to the Employment and Fringe
Benefits Department of Louisville Gas and Electric Company.
Section 9.2 COMMITTEE STRUCTURE
The Committee may designate one of its members as chairman and may
appoint a secretary who need not be a member of the Committee. The secretary
shall keep minutes of the Committee' proceedings and all data, records and
documents relating to the Committee's administration of the Plan. The
Committee may appoint from its number such sub-committees with such powers as
the Committee shall determine and may authorize one or more members of the
Committee or any agent to execute or deliver any instrument or make any
payment on behalf of the Committee.
Section 9.3 COMMITTEE ACTIONS
All determinations or other actions taken by the Committee shall be by
the vote of a majority of those present at a meeting at which a majority of
members are present., or in writing by all members at the time in office if
they act without a meeting.
Section 9.4 COMMITTEE'S RIGHTS
Subject to the Plan, the Committee shall from time to time establish
rules, forms and procedures for the administration of the Plan. Except as
herein otherwise expressly provided, the Committee shall have the exclusive
right to interpret the Plan and to decide any and all matters arising
thereunder or in connection with the administration of the Plan, and it shall
endeavor to act, whether by general rules or by particular decisions, so as
not to discriminate in favor of or against any person. The Committee shall
have the exclusive right to determine (i) disability in respect of a Member
and (ii) the degree thereof, either or both determinations to be made on the
basis of medical and/or other evidence as the Committee, in its sole
judgment, may require, and (iii) whether a Member's benefit is to be
forfeited under section 8.2. Such decisions, actions and records of the
Committee shall be conclusive and binding upon the Company and all persons
having or claiming to have any right to or interest in or under the Plan.
Section 9.5 COMMITTEE RELIANCE
The members of the Committee and the officers and directors of the
Company shall be entitled to rely on all certificates and reports made by any
duly appointed accountants, and on all
<PAGE>
opinions given by any duly appointed legal counsel. Such legal counsel may
be counsel for the Company.
Section 9.6 INDEMNIFICATION
No member of the Committee shall be liable for any act or omission of
any other member of the Committee, nor for any act or omission on his own
part, excepting only his own willful misconduct. The Company shall
indemnify and save harmless each member of the Committee against any and all
expenses and liabilities arising out of his membership on the Committee,
excepting only expenses and liabilities arising out of his own willful
misconduct. Expenses against which a member of the Committee shall be
indemnified hereunder shall include, without limitation, the amount of any
settlement or judgment, costs, counsel fees, and related charges reasonably
incurred in connection with a claim asserted, or a proceeding brought or
settlement thereof. The foregoing right of indemnification shall be in
addition to any other rights to which any such member may be entitled as a
matter of law.
Section 9.7 COMPUTATION OF BENEFITS
In addition to the powers hereinabove specified, the Committee shall
have the power to compute and certify under the Plan the amount and kind of
benefits from time to time payable to Members and their beneficiaries and to
authorize all disbursements for such purposes.
Section 9.8 EMPLOYER'S OBLIGATIONS
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating
to the compensation of all Members, their retirement, death or other cause
for termination of employment, and such other pertinent facts as the
Committee may require.
Upon submission of proper documentation, the Company and any successor
employer shall reimburse a Member for all reasonable legal fees and expenses
actually incurred in the enforcement or attempted enforcement of rights under
this Plan, without regard to the success of any such attempt.
<PAGE>
ARTICLE 10
MISCELLANEOUS
Section 10.1 NOTICES
Any notice which shall be or may be given under the Plan shall be in
writing and shall be mailed by United States mail, postage prepaid. If
notice is to be given to the Company, such notice shall be addressed to the
Company, marked for the attention of the Manager of Benefits, Louisville Gas
and Electric Company, or, if notice is to a Member, addressed to the address
shown on such Member's personnel records.
Section 10.2 CHANGE IN ADDRESS
Any party may, from time to time, change the address to which notices
shall be mailed by giving written notice of such new address.
Section 10.3 PLAN BINDING
The Plan shall be binding upon the Company and its successors and
assigns, and upon a Member, his beneficiaries, assigns, heirs, executors and
administrators.
Section 10.4 PRONOUNS
Masculine pronouns wherever used shall include feminine pronouns and the
singular shall include the plural.
<PAGE>
ARTICLE 11
CONSTRUCTION
Section 11.1 CONSTRUCTION
This Plan shall be construed under the laws of the Commonwealth of
Kentucky.
<PAGE>
ARTICLE 12
CHANGE IN CONTROL
Section 12.1 CHANGE OF CONTROL
For purposes of this Plan, a "Change in Control" shall mean the
occurrence of any of the following events:
(1) An acquisition (other than directly from the Company) of any
securities of the Company entitled generally to vote on the election of
directors ("Voting Securities") by any "person" (as the term person is used
for purposes of sections 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) (the "1934 Act") immediately after which such Person has
Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of twenty percent (20%) or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which would cause a Change in Control. A
Non-Control Acquisition shall mean an acquisition by (1) an employee benefit
plan (or a trust forming a part thereof) maintained by (a) the Company or (b)
any corporation or other Person of which a majority of its voting power or
its equity securities or equity interest is owned directly or indirectly by
the Company, or (2) the Company or any subsidiary.
(2) The individuals who are members of the Board cease for any reason
to constitute at least two-thirds (2/3) of the Board; provided, however, that
if the election or nomination for election by the Company's stockholders, of
any new director was approved by a vote of at least two-thirds (2/3) of the
incumbent Board, such new director, for purposes of this Plan, shall be
considered as a member of the incumbent Board; provided, further, however,
that no member shall be considered a member of the incumbent Board if such
individual initially assumed office as the result of either an actual or
threatened Election Contest (as described in Rule 14a-11 promulgated under
the 1934 Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of an agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of (1) a merger,
consolidation or reorganization involving the Company, unless (i) the
stockholders of the Company immediately before such merger, consolidation or
reorganization, own, directly or indirectly, immediately following such
merger, consolidation or reorganization, at least seventy-five percent (75%)
of the combined voting power of the then outstanding voting securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization, and (ii) the individuals who were members of
the incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at
least two-thirds (2/3) of the board of directors of the
<PAGE>
Surviving Corporation; (2) a complete liquidation or dissolution of the
Company; or (3) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a subsidiary).
Notwithstanding the preceding clauses (1), (2) and (3), a Change in
Control shall not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted amount of
the outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned
by the Subject Person, provided that if a Change of Control would occur (but
for the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
Section 12.2 VESTING
Upon the occurrence of a Change in Control, all Members of the Plan as
of the date of the Change in Control shall become fully vested.
<PAGE>
ARTICLE 13
CLAIMS PROCEDURE
Section 13.1 WRITTEN CLAIM REQUIRED
Benefits shall be paid in accordance with the provisions of this
agreement. The Member, or a designated recipient or any other person claiming
through the Member shall make a written request for benefits under this
agreement. This written claim shall be mailed or delivered to the Committee.
Such claim shall be reviewed by the Committee or its delegate.
Section 13.2 PROCEDURE IF CLAIM DENIED
If the claim is denied, in full or in part, the Committee shall provide
a written notice within ninety (90) days setting forth the specific reasons
for denial, and any additional material or information necessary to perfect
the claim, and an explanation of why such material or information is
necessary, and appropriate information and explanation of the steps to be
taken if a review of the denial is desired.
Section 13.3 REVIEW OF CLAIM DENIAL
If the claim is denied and a review is desired, the Member (or
beneficiary) shall notify the Committee in writing within sixty (60) days (a
claim shall be deemed denied if the Committee does not take any action within
the aforesaid ninety (90) day period) after receipt of the written notice of
denial. In requesting a review, the Member or his Beneficiary may request a
review of the Plan Document or other pertinent documents with regard to the
employee benefit plan created under this agreement, may submit any written
issues and comments, may request an extension of time for such written
submission of issues and comments, and may request that a hearing be held,
but the decision to hold a hearing shall be within the sole discretion of the
Committee.
Section 13.4 FINAL DECISION
The decision on the review of the denied claim shall be rendered by the
Committee within sixty (60) days after the receipt of the request for review
(if no hearing is held) or within sixty (60) days after the hearing if one is
held. The decision shall be written and shall state the specific reasons for
the decision, including reference to specific provisions of this Plan on
which the decision is based.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer on this day of
, 1998, but effective as of the first day of January, 1998,
unless otherwise provided for herein.
LG&E ENERGY CORP.
By
ATTEST:
By
<PAGE>
APPENDIX A
PARTICIPATING EMPLOYERS
LG&E Energy Corp.
Louisville Gas and Electric Company
Kentucky Utilities Company (effective date of the merger of KU Energy
Corporation and LG&E Energy Corp.)
<PAGE>
Exhibit 10.75
CHANGE-IN-CONTROL AGREEMENT
THIS AGREEMENT made this DATE, by and between LG&E ENERGY CORP. (the
"Company") and NAME (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the occurrence of a Change in Control can result in significant
distractions of its key management personnel because of the uncertainties
inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a Change in Control and to ensure his continued
dedication and efforts in such event without undue concern for his personal
financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company or a Subsidiary (as hereinafter defined), as the case may be,
particularly in the event of a threat or the occurrence of a Change in Control,
the Company desires to enter into this Agreement with the Executive to provide
the Executive with certain benefits in the event his employment is terminated as
a result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the _____ day
of _________________, 1998, and shall continue in effect until SAME MONTH/DAY,
2000, provided, however, that commencing on SAME MONTH/DAY, 2000, and on SAME
MONTH/DAY thereafter, the term of this Agreement shall automatically be extended
for one (1) year unless either the Company or the Executive shall have given
written notice to the other at least ninety (90) days prior thereto that the
term of this Agreement shall not be so extended; and provided, further, however,
that notwithstanding any such notice by the Company not to extend, the term of
this Agreement shall not expire prior to the expiration of twenty-four (24)
months after the later to occur of: (i) any Change in Control which occurs while
this Agreement is in effect or (ii) the Effective Time.
2. DEFINITIONS.
2.1 BASE AMOUNT; BONUS AMOUNT. For purposes of this Agreement, "Base
Amount" shall mean the greater of the Executive's annual base salary from the
Company and its Subsidiaries (a) at the rate in effect on the Termination Date
(as hereinafter defined) or (b) at the highest rate in effect at any time during
the ninety (90) day period prior to the Change in Control, and shall include all
amounts of base salary that are deferred under any qualified and non-qualified
employee benefits plans of the Company or any Subsidiary or under any other
agreement or arrangement. For purposes of this Agreement; "Bonus Amount" shall
mean the greater of (a) the most recent annual bonus paid or payable to the
Executive, (b) the annual bonus
<PAGE>
paid or payable to the Executive under the Short Term Incentive Plan for the
full fiscal year ended prior to the fiscal year during which a Change in
Control occurred or (c) the Executive's target award under the Short Term
Incentive Plan for the full fiscal year ended prior to the fiscal year during
which a Change in Control occurred.
2.2 CAUSE. For purposes of this Agreement, a termination for "Cause"
is a termination evidenced by a resolution adopted in good faith by at least
seventy-five percent (75%) of the Board that (i) there has been repeated
gross negligence by the Executive in performing the reasonably assigned
duties on behalf of an Employer required by and in accordance with his
employment by such Employer, or (ii) the Executive has committed a felony in
the course of performing those duties. Notwithstanding anything contained in
this Agreement to the contrary, no failure to perform by the Executive after
a Notice of Termination (as hereinafter defined) is given by the Executive
shall constitute Cause for purposes of this Agreement. No act, or failure to
act, on Executive's part shall be deemed to be "repeated" unless the
Executive shall have received a written notice from seventy-five percent
(75%) of the Board setting forth in detail the particulars of the act, or the
failure to act, which the Company contends would constitute Cause when
repeated and Executive then repeats such act or failure to act.
2.3 CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence during the term of this Agreement of any
of the following events:
(a) An acquisition (other than directly from the Company) of any
securities of the Company entitled generally to vote on the election of
directors (the "Voting Securities") by any "Person" (as the term person in
used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of fifteen percent (15%) or more of the combined voting power
of the Company's then outstanding Voting Securities; PROVIDED, HOWEVER, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (1) an employee
benefit plan (or a trust forming a part thereof) maintained by (a) the
Company or (b) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned directly
and indirectly by the Company (a "Subsidiary") or (2) the Company or any
Subsidiary.
(b) The individuals who, as of the date this Agreement was
approved by the Board, are members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall, for
purposes of the Agreement, be considered as a member of the Incumbent Board;
PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result
of either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
2
<PAGE>
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company; unless
(i) the stockholders of the Company immediately before
such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least
seventy-five percent (75%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization, and
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation;
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing clauses (a), (b), and (c), a Change in Control
shall not be deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Person, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any additional Voting Securities
which increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall occur.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated during the term of this
Agreement and the Executive reasonably demonstrates that such termination (i)
was at the request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who effectuates
a Change in Control (a "Third Party") or (ii) otherwise occurred in
connection with, or in anticipation of, a Change in Control which actually
occurs, then for all purposes of this Agreement, the date of a Change in
Control with respect to the Executive shall mean the date immediately prior
to the date of such termination of the Executive's employment.
2.4 DISABILITY. For purposes of this Agreement, "Disability" shall mean
(i) a physical or mental infirmity which has been determined to be total and
permanent disability under and in accordance with the provisions of the
Company's Long Term Disability Plan for Employees of
3
<PAGE>
Louisville Gas and Electric Company who are not members of a Bargaining Unit
or (ii) in the event the Company does not maintain such plan at the time of
the determination of the Executive's Disability, a physical or mental
infirmity which impairs the Executive's ability to substantially perform his
duties with an Employer which continues for a period of at least one hundred
eighty (180) consecutive days.
2.5 AN EMPLOYER. For the purposes of this Agreement, "an Employer" shall
mean: (i) in the event the Executive is an officer of the Company and not of any
of its Subsidiaries at the time of a Change in Control, the Company; (ii) in the
event the Executive is an officer of one or more Subsidiaries of the Company,
but not of the Company, at the time of a Change in Control, any such Subsidiary;
and (iii) in the event the Executive is an officer of the Company and one or
more Subsidiaries at the time of a Change in Control, any such entity of which
the Executive is an officer at the time of the Change in Control.
2.6 GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (1) through (11) hereof:
(1) a reduction by an Employer in the Executive's base salary in
effect immediately prior to the Change in Control or any failure to pay the
Executive any compensation or benefits to which the Executive is entitled within
five days of the due date;
(2) an Employer requires the Executive to be relocated anywhere
in excess of fifty (50) miles of his present office location, except for
required travel on an Employer's business to an extent substantially consistent
with his present business travel obligations;
(3) a failure by the Company and its Subsidiaries to maintain
plans providing benefits at least as beneficial as those provided by any benefit
or compensation plan, retirement or pension plan, stock option plan, bonus plan,
long-term incentive plan, life insurance plan, health and accident plan or
disability plan in which the Executive is participating at the time of a Change
in Control, or if the Company or any Subsidiary has taken any action which would
adversely affect the Executive's participation in or materially reduce the
Executive's benefits under any of such plans or deprive him of any material
fringe benefit enjoyed by him at the time of the Change in Control, or if the
Company or any Subsidiary has failed to provide him with the number of paid
vacation days to which he would be entitled in accordance with the Company's or
the Subsidiary's normal vacation policy in effect at the time of the Change in
Control;
(4) Prior to the Effective Time, an Employer reduces in any
manner which the Executive considers important the Executive's title, job
authorities or responsibilities as in effect immediately prior to the Change
in Control;
4
<PAGE>
(5) On the Effective Time, Executive shall not be TITLE of
COMPANY(IES) with the authorities and responsibilities typically associated
with such positions;
(6) After the Effective Time, an Employer reduces in any
manner which the Executive considers important the Executive's title, job
authorities or responsibilities as in effect on the Effective Time;
(7) the Company fails to obtain the assumption of the
obligations contained in this Agreement by any successor as contemplated in
Section 7 hereof;
(8) any purported termination of the Executive's employment by
an Employer which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 4 below; and, for purposes of this Agreement, no
such purported termination shall be effective;
(9) any material breach by the Company of any provision of this
Agreement;
(10) any purported termination of the Executive's employment for
Cause by an Employer which does not comply with the terms of Section 2.2 of this
Agreement; or
(11) the insolvency or the filing (by any party, including an
Employer) of a petition for bankruptcy of an Employer, which petition is not
dismissed within 60 days.
(b) Any event or condition described in this Section 2.6(a)(1)
through (11) above, which occurs prior to a Change in Control but which the
Executive reasonably demonstrates (i) was at the request of a Third Party, or
(ii) otherwise arose in connection with or in anticipation of a Change in
Control which actually occurs, shall constitute Good Reason for purposes of
this Agreement notwithstanding that it occurred prior to the Change in
Control.
(c) Until the Executive's Disability, the Executive's rights to
terminate his employment pursuant to this Section 2.6 shall not be affected
by his incapacity due to physical or mental illness.
2.7 EFFECTIVE TIME. For purposes of this Agreement, "Effective Time"
shall have the meaning ascribed to such term by Section 1.3 of the Agreement and
Plan of Merger, dated May 20, 1997, by and between LG&E Energy Corp. and KU
Energy Corp.
3. TERMINATION OF EMPLOYMENT.
3.1 If, during the term of this Agreement, the Executive's employment
with an Employer shall be terminated within twenty-four (24) months following
the later of: (i) a Change in Control or (ii) the Effective Time, then the
Executive shall be entitled to the following compensation and benefits:
5
<PAGE>
(a) If the Executive's employment with an Employer shall be
terminated (1) by an Employer for Cause or Disability, (2) by reason of the
Executive's death, or (3) by the Executive other than for Good Reason, the
Company shall pay the Executive all amounts earned or accrued for or on
behalf of the Company or any of its Subsidiaries through the Termination Date
(as hereinafter defined) but not paid as of the Termination Date, including
(i) base salary, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company or any Subsidiary during
the period ending on the Termination Date and (iii) vacation pay
(collectively, "Accrued Compensation").
(b) If the Executive's employment with an Employer shall be
terminated for any reason other than as specified in clause (1) or (2) of
Section 3.1(a) or if the Executive's employment is terminated by the Executive
for Good Reason, the Executive shall be entitled to the following:
(i) The Company shall pay the Executive all Accrued
Compensation;
(ii) The Company shall pay, as a severance amount to the
Executive after the Termination Date, an amount equal to 2.99 times the sum
of (a) the Base Amount and (b) the Bonus Amount;
(iii) For a number of months equal to the lesser of (a)
twenty-four (24) or (b) the number of months remaining until the Executive's
65th birthday (the "Continuation Period"), the Company shall at its expense
continue on behalf of the Executive and his dependents and beneficiaries (to
the same extent provided to the dependents and beneficiaries prior to the
Executive's termination) the life insurance, disability, medical, dental, and
hospitalization benefits provided (x) to the Executive by the Company and/or
its Subsidiaries at any time within ninety (90) days preceding a Change in
Control or at any time thereafter, or (y) to other similarly situated
executives who continue in the employ of the Company or its Subsidiaries
during the Continuation Period. The coverage and benefits (including
deductibles and costs) provided in this Section 3.1(b)(iii) during the
Continuation Period shall be no less favorable to the Executive and his
dependents and beneficiaries, than the most favorable of such coverages and
benefits set forth in clauses (x) and (y) above. The Company's obligation
hereunder with respect to the foregoing benefits shall be limited to the
extent that the Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce the coverage
of any benefits it is required to provide the Executive hereunder as long as
the aggregate coverages and benefits of the combined benefit plans are no
less favorable to the Executive than the coverages and benefits required to
be provided hereunder. This Subsection (iii) shall not be interpreted so as
to limit any benefits to which the Executive or his dependents may be
entitled under any of the Company's or any Subsidiary's employee benefit
plans, programs or practices following the Executive's termination of
employment, including without limitation, retiree medical and life insurance
benefits; and
(iv) The Company shall provide to the Executive an amount
equal to twenty percent (20%) of the Base Amount to be used for out-placement
services.
6
<PAGE>
(c) The amounts provided for in Section 3.1(a) and 3.1(b)(i) and
(ii) shall be paid in a lump sum within thirty (30) days after the
Executive's Termination Date.
(d) The Executive shall not be required to mitigate the amount of
any payments provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent
employment except as provided in Section 3.1(b)(iii).
3.2 The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely
as a result of the passage of time, under any benefit plan, incentive plan,
or securities plan, employment agreement or other contract, plan or
arrangement with the Company, any Subsidiary or any other party, including,
but not limited to, those specified in Exhibit A attached hereto, provided,
however, the Company shall not be required to make duplicative payments of
Accrued Compensation, and provided further that, upon execution of this
Agreement, Executive shall not have any rights under his prior
Change-In-Control Agreement, as previously amended, which agreement (as
stated in Section 15 hereof) is superseded by this Agreement.
4. NOTICE OF TERMINATION. Any purported termination by an Employer or by
the Executive shall be communicated by written Notice of Termination to the
other. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of Termination.
5. TERMINATION DATE. "Termination Date" shall mean, in the case of the
Executive's death, his date of death and, in all other cases, the date specified
in the Notice of Termination subject to the following:
(a) If the Executive's employment is terminated by an Employer for
Cause or due to Disability, the date specified in the Notice of Termination
shall be at least thirty (30) days from the date the Notice of Termination is
given to the Executive, provided that, in the case of Disability, the
Executive shall not have returned to the full-time performance of his duties
during such period of at least (30) days; and
(b) If the Executive's employment is terminated for Good Reason,
the date specified in the Notice of Termination shall not be more than sixty
(60) days from the date the Notice of Termination is given to the Employer.
6. CERTAIN ADDITIONAL PAYMENTS
(a) Notwithstanding anything in the Agreement to the contrary, in
the event that a Change in Control occurs and it is determined (as hereafter
provided) that any payment or distribution by the Company or any affiliates
to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise
7
<PAGE>
pursuant to or by reason of any other agreement, policy, plan, program or
arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing
(individually and collectively a "Payment"), would be subject to the excise
tax imposed by Section 4999 (or any successor provision thereto) of the
Internal Revenue Code of 1986, as amended (the "Code") by reason of being
considered "contingent on a change in ownership or control" of the Company or
the Parent, within the meaning of Section 280G of the Code (or any successor
provision thereto), or to any similar tax imposed by state or local law, or
any interest or penalties with respect to any such taxes (such taxes,
together with any such interest and penalties, being hereafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (individually and collectively, a
"Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that,
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive
in his sole discretion. The Executive shall direct the Accounting Firm to
submit its determination and detailed supporting calculations to both the
Company and the Executive within thirty (30) calendar days after the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay or
cause to be paid the required Gross-Up Payment in cash to the Executive
within five (5) business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at
the same time as it makes such determination, furnish the Company and the
Executive an opinion that the Executive has substantial authority not to
report any Excise Tax on his federal, state or local income or other tax
return. As a result of the uncertainty in the application of Section 4999 of
the Code (or any successor provision thereto) at the time of any
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
(an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to Section 6(f) hereof and the Executive thereafter is
required to make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both
the Company and the Executive as promptly as possible. Any such Underpayment
shall be promptly paid by the Company in cash to, or for the benefit of, the
Executive within five (5) business days after receipt of such determination
and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in
the possession of the Company or the Executive, as the case may be,
reasonably requested by the Accounting Firm, and otherwise cooperative with
the Accounting Firm in connection with the preparation and issuance of the
8
<PAGE>
determinations and calculations contemplated by Section 6(b) hereof. Any
determination by the Accounting Firm as to the amount of the Gross-Up Payment
will be binding on the Company and the Executive.
(d) The federal, state, and local income or other tax returns filed
by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Payment and, at the request of the Company, provide to the Company true
and correct copies (with any amendments) of the Executive's federal income tax
return as filed with the Internal Revenue Service and corresponding state and
local tax returns, if relevant, as filed with the applicable taxing authority,
and such other documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal income tax return,
or corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five (5) business days pay to the Company the amount of
such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 6(b)
hereof shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full amount
of such fees and expenses within five (5) business days after receipt from the
Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than ten
(10) business days after the Executive actually receives notice of such claim
and the Executive shall further apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive shall not pay such claim prior to
the earlier of (i) the expiration of the thirty (30) calendar-day period
following the date on which he gives such notice to the Company and (ii) the
date that any payment of amount with respect to such claim is due. If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
1. provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the Company;
2. take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably selected
by the Company;
3. cooperate with the Company in good faith in order
effectively to contest such claim; and
9
<PAGE>
4. permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 6(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 6(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested
claim shall be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6(f) hereof, the Executive receives any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 6(f) hereof) promptly pay the Company
the amount of such refund (together with any interest paid or credited thereon
after any taxes applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 6(f) hereof, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of thirty (30) calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 6.
7. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and, at the time of any
such succession or assignment, the Company shall require any successor or
assign to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
10
<PAGE>
perform it if no such succession or assignment had taken place. The term "the
Company" as used herein shall include such successors and assigns. The term
"successors and assigns" as used herein shall mean a corporation or other
entity acquiring ownership, directly or indirectly, of all or substantially
all the assets and business of the Company (including this Agreement) whether
by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
8. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the cost of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), or (b) the Executive seeking
to obtain or enforce any right or benefit provided by this Agreement; provided,
however, that the circumstances set forth in clauses (a) and (b) (other than as
a result of the Executive's termination of employment under circumstances
described in Section 2.3(d)) occurred on or after a Change in Control.
9. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to an Employer shall be directed to the
attention of the Board with a copy to the Secretary of such Employer. All
notices and communications shall be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon receipt.
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of
its Subsidiaries and for which the Executive may qualify, nor shall anything
herein limit or reduce such rights as the Executive may have under any other
agreements with the Company or any of its Subsidiaries. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan or program of the Company or any of its Subsidiaries shall be
payable in accordance with such plan or program.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company or any of its Subsidiaries may have against the Executive or others.
12. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be
11
<PAGE>
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. No additional
compensation provided under any benefit or compensation plans to the
Executive shall be deemed to modify or otherwise affect the terms of this
Agreement or any of the Executive's entitlements hereunder.
13. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Kentucky.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof, including, without limiting the
foregoing, his prior Change-In-Control Agreement, as previously amended,
which shall cease to be of any further effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized representative and the Executive has executed this
Agreement as of the day and year first above written.
LG&E ENERGY CORP.
____________________________________
ROGER W. HALE
Chairman and Chief Executive Officer
____________________________________
NAME
12
<PAGE>
EXHIBIT A
TO
CHANGE-IN-CONTROL AGREEMENT
1. Omnibus Long-Term Incentive Plan
2. Short-Term Incentive Plan
3. Qualified Thrift Plan
4. Nonqualified Thrift Plan
5. LG&E Retirement Income Plan for Employees Who Are Not Members of a
Bargaining Unit
6. LG&E Supplemental Executive Retirement Plan
13
<PAGE>
EXHIBIT 10.76
CONTRACT #96-413-026
COAL SUPPLY AGREEMENT
This is a coal supply agreement (the "Agreement") dated July 1, 1997
between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West
Main Street, Louisville, Kentucky 40202 ("Buyer") and KINDILL MINING, INC.,
an Indiana corporation, 101 Court Street, Suite 106, Evansville, Indiana
47708 ("Seller").
The parties hereto agree as follows:
SECTION 1. GENERAL.
Seller will sell to Buyer and Buyer will buy from Seller steam coal
under all the terms and conditions of this Agreement.
SECTION 2. TERM.
The term of this Agreement shall commence on July 1, 1997 and shall
continue through December 31, 2006.
SECTION 3. QUANTITY.
SECTION 3.1 BASE QUANTITY. Seller shall sell and deliver and Buyer
shall purchase and accept delivery of the following annual base quantity of
coal ("Base Quantity"):
<TABLE>
<CAPTION>
YEAR BASE QUANTITY (TONS)
<S> <C>
1997 150,000
1998 900,000
1999 900,000
2000 900,000
2001 900,000
2002 900,000
2003 900,000
2004 900,000
<PAGE>
CONTRACT #97-211-026
YEAR BASE QUANTITY (TONS)
2005 900,000
2006 900,000
</TABLE>
SECTION 3.2 DELIVERY SCHEDULE. By November 1 of each year except 1997,
Buyer and Seller shall mutually agree and shall specify in writing the
quantities to be delivered in each month of the following year. For 1997, Buyer
and Seller shall mutually agree and shall specify in writing such delivery
schedule within ten (10) business days after this Agreement is fully executed.
Such quantities shall be shipped in accordance with such schedule. Time is of
the essence with respect to the schedule so established; and failure by Seller
to deliver in a timely fashion shall constitute a material breach within the
meaning of SECTION 16 of this Agreement.
SECTION 3.3 RIGHT OF FIRST REFUSAL.
(a) During the term of this Agreement, Buyer shall have the right of
first refusal to purchase any additional tonnage which Seller is not
contractually committed to sell to Buyer or a third party as of July 1, 1997
and which becomes available from the following sources (the "Additional
Tonnage"): (i) the Coal Property (as defined in SECTION 4.1); and (ii)
Indiana 5 and 6 seams from the South Arthur Property, Pike County, Indiana.
Seller shall notify Buyer by the fifteenth of each month of the expected
Additional Tonnage for the succeeding three months. Included in this notice
Seller shall quote a price, coal quality and schedule for the Additional
Tonnage. If the aggregate price of the Additional Tonnage does not exceed one
million dollars ($1,000,000), Buyer shall, within two working days of
receiving the notice, give Seller notice of its intent to purchase or refusal
to purchase the Additional Tonnage. If the aggregate price of the
2
<PAGE>
CONTRACT #97-211-026
Additional Tonnage exceeds one million dollars ($1,000,000), Buyer shall,
within seven working days of receiving the notice, give Seller notice of its
intent to purchase or refusal to purchase the Additional Tonnage. Any
Additional Tonnage which Buyer exercises its right to purchase under this
SECTION 3.3 hereinafter shall be referred to as "Right of First Refusal
Tonnage."
(b) If Buyer refuses to purchase the Additional Tonnage or does not
accept the purchase of the Additional Tonnage within the aforementioned time
period, Seller shall be free to sell the Additional Tonnage to a third party at
an equivalent quality and at a price no lower than that quoted to Buyer. If
Seller obtains an offer from a third party to purchase at an equivalent quality
and at a lower price (or at a higher quality and at the same price) than that
quoted to Buyer which is acceptable to Seller, then Seller must offer Buyer the
new sale price or quality terms pursuant to the provisions of SECTION 3.3(a)
above. Within five working days after Seller enters into any contract with a
third party to sell the Additional Tonnage pursuant to this SECTION 3.3, Seller
shall give written confirmation to Buyer of the sale. Buyer shall have the right
to audit Seller's records to verify the sale and price of any such transactions
subject to appropriate confidentiality restrictions.
SECTION 3.4 OPTION TO INCREASE QUANTITY. In addition to Buyer's right of
first refusal set forth in SECTION 3.3, for each year of the agreement, Buyer
shall have the right to increase the quantity to be delivered hereunder by up to
an additional 400,000 tons. Buyer shall exercise such option by giving to Seller
notice stating Buyer's exercise of the option and specifying the increased
tonnage sixty (60) days prior to the end of each quarter; provided, however, the
maximum tonnage that can be nominated for delivery during the immediately
following quarter shall not be more than 100,000 tons. Buyer's exercise of the
option in any given quarter shall not obligate
3
<PAGE>
CONTRACT #97-211-026
Buyer to take delivery of the increased quantity in any following quarter or
any following year, and Buyer's failure to exercise the option in 1998 will
not negate Buyer's right to exercise the option in 1999 or thereafter. Any
additional tonnage which Buyer exercises its right to purchase under this
SECTION 3.4 hereinafter shall be referred to as "Option Tonnage" and shall be
subject to all the terms and conditions hereof (including price).
SECTION 4. SOURCE.
SECTION 4.1 SOURCE. The coal sold hereunder shall be supplied from
the following mines and geological seams (collectively, the "Coal Property"):
(i) from July 1, 1997 through December 31, 1997, Indiana 5 and 6 seams from
the Kindill 1 mine property, Pike County, Indiana; and (ii) from no later
than December 1, 1997 through December 31, 2006, Indiana 5 and 6 seams from
the Kindill 2 mine property (White Church Property), Pike County, Indiana.
Seller shall have the right to add coal reserves and/or add or expand
existing or new mining operations to the Coal Property during the term of
this Agreement so long as such mining operation or coal reserves are under
lease, ownership, or are managed or operated by Seller or one of its
affiliated companies. Seller shall notify Buyer at least 30 days in advance
of any election to make such changes to the Coal Property and update Seller's
mining plan as required under SECTION 4.4. Buyer shall have the right to
review and approve the changes to the Coal Property. Buyer's approval shall
not be unreasonably withheld provided the coal meets the quality and delivery
requirements of this Agreement. The price of coal shall not be changed from
that provided under SECTION 8 of this Agreement as a result of changes to the
Coal Property as provided hereunder, except that the provisions of SECTION 5
concerning deliveries at locations other than the Delivery Point shall apply.
4
<PAGE>
CONTRACT #97-211-026
SECTION 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents
and warrants that the Coal Property contains economically recoverable coal of
a quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will have
at the Coal Property adequate machinery, equipment and other facilities to
produce, prepare and deliver coal in the quantity and of the quality required
by this Agreement. Seller further agrees to operate and maintain such
machinery, equipment and facilities in accordance with good mining practices
so as to efficiently and economically produce, prepare and deliver such coal.
Seller agrees that Buyer is not providing any capital for the purchase of
such machinery, equipment, facilities and/or Coal Property and that Seller
shall operate and maintain same at its sole expense, including all required
permits and licenses.
SECTION 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal
from the Coal Property in a way that will reduce the economically recoverable
balance of coal in the Coal Property to an amount less than that required to
be supplied to Buyer hereunder.
SECTION 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have
prepared a complete mining plan for the Coal Property with adequate
supporting data to demonstrate Seller's capability to have coal produced from
the Coal Property which meets the quantity and quality specifications of this
Agreement. Seller shall provide Buyer with two copies of such mining plan
which shall contain maps and a narrative depicting areas and seams of coal to
be mined and shall include (but not be limited to) the following information:
(i) reserves from which the coal will be produced during the term hereof and
the mining sequence, by year (or such other time intervals as mutually
5
<PAGE>
CONTRACT #97-211-026
agreed) during the term of this Agreement, from which coal will be mined;
(ii) methods of mining such coal; (iii) methods of transporting and, in the
event a preparation plant is constructed at the Coal Property, methods of
washing coal to insure compliance with the quantity and quality requirements
of this Agreement including a description and flow sheet of the preparation
plant; (iv) quality data plotted on the maps depicting data points and
isolines by ash, sulfur, and B.T.U.; (v) quality control plans including
sampling and analysis procedures to insure individual shipments meet quality
specifications; and (vi) Seller's aggregate commitments to others to sell
coal from the Coal Property during the term of this Agreement. Such complete
mining plan shall be delivered to Buyer on or before December 1, 1997.
Buyer's receipt of the mining plan or other information or data
furnished by Seller shall not in any way relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review
be construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply
coal on a long-term basis to fulfill Buyer's requirements of a dependable
coal supply.
Seller shall annually provide Buyer with a mining plan update
("Update") showing progress to date, conformity to original mining plan, and
then known changes in reserve data and planned changes in mining progression,
plans or procedures. The update shall be submitted annually on or before
December 1 of each year during the term of this Agreement.
SECTION 4.5 SUBSTITUTE COAL. Notwithstanding the above
representations and warranties, in the event that Seller is unable to produce
or obtain coal from the Coal Property in the quantity and of
6
<PAGE>
CONTRACT #97-211-026
the quality required by this Agreement, then Seller will have the option to
supply substitute coal from other facilities and mines under all the terms
and conditions of this Agreement including, but not limited to, the price
provisions of SECTION 8, the quality specifications of SECTION 6.1, and the
provisions of SECTION 5 concerning reimbursement to Buyer for increased
transportation costs. Seller's delivery of coal not produced from the Coal
Property without having received the express written consent of Buyer shall
constitute a material breach of this Agreement.
SECTION 5. DELIVERY.
SECTION 5.1 RAIL OR TRUCK DELIVERY. The coal shall be delivered to
Buyer at the following locations (collectively, the "Delivery Point"): (i)
between July 1, 1997 and December 31, 1997, F.O.B. railcar at the rail
loading facility located at Kindill 1, near Enosville, Indiana on the Algers,
Winslow, and Western / Norfolk Southern Railway; and (ii) beginning no later
than December 1, 1997, F.O.B. railcar or F.O.B. truck at the Kindill 2
loadout at Algers, Indiana, as specified from time to time by Buyer. Seller
may deliver the coal at a location different from the Delivery Point,
provided, however, that Seller shall reimburse Buyer for any resulting
increases in the cost of transporting the coal to Buyer's generating
stations. Any resulting savings in such transportation costs shall be shared
equally between Buyer and Seller.
Title to and risk of loss respecting coal will pass to Buyer and the
coal will be considered to be delivered when it is loaded into the railcars
at the rail loading facility or trucks, as the case may be. Buyer or its
contractor shall furnish suitable railcars or trucks in accordance with a
delivery schedule provided by Buyer to Seller. Seller shall be responsible
for and pay the cost of repairs for any damages caused by Seller to railcars
or trucks owned or leased by Buyer while
7
<PAGE>
CONTRACT #97-211-026
such railcars or trucks are in Seller's control or custody. Seller shall
comply with the applicable provisions of Buyer's rail or truck contractor's
tariff.
SECTION 5.2 FREEZE CONDITIONING. At Buyer's request, Seller shall
treat (or have treated) any shipment of coal hereunder with a freeze
conditioning agent approved by Buyer in order to maintain coal handling
characteristics during shipment. If requested by Buyer, Seller shall also
treat (or have treated) any railcars specified by Buyer with a side release
agent approved by Buyer. The price for each such requested chemical treatment
shall be an amount equal to Seller's cost of materials applied on a per
gallon basis for each application of freeze conditioning agent or side
release agent, as the case may be. Seller shall invoice Buyer for all such
treatment which occurred in a calendar month by the fifteenth of the
following month; and payment shall be mailed by the twenty-fifth of such
following month or within ten days after receipt of Seller's invoice,
whichever is later.
SECTION 6. QUALITY.
SECTION 6.1 SPECIFICATIONS.
(a) The coal delivered hereunder shall conform to the following
specifications on an "as received" basis:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CHLORINE max. 0.05 lbs/MMB.T.U. GREATER THAN 0.10
FLUORINE max. 0.006 lbs/MMBT.U. GREATER THAN 0.01
NITROGEN max. 1.20 lbs/MMBT.U. GREATER THAN 1.50
ASH/SULFUR RATIO min. 2.5:1 LESS THAN 2.5:1
8
<PAGE>
CONTRACT #97-211-026
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- ----------------------------------------------------------------------------------------------
SIZE (3" x 0"):
Top size (inches)* max. 3"x 0" GREATER THAN 3"x 0"
Fines (% by wgt)
Passing 1/4" screen max. 45% GREATER THAN 55%
% BY WEIGHT:
------------
VOLATILE max. 38.0% GREATER THAN 40.0%
VOLATILE min. 30.0% LESS THAN 29.0%
FIXED CARBON max. 46.0% GREATER THAN 48.0%
FIXED CARBON min. 35.0% LESS THAN 30.0%
GRINDABILITY (HGI) min. 52 LESS THAN 50
BASE ACID RATIO (B/A) max. .50 GREATER THAN .60
SLAGGING FACTOR** max. 1.90 GREATER THAN 2.10
FOULING FACTOR*** max. 0.50 GREATER THAN 1.00
ASH FUSION TEMPERATURE (DEG. F) (ASTM D1857)
--------------------------------------------
REDUCING ATMOSPHERE
-------------------
Initial Deformation min. 1950 min. 1900
Softening (H=W) min. 2005 min. 1975
Softening (H=1/2W) min. 2050 min. 2000
Fluid min. 2135 min. 2100
OXIDIZING ATMOSPHERE
--------------------
Initial Deformation min. 2300 min. 2200
Softening (H=W) min. 2330 min. 2280
Softening (H=1/2W) min. 2425 min. 2300
Fluid min. 2490 min. 2375
</TABLE>
* All the coal will be of such size that it will pass through a
screen having circular perforations three (3) inches in diameter, but shall
not contain more than forty five percent (45%) by weight of coal that will
pass through a screen having circular perforations one-quarter (1/4) of an
inch in diameter.
** Slagging Factor (R(s))=(B/A) x (Percent Sulfur by WeightDry)
*** Fouling Factor (R(f))=(B/A) x (Percent Na(2)0 by WeightDry)
9
<PAGE>
CONTRACT #97-211-026
The Base Acid Ratio (B/A) is herein defined as:
BASE ACID RATIO (B/A) = (Fe(2)0(3) + Ca0 + Mg0 + Na(2)0 + K(2)0)
----------------------------------------
(Si0(2) + A1(2)0(3) + T10(2))
Note: As used herein GREATER THAN means greater than:
LESS THAN means less than.
(b) In addition to the specifications set forth in SECTION 6.1(a),
the coal delivered hereunder from the Kindill 1 mine property on a raw basis
("Kindill 1 Raw Coal") shall conform on an "as received" basis to the
following specifications:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ -----------------
<S> <C> <C>
B.T.U./lb. min. 10,900 LESS THAN 10,600
LBS./MMB.T.U.
- -------------
Ash max. 13.76 GREATER THAN 16.00
Moisture max. 13.76 GREATER THAN 16.00
Sulfur max. 5.05 GREATER THAN 5.50
</TABLE>
(c) In addition to the specifications set forth in SECTION 6.1(a),
the coal delivered hereunder from the Kindill 1 mine property on a clean
basis ("Kindill 1 Clean Coal") shall conform on an "as received" basis to the
following specifications:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ -----------------
<S> <C> <C>
B.T.U./lb. min. 11,250 LESS THAN 10,950
LBS./MMB.T.U.
- -------------
Ash max. 10.25 GREATER THAN 11.50
Moisture max. 11.75 GREATER THAN 12.75
Sulfur max. 3.55 GREATER THAN 4.00
</TABLE>
10
<PAGE>
CONTRACT #97-211-026
(d) In addition to the specifications set forth in SECTION 6.1(a),
the coal delivered hereunder from the Kindill 2 mine property (White Church
Property) ("White Church Coal") shall conform on an "as received" basis to
the following specifications:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ -----------------
<S> <C> <C>
B.T.U./lb. min. 11,000 LESS THAN 10,750
LBS./MMB.T.U.
- -------------
Ash max. 10.45 GREATER THAN 10.75
Moisture max. 11.82 GREATER THAN 12.50
Sulfur max. 3.18 GREATER THAN 3.27
</TABLE>
(e) During 1997, Seller shall deliver either Kindill 1 Raw Coal or
Kindill 1 Clean Coal pursuant to Buyer's nomination. Buyer may change the
nominated qualities from time to time by giving to Seller at least thirty
(30) days advance notice of such change.
SECTION 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load, a barge lot load, one unit trainload, or the
aggregate of the truckloads that are unloaded on any one day, in accordance
with Buyer's sampling and analyzing practices.
SECTION 6.3 REJECTION. Buyer has the right, but not the obligation,
to reject any shipment which fail(s) to conform to the Rejection Limits set
forth in SECTION 6.1 or contains extraneous materials. Buyer must reject such
coal within seventy-two (72) hours of receipt of the coal analysis provided
for in SECTION 7.2 or such right to reject is waived. In the event Buyer
rejects such non-conforming coal, title to and risk of loss of the coal shall
be considered to have never passed to Buyer and Buyer shall return the coal
to Seller or, at Seller's request, divert such coal to Seller's designee, all
at Seller's cost and risk. Seller shall replace the rejected coal within five
(5)
11
<PAGE>
CONTRACT #97-211-026
working days from notice of rejection with coal conforming to the Rejection
Limits set forth in SECTION 6.1. If Seller fails to replace the rejected coal
within such five (5) working day period or the replacement coal is rightfully
rejected, Buyer may purchase coal from another source in order to replace the
rejected coal. Seller shall reimburse Buyer for (i) any amount by which the
actual price plus transportation costs to Buyer of such coal purchased from
another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred
by Buyer for rightfully rejected coal. This remedy is in addition to all of
Buyer's other remedies under this Agreement and under applicable law and in
equity for Seller's breach.
If Buyer fails to reject a shipment of non-conforming coal which it
had the right to reject for failure to meet any or all of the Rejection
Limits set forth in SECTION 6.1 or because such shipment contained extraneous
materials, then such non-conforming coal shall be deemed accepted by Buyer;
however, the quantity Seller is obligated to sell to Buyer under the
Agreement may or may not be reduced by the amount of each such non-conforming
shipment at Buyer's sole option and the shipment shall nevertheless be
considered "rejectable" under SECTION 6.4. Further, for shipments containing
extraneous materials, which include, but are not limited to, slate, rock,
wood, corn husks, mining materials, metal, steel, etc., the estimated weight
of such materials shall be deducted from the weight of that shipment.
SECTION 6.4 SUSPENSION AND TERMINATION. If the coal sold hereunder
fails to meet two or more of the Guaranteed Monthly Weighted Averages set
forth in SECTION 6.1 for any two (2) consecutive months in a six (6) month
period, or if nine (9) barge shipments or nine (9) truck shipments in a 30
12
<PAGE>
CONTRACT #97-211-026
day period are rejectable by Buyer, or if Buyer receives at generating
station(s) two (2) rail shipments which are rejectable in any 30 day period,
Buyer may upon notice confirmed in writing and sent to Seller by certified
mail, suspend future shipments except shipments already loaded into barges
and/or railcars. Seller shall, within 10 days, provide Buyer with reasonable
assurances that subsequent monthly deliveries of coal shall meet or exceed
the Guaranteed Monthly Weighted Averages set forth in SECTION 6.1 and that
the source will exceed the rejection limits set forth in SECTION 6.1. If
Seller fails to provide such assurances within said 10 day period, Buyer may
terminate this Agreement by giving written notice of such termination at the
end of the 10 day period. A waiver of this right for any one period by Buyer
shall not constitute a waiver for subsequent periods. If Seller provides such
assurances to Buyer's reasonable satisfaction, shipments hereunder shall
resume and any tonnage deficiencies resulting from suspension may be made up
at Buyer's sole option. Buyer shall not unreasonably withhold its acceptance
of Seller's assurances, or delay the resumption of shipment. If Seller, after
such assurances, fails to meet any of the Guaranteed Monthly Weighted
Averages for any one (1) month within the next six (6) months or if three (3)
barge shipments or three (3) truck shipments or one (1) rail shipment are
rejectable within any one (1) month during such six (6) month period, then
Buyer may terminate this Agreement and exercise all its other rights and
remedies under applicable law and in equity for Seller's breach.
SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.
SECTION 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights
at the generating station(s) unless another
13
<PAGE>
CONTRACT #97-211-026
method is mutually agreed upon by the parties. Such scales shall be duly
reviewed by an appropriate testing agency and maintained in an accurate
condition. Seller shall have the right, at Seller's expense and upon
reasonable notice, to have the scales checked for accuracy at any reasonable
time or frequency. If the scales are found to be over or under the tolerance
range allowable for the scale based on industry accepted standards, either
party shall pay to the other any amounts owed due to such inaccuracy for a
period not to exceed thirty (30) days before the time any inaccuracy of
scales is determined.
SECTION 7.2 SAMPLING AND ANALYSIS. The sampling and analysis of the
coal delivered hereunder shall be performed by Buyer and the results thereof
shall be accepted and used for the quality and characteristics of the coal
delivered under this Agreement. All analyses shall be made in Buyer's
laboratory at Buyer's expense in accordance with industry-accepted standards.
Samples for analyses shall be taken by any industry-accepted standard,
mutually acceptable to both parties, may be composited and shall be taken
with a frequency and regularity sufficient to provide reasonably accurate
representative samples of the deliveries made hereunder. Seller represents
that it is familiar with Buyer's sampling and analysis practices, and finds
them to be acceptable. Buyer shall notify Seller in writing of any
significant changes in Buyer's sampling and analysis practices. Any such
changes in Buyer's sampling and analysis practices shall, except for industry
accepted changes in practices, provide for no less accuracy than the sampling
and analysis practices existing at the time of the execution of this
Agreement, unless the Parties otherwise mutually agree.
14
<PAGE>
CONTRACT #97-211-026
Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if
Buyer in its sole judgment determines it is necessary; one part shall be
retained by Buyer until the 25th of the month following the month of
unloading (the "Disposal Date") and shall be delivered to Seller for analysis
if Seller so requests before the Disposal Date; and one part ("Referee
Sample") shall be retained by Buyer until the Disposal Date. Seller shall be
given copies of all analyses made by Buyer by the 12th day of the month
following the month of unloading. Seller, on reasonable notice to Buyer shall
have the right to have a representative present to observe the sampling and
analyses performed by Buyer. Unless Seller requests a Referee Sample analysis
before the Disposal Date, Buyer's analysis shall be used to determine the
quality of the coal delivered hereunder. The Monthly Weighted Averages shall
be determined by utilizing the individual shipment analyses.
If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent
commercial testing laboratory ("Independent Lab") mutually chosen by Buyer
and Seller. For each coal quality specification in question, a dispute shall
be deemed not to exist and Buyer's analysis shall prevail and the analysis of
the Independent Lab shall be disregarded if the analysis of the Independent
Lab differs from the analysis of Buyer by an amount equal to or less than:
(i) 0.50% moisture
(ii) 0.50% ash on a dry basis
(iii) 100 Btu/lb. on a dry basis
(iv) 0.10% sulfur on a dry basis.
15
<PAGE>
CONTRACT #97-211-026
For each coal quality specification in question, if the analysis of
the Independent Lab differs from the analysis of Buyer by an amount more than
the amounts listed above, then the analysis of the Independent Lab shall
prevail and Buyer's analysis shall be disregarded. The cost of the analysis
made by the Independent Lab shall be borne by Seller to the extent that
Buyer's analysis prevails and by Buyer to the extent that the analysis of the
Independent Lab prevails.
SECTION 8. PRICE.
SECTION 8.1 Base Price. The base price ("Base Price") of the coal to
be sold hereunder will be firm and will also be determined by the nominated
coal quality during 1997 and the year in which the coal is delivered as
defined in SECTION 5 in accordance with the following schedule:
<TABLE>
<CAPTION>
(i) KINDILL 1 RAW COAL
-------------------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
<S> <C>
1997 $0.70500
(ii) KINDILL 1 CLEAN COAL
--------------------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
1997 $0.81000
(iii) WHITE CHURCH COAL
-----------------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
1997 $0.81800
1998 $0.81800
1999 $0.81800
2000 $0.81800
2001 $0.84254
2002 $0.84254
2003 $0.84254
2004 $0.86782
2005 $0.86782
2006 $0.86782
</TABLE>
16
<PAGE>
CONTRACT #97-211-026
SECTION 8.2 QUALITY PRICE DISCOUNTS.
(a) The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in SECTION
6.1. Quality price discounts shall be applied for each specification each
month to reflect failures to meet the Guaranteed Monthly Weighted Averages
set forth in SECTION 6.1, as determined pursuant to SECTION 7.2, subject to
the provisions set forth below. The discount values used are as follows:
<TABLE>
<CAPTION>
DISCOUNT VALUES
---------------
$/MMB.T.U.
----------
<S> <C>
B.T.U./LB. 0.2604
$/LB./MMB.T.U.
--------------
SULFUR 0.1232
ASH 0.0083
MOISTURE 0.0016
</TABLE>
(b) Notwithstanding the foregoing, for each specification each month,
there shall be no discount if the actual Monthly Weighted Average meets the
applicable Discount Point set forth below. However, if the actual Monthly
Weighted Average fails to meet such applicable Discount Point, then the
discount shall apply and shall be calculated on the basis of the difference
between the actual Monthly Weighted Average AND THE GUARANTEED MONTHLY
WEIGHTED AVERAGE pursuant to the methodology shown in Exhibit A attached
hereto.
17
<PAGE>
CONTRACT #97-211-026
<TABLE>
<CAPTION>
(i) KINDILL 1 RAW COAL
-------------------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
<S> <C> <C>
SPECIFICATIONS
- ---------------
B.T.U./lb. min. 10,900 10,700
LBS./MMB.T.U.
- -------------
Ash max. 13.76 15.50
Moisture max. 13.76 15.50
Sulfur max. 5.05 5.35
(ii) KINDILL 1 CLEAN COAL
---------------------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
SPECIFICATIONS
- --------------
B.T.U./lb. min. 11,250 11,050
LBS./MMB.T.U.
- -------------
Ash max. 10.25 11.00
Moisture max. 11.75 12.25
Sulfur max 3.55 3.90
(iii) WHITE CHURCH COAL
-----------------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
SPECIFICATIONS
- --------------
B.T.U./lb. min. 11,000 10,850
LBS./MMB.T.U.
- -------------
Ash max. 10.45 10.65
Moisture max. 11.82 12.00
Sulfur max. 3.18 3.22
</TABLE>
18
<PAGE>
CONTRACT #97-211-026
For example, for White Church Coal, if the actual Monthly Weighted
Average of sulfur equals 3.3 lb/MMB.T.U., then the applicable discount
would be (3.3 lb. - 3.18 lb.) X $0.1232/lb/MMB.T.U. = $.01478/MMB.T.U..
SECTION 8.3 PRICE REVIEW.The Base Price and all other terms and
conditions of this Agreement shall be subject to review for any reason at the
request of either party for revisions to become effective on January 1, 2001
and January 1, 2004. The party requesting such review shall give written
notice of its request to the other party between September 1 and October 1 of
the year preceding the effective January 1 date of the revision (the "Review
Year"). The parties shall then negotiate an agreement on new prices and/or
other terms and conditions between October 1 and December 1 of the Review
Year. If the parties do not reach an agreement by December 1 of the Review
Year, then this Agreement will terminate as of December 31 of the Review Year
without liability due to such termination for either party.
SECTION 8.4 PAYMENT CALCULATION. Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for
the month Seller's coal was unloaded by Buyer. If there are any such
discounts, Buyer shall apply credit to amounts owed Seller for the month the
coal was unloaded.
SECTION 9. INVOICES, BILLING AND PAYMENT.
SECTION 9.1 INVOICING ADDRESS. Invoices will be sent to Buyer at
the following address:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Director, Fuels Procurement and Delivery
19
<PAGE>
CONTRACT #97-211-026
With a copy to:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Manager, Accounts Payable
SECTION 9.2 INVOICE AND BI-MONTHLY PAYMENT PROCEDURES. For all coal
delivered (as defined in SECTION 5 hereof) between the first and fifteenth
days of any calendar month, Buyer shall make preliminary payment by the
twenty-fifth day of such month. For all coal delivered between the sixteenth
and the last days of any calendar month, Buyer shall make preliminary payment
by the tenth day of the succeeding calendar month. Payment shall be made by
electronic funds transfer to Seller's account. Preliminary payment shall be
in the amount of seventy five percent (75%) of the then current price on a
dollar per ton basis as calculated by applicable coal type, guaranteed
monthly weighted average B.T.U., and the then current Base Price in cents per
MMB.T.U.. After the end of each calendar month, there will be a true-up as
follows. The amount due for all coal (based on the Base Price minus any
Quality Price Discounts) delivered during any calendar month shall be
calculated and compared to the sum of the preliminary payments made for coal
delivered during such month. The difference shall be paid by or paid to the
Seller, as applicable, by the twenty-fifth day of the following month.
SECTION 9.3 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any
damages resulting from or likely to result from any breach of this
20
<PAGE>
CONTRACT #97-211-026
Agreement by Seller, and (iii) any amounts owed to Buyer from Seller. Buyer
shall notify Seller promptly in writing of any such issue, stating the basis
of its claim and the amount it intends to withhold.
Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.
SECTION 10. FORCE MAJEURE.
SECTION 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed
in or prevented from performing any of its obligations or from utilizing the
coal sold under this Agreement due to acts of God, war, riots, civil
insurrection, acts of the public enemy, strikes, lockouts, failure of a piece
of Seller's equipment known as the 1370 Bucyrus Erie drag-line for at least
30 consecutive days, failure of Norfolk Southern Railway Corporation ("NS")
to transport the coal from the Delivery Point for any reason other than
Buyer's breach of its agreement with NS, fires, floods or earthquakes, which
are beyond the reasonable control and without the fault or negligence of the
party affected thereby, then the obligations of both parties hereto shall be
suspended to the extent made necessary by such event; provided that the
affected party gives written notice to the other party as early as
practicable of the nature and probable duration of the force majeure event.
The party declaring force majeure shall exercise due diligence to avoid and
shorten the force majeure event and will keep the other party advised as to
the continuance of the force majeure event. During any period in which
Seller's ability to perform hereunder is affected by a force majeure event,
Seller shall not deliver any coal to any other buyers to whom Seller's
ability to supply is
21
<PAGE>
CONTRACT #97-211-026
similarly affected by such force majeure event unless contractually committed
to do so at the beginning of the force majeure event; and further shall
deliver to Buyer under this Agreement at least a pro rata portion (on a per
ton basis) of its total contractual commitments to all its buyers to whom
Seller's ability to supply is similarly affected by such force majeure event
in place at the beginning of the force majeure event. An event which affects
the Seller's ability to produce or obtain coal from a mine other than the
Coal Property will not be considered a force majeure event hereunder.
Tonnage deficiencies resulting from a force majeure event shall be
made up at Buyer's sole option on a reasonable schedule.
SECTION 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory
bodies or the courts may adopt environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially
impracticable for Buyer to utilize this or like kind and quality coal which
thereafter would be delivered hereunder. If as a result of the adoption of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be
impossible or commercially impracticable (uneconomical) for Buyer to utilize
such coal, Buyer shall so notify Seller, and thereupon Buyer and Seller shall
promptly consider whether corrective actions can be taken in the mining and
preparation of the coal at Seller's mine and/or in the handling and
utilization of the coal at Buyer's generating station; and if in Buyer's sole
judgment such actions will not, without unreasonable expense to Buyer, make
it possible and commercially practicable for Buyer to so utilize coal which
thereafter would be delivered hereunder without
22
<PAGE>
CONTRACT #97-211-026
violating any applicable law, regulation, policy or order, Buyer shall have
the right, upon the later of 60 days notice to Seller or the effective date
of such restriction, to terminate this Agreement without further obligation
hereunder on the part of either party.
SECTION 11. CHANGES.
Buyer may, by mutual agreement with Seller, at any time by written
notice pursuant to SECTION 12 of this Agreement, make changes within the
general scope of this Agreement in any one or more of the following: quality
of coal or coal specifications, quantity of coal, method or time of
shipments, place of delivery (including transfer of title and risk of loss),
method(s) of weighing, sampling or analysis and such other provision as may
affect the suitability and amount of coal for Buyer's generating stations.
If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision
of this Agreement, an equitable adjustment shall be made in: price, whether
current or future or both, and/or in such other provisions of this Agreement
as are affected directly or indirectly by such change, and the Agreement
shall thereupon be modified in writing accordingly.
Any claim by the Seller for adjustment under this SECTION 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not
be obligated to proceed under this Agreement as changed until an equitable
adjustment has been agreed upon. The parties agree to negotiate promptly and
in good faith to agree upon the nature and extent of any equitable adjustment.
23
<PAGE>
CONTRACT #97-211-026
SECTION 12. NOTICES.
SECTION 12.1 FORM AND PLACE OF NOTICE. Any official notice, request
for approval or other document required to be given under this Agreement
shall be in writing, unless otherwise provided herein, and shall be deemed to
have been sufficiently given when delivered in person, transmitted by
facsimile or other electronic media, delivered to an established mail service
for same day or overnight delivery, or dispatched in the United States mail,
postage prepaid, for mailing by first class, certified, or registered mail,
return receipt requested, and addressed as follows:
If to Buyer: Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232
Attn.: Director, Fuels Procurement and Delivery
with a copy to: Louisville Gas and Electric Company
820 West Broadway
P.O. Box 32020
Louisville, Kentucky 40232
Attn.: Manager, Procurement Services
If to Seller: Kindill Mining, Inc.
101 Court Street, Suite 106
Evansville, Indiana 47708
Attn: Sales Manager
with a copy to: Kindill Mining, Inc.
313 Frederica Street, Suite 301
P.O. Box 845
Owensboro, KY 42302
Attn: Controller
24
<PAGE>
CONTRACT #97-211-026
SECTION 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other
party of such change.
SECTION 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data
to Buyer in a format acceptable to and established by Buyer upon Buyer's
request. Buyer shall provide Seller with the appropriate format and will
inform Seller as to the electronic data requirements at the appropriate time.
SECTION 13. EARLY TERMINATION.
Each party hereto shall have the right of early termination for any
reason or no reason, in whole or in part, of its rights and obligations under
this Agreement as follows: The party desiring to exercise its right of early
termination shall give written notice thereof to the other party and pay the
price for early termination (the "Early Termination Price") as described
herein. Notice may be given by either party no later than September 1 of any
calendar year; and this Agreement will be terminated at the end of such year.
If this Agreement is terminated early in whole, then the Early Termination
Price shall be $3.50 times the Remaining Quantity. For the purposes of this
SECTION 13, the "Remaining Quantity" shall mean the Base Quantity plus any
Right of First Refusal Tonnage and Option Tonnage for the year immediately
preceding termination hereunder multiplied by the number of years until
December 31 of the next Review Year (as defined in SECTION 8.3) or the
termination date of this Agreement, whichever is earlier. For example, if
Buyer nominates an additional 200,000 tons of Option Tonnage for 1998, and if
Seller terminates this Agreement in whole effective December 31, 1998
pursuant to this SECTION 13, then Seller would owe Buyer $7,700,000
(1,100,000 x 2 x $3.50) under this SECTION 13. If this Agreement is
terminated
25
<PAGE>
CONTRACT #97-211-026
early in part, then the Early Termination Price shall be $3.50 times the
total tonnage reduced from the Remaining Quantity. For example, if Buyer
nominates an additional 200,000 tons of Option Tonnage for 1998, and if
Seller terminates this Agreement in part effective December 31, 1998 by
reducing the Base Quantity from 900,000 to 500,000 tons, then Seller would be
obligated to deliver 700,000 tons in 1999 (500,000 tons Base Quantity plus
200,000 tons Option Tonnage) and would owe Buyer $2,800,000 (400,000 x 2 x
$3.50) under this SECTION 13. The Early Termination Price shall be paid in
four equal installments on January 1, April 1, July 1, and October 1 of the
year immediately succeeding the early termination. This provision is not
intended to limit, liquidate, or otherwise affect in any manner damages
recoverable for breach of this Agreement.
SECTION 14. RIGHT TO RESELL.
Buyer shall have the unqualified right to sell all or any of the coal
purchased under this Agreement.
SECTION 15. INDEMNITY AND INSURANCE.
SECTION 15.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the barges,
trucks, or railcars provided by Buyer or Buyer's contractor while such
barges, trucks, or railcars are in the care and custody of Seller's loading
dock or loading facility, (ii) due to any failure of Seller to
26
<PAGE> CONTRACT
#97-211-026 comply with laws, regulations or ordinances, or (iii) due to the
acts or omissions of Seller in the performance of this Agreement.
SECTION 15.2 INSURANCE. Seller agrees to carry insurance coverage
with minimum limits as follows:
(a) Commercial General Liability, including Completed Operations and
Contractual Liability, $1,000,000 single limit liability.
(b) Automobile General Liability, $1,000,000 single limit liability.
(c) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.
(d) Workers' Compensation and Employer's Liability with statutory
limits.
If any of the above policies are written on a claims made basis, then the
retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in
form to the Buyer and signed by the Seller's insurer shall be supplied by the
Seller to the Buyer evidencing that the above insurance is in force and that
not less than thirty (30) calendar days written notice will be given to the
Buyer prior to any cancellation or material reduction in coverage under the
policies. The Seller shall cause its insurer to waive all subrogation rights
against the Buyer respecting all losses or claims arising from performance
hereunder. Evidence of such waiver satisfactory in form and substance to the
Buyer shall be exhibited in the Certificate of Insurance mentioned above.
Seller's liability shall not be limited to its insurance coverage.
27
<PAGE>
CONTRACT #97-211-026
SECTION 16. TERMINATION FOR DEFAULT.
Subject to SECTION 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than thirty (30)
days after the date of the notice (the "notice period"). If such material
breach is curable and the breaching party cures such material breach within
the notice period, then the Agreement shall not be terminated due to such
material breach. If such material breach is not curable or the breaching
party fails to cure such material breach within the notice period, then this
Agreement shall terminate at the end of the notice period in addition to all
the other rights and remedies available to the aggrieved party under this
Agreement and at law and in equity.
SECTION 17. TAXES, DUTIES AND FEES.
Seller shall pay when due, and the price set forth in SECTION 8 of
this Agreement shall be inclusive of, all taxes, duties, fees and other
assessments of whatever nature imposed by governmental authorities with
respect to the transactions contemplated under this Agreement.
SECTION 18. DOCUMENTATION AND RIGHT OF AUDIT.
Seller shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied
under this Agreement for a period lasting through the term of this Agreement
and for two years thereafter. Buyer shall have the right at no additional
expense to Buyer to audit, copy and inspect such records and accounts at any
reasonable time upon reasonable notice during the term of this Agreement and
for two years thereafter.
28
<PAGE>
CONTRACT #97-211-026
SECTION 19. EQUAL EMPLOYMENT OPPORTUNITY.
To the extent applicable, Seller shall comply with all of the
following provisions which are incorporated herein by reference: Equal
Opportunity regulations set forth in 41 CFR SECTION 60-1.4(a) and (c)
prohibiting discrimination against any employee or applicant for employment
because of race, color, religion, sex, or national origin; Vietnam Era
Veterans Readjustment Assistance Act regulations set forth in 41 CFR SECTION
50-250.4 relating to the employment and advancement of disabled veterans and
veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41
CFR SECTION 60-741.4 relating to the employment and advancement of qualified
disabled employees and applicants for employment; the clause known as
"Utilization of Small Business Concerns and Small Business Concerns Owned and
Controlled by Socially and Economically Disadvantaged Individuals" set forth
in 15 USC SECTION 637(d)(3); and subcontracting plan requirements set forth
in 15 USC SECTION 637(d).
SECTION 20. COAL PROPERTY INSPECTIONS.
Buyer and its representatives and others as may be required by
applicable laws, ordinances and regulations shall have the right at all
reasonable times and at their own expense to inspect the Coal Property,
including the loading facilities, scales, sampling system(s), wash plant
facilities, and mining equipment for conformance with this Agreement. Seller
shall undertake reasonable care and precautions to prevent personal injuries
to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall make every
reasonable effort to comply with Seller's regulations and rules regarding
conduct on the work site, made known to Visitors prior to entry, as well as
safety measures
29
<PAGE>
CONTRACT #97-211-026
mandated by state or federal rules, regulations and laws. Buyer understands
that underground mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller
of any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.
SECTION 21. MISCELLANEOUS.
SECTION 21.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with
such laws.
SECTION 21.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 21.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or
right.
SECTION 21.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided
under this Agreement or by law or in equity.
SECTION 21.5 SEVERABILITY. If any provision of this Agreement is
found contrary to law or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms,
unless such unlawful or unenforceable provision is material to the
30
<PAGE>
CONTRACT #97-211-026
transactions contemplated hereby, in which case the parties shall negotiate
in good faith a substitute provision.
SECTION 21.6 BINDING EFFECT. This Agreement shall bind and inure
to the benefit of the parties and their successors and assigns.
SECTION 21.7 ASSIGNMENT. Neither party may assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld or denied;
provided, however, Buyer shall have the right, without consent of Seller, to
assign all or any part of this Agreement to any company, controlling,
controlled by, or under common control with Buyer.
SECTION 21.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are
no representations, understandings or agreements, oral or written, which are
not included herein.
SECTION 21.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.
31
<PAGE>
CONTRACT #97-211-026
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
LOUISVILLE GAS AND ELECTRIC
COMPANY KINDILL MINING, INC.
By: ___________________________ By: ___________________________
George Basinger, Sr. Vice President
Power Operations Title: ___________________________
Date: ___________________________ Date: ___________________________
32
<PAGE>
CONTRACT #97-211-026
Page 1 of 2
EXHIBIT A
KINDILL 2 (WHITE CHURCH COAL) SAMPLE COAL PAYMENT CALCULATIONS
TOTAL EVALUATED COAL COSTS FOR CONTRACT NO. 976-221-026
- -------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be
calculated individually.
<TABLE>
<CAPTION>
SECTION I BASE DATA
-------------------------------------- -----------------------
<S> <C> <C>
1) Base F.O.B. price per ton: $ 18.00 /ton
-----------------------
1a) Tons of coal delivered: tons
-----------------------
2) Guaranteed average heat content: 11,000 BTU/LB.
-----------------------
2r) As received monthly avg. heat content: BTU/LB.
-----------------------
2a) Energy delivered in MMBTU: MMBTU
-----------------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[( ) *2,000 lb./ton*( )]*MMBTU/1,000,000 BTU
2b) Base F.O.B. price per MMBTU: $0.81800 /MMBTU
-----------------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[( /ton)/( BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
3) Guaranteed monthly avg. max. sulfur 3.180 LBS./MMBTU
-----------------------
3r) As received monthly avg. sulfur LBS./MMBTU
-----------------------
4) Guaranteed monthly avg. ash 10.450 LBS./MMBTU
-----------------------
4r) As received monthly avg. ash LBS./MMBTU
-----------------------
5) Guaranteed monthly avg. max. moisture 11.820 LBS./MMBTU
-----------------------
5r) As received monthly avg. moisture LBS./MMBTU
-----------------------
SECTION II DISCOUNTS
------------------------------------------- -----------------------
Assign a (-) to all discounts (round to (5) decimal places)
6d) BTU/LB.: If line 2r LESS THAN 10,850 BTU/lb. then:
{1-(line 2r)/(line 2)}*$0.2604/MMBTU
{1-( )/(11,000)}*$0.2604= $ /MMBTU
--------------
7d) SULFUR: If line 3r is greater than 3.22 lbs./MMBTU
[1-[(line 3r)-(line 3)]}*0.1232/lb. Sulfur
[1-[( )/(3.18)]}*0.1232= $ /MMBTU
--------------
8d) ASH: If line 4r is greater than 10.65 lbs./MMBTU
[1-[(line 4r)-(line 4)]}*0.0083/MMBTU
[1-[( )/(10.45)]}*0.0083= $ /MMBTU
--------------
9d) MOISTURE: If line 5r is greater than 12.00 lbs./MMBTU
[1-[(line 5r)-(line 5)]}*0.0016/MMBTU
[1-[( )/(11.82)]}*0.0016= $ /MMBTU
--------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CONTRACT #97-211-026
Page 2 of 2
TOTAL PRICE
SECTION III ADJUSTMENTS
-------------------------------------------- --------------
<S> <C>
Determine total Discounts as follows:
Assign a (-) to all discounts (round to (5) decimal places)
Line 6d: $_____________/MMBTU
Line 7d $_____________/MMBTU
Line 8d $_____________/MMBTU
Line 9d $_____________/MMBTU
10) Total Discounts (-):
Algebraic sum of above: $_____________/MMBTU
11) Total evaluated coal price = (line 2b) + (line 10)
12) Total discount price adjustment for Energy delivered:
(line 2a) * (line 10) (-)
$________/MMBTU + $____________/MMBTU = $__________
13) Total base cost of coal (line 2a) * (line 2b)
$________/MMBTU + $____________/MMBTU = $__________
14) Total coal payment for month (line 12) + (line 13)
$________/MMBTU + $____________ = $__________
</TABLE>
34
<PAGE>
EXHIBIT 10.77
CONTRACT #96-439-026
COAL SUPPLY AGREEMENT
This is a coal supply agreement (the "Agreement") dated January 1,
1997 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220
West Main Street, Louisville, Kentucky 40202 ("Buyer") and Lafayette Coal
Company, an Illinois corporation, 200 Frontage Road, Burr Ridge, Illinois
60521 ("Seller").
The parties hereto agree as follows:
SECTION 1. GENERAL. Seller will sell to Buyer and Buyer will buy
from Seller steam coal under all the terms and conditions of this Agreement.
SECTION 2. TERM. The term of this Agreement shall commence on
January 1, 1997 and shall continue through December 31, 2000, subject to the
provisions of SECTION 8.3.
SECTION 3. QUANTITY.
SECTION 3.1 QUANTITY. Seller shall sell and deliver and Buyer shall
purchase and accept delivery of the following annual quantity of coal
("Quantity"):
<TABLE>
<CAPTION>
YEAR BASE QUANTITY (TONS)
---- --------------------
<S> <C>
1997 600,000
1998 1,000,000
1999 1,000,000
2000 1,000,000
</TABLE>
SECTION 3.2 DELIVERY SCHEDULE. By December 1 of each year (except for
1997, within 10 business days after this Agreement becomes fully executed),
Buyer shall specify in writing to Seller the quantities to be delivered in each
month of the following year pursuant to mutual agreement of Buyer and Seller a
reasonable schedule. Such quantities shall be shipped in
<PAGE>
CONTRACT #96-439-026
accordance with such schedule. Time is of the essence with respect to the
schedule so established; and failure by Seller to deliver in a timely fashion
shall constitute a material breach within the meaning of SECTION 15 of this
Agreement.
SECTION 4. SOURCE.
SECTION 4.1 SOURCE. The coal sold hereunder shall be supplied from
the geological seam Pittsburgh #8, Powhatan #4 Mine, Monroe County, Ohio and
Shoemaker Mine and McElroy Mine, Marshall County, West Virginia (the "Coal
Property").
SECTION 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents
and warrants that the operator of the Coal Property (the "Operator") has
provided Seller with representations and warranties that the Coal Property
contains economically recoverable coal of a quality and in quantities which
will be sufficient to satisfy all the requirements of this Agreement. Seller
represents and warrants that the Operator has provided Seller with agreements
and warranties that it will have at the Coal Property adequate machinery,
equipment and other facilities to produce, prepare and deliver coal in the
quantity and of the quality required by this Agreement. Seller further
represents and warrants that the Operator has provided Seller with agreements
to operate and maintain such machinery, equipment and facilities in
accordance with good mining practices so as to efficiently and economically
produce, prepare and deliver such coal. Seller represents and warrants that
the Operator has provided Seller with
2
<PAGE>
CONTRACT #96-439-026
agreements that Buyer is not providing any capital for the purchase of such
machinery, equipment and/or facilities and that Operator shall operate and
maintain same at its sole expense, including all required permits and
licenses. Seller hereby represents and warrants that the Operator has
provided Seller with agreements that it dedicates to this Agreement
sufficient reserves of coal meeting the quality specifications hereof and
lying on or in the Coal Property so as to fulfill the quantity requirements
hereof.
SECTION 4.3 NON-DIVERSION OF COAL. Seller represents and warrants that
the Operator has provided Seller with agreements and warranties it will not,
without Buyer's express prior written consent, use or sell coal from the Coal
Property in a way that will reduce the economically recoverable balance of coal
in the Coal Property to an amount less than that required to be supplied to
Buyer hereunder.
SECTION 4.4 PRODUCER CONTRACT. It is a condition to the obligations of
Seller hereunder that the operator of the Coal Property will enter into and
execute a Coal Purchase Contract with Seller in the form of Exhibit A attached
hereto. Seller will deliver to Buyer within 10 days after this Agreement is
executed a fully executed copy of this Coal Purchase Contract. If Seller fails
to deliver said Coal Purchase Contract, then Buyer shall have the right to
declare this Agreement void.
SECTION 4.5 SUBSTITUTE COAL. Notwithstanding the above
representations and warranties, in the event that Seller is unable to obtain
coal from the Coal Property in the quantity and of the quality required by
this Agreement, and such inability is not caused by a force majeure event as
defined in SECTION 10, then Buyer will have the option of requiring that
Seller supply substitute coal from other facilities and mines under all the
terms and conditions of this Agreement including, but not limited to, the
price provisions of SECTION 8, the quality specifications of SECTION 6.1, and
the provisions of SECTION 5 concerning reimbursement to Buyer for increased
transportation costs. Seller's delivery of coal
3
<PAGE>
CONTRACT #96-439-026
not produced from the Coal Property without having received the express
written consent of Buyer, which consent shall not be unreasonably withheld,
shall constitute a material breach of this Agreement.
SECTION 5. DELIVERY.
The coal shall be delivered to Buyer F.O.B. barge at mile point 115.6
on the Ohio River (the "Delivery Point"). Seller may deliver the coal at a
location different from the Delivery Point, provided, however, that Seller
shall reimburse Buyer for any resulting increases in the cost of transporting
the coal to Buyer's generating stations. Any resulting savings in such
transportation costs shall be retained by Buyer.
Title to and risk of loss of coal sold will pass to Buyer and the
coal will be considered to be delivered when barges containing the coal are
disengaged by Buyer's barging contractor from the loading dock. Buyer or its
contractor shall furnish suitable barges in accordance with a delivery
schedule provided by Buyer to Seller. Seller shall arrange and pay for all
costs of transporting the coal from the mines to the loading docks and
loading and trimming the coal into barges to the proper draft and the proper
distribution within the barges. Buyer shall arrange for transporting the coal
by barge from the loading dock to its generating station(s) and shall pay for
the cost of such transportation. For delays caused by Seller in handling the
scheduling of shipments with Buyer's barging contractor, Seller shall be
responsible for any demurrage or other penalties assessed by said barging
contractor (or assessed by Buyer) which accrue at the Delivery Point,
including the demurrage, penalties for loading less than the specified
minimum tonnage per barge, or other penalties assessed for barges not loaded
in conformity with applicable
4
<PAGE>
CONTRACT #96-439-026
requirements. Buyer shall be responsible to deliver barges in as clean and
dry condition as practicable. Seller shall require of the loading dock
operator that the barges and towboats provided by Buyer or Buyer's barging
contractor be provided convenient and safe berth free of wharfage, dockage
and port charges; that while the barges are in the care and custody of the
loading dock, all U.S. Coast Guard regulations and other applicable laws,
ordinances, rulings, and regulations shall be complied with, including
adequate mooring and display of warning lights; that the loading operations
be performed in a workmanlike manner and in accordance with the reasonable
loading requirements of Buyer and Buyer's barging contractor; and that the
loading dock operator carry landing owners or wharfinger's insurance with
basic coverage of not less than $300,000.00 and total of basic coverage and
excess liability coverage of not less than $1,000,000.00, and provide
evidence thereof to Buyer in the form of a certificate of insurance from the
insurance carrier or an acceptable certificate of self-insurance with
requirement for 30 days advance notification of Buyer in the event of
termination of or material reduction in coverage under the insurance.
SECTION 6. QUALITY.
SECTION 6.1 SPECIFICATIONS. The coal delivered hereunder shall
conform to the following specifications on an "as received" basis:
<TABLE>
<CAPTION>
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
- ------------------------------------------------------------------------
<S> <C> <C>
BTU/LB. min. 12,000 LESS THAN 11,600
LBS/MMBTU:
MOISTURE max. 6.25 GREATER THAN 9.00
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONTRACT #96-439-026
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
- ------------------------------------------------------------------------
<S> <C> <C>
ASH max. 8.50 GREATER THAN 11.25
SULFUR max. 3.75 GREATER THAN 4.25
SULFUR min. 1.8 LESS THAN 1.8
CHLORINE max. .03 GREATER THAN .05
NITROGEN max. 1.0 GREATER THAN 1.6
ASH/SULFUR RATIO min. 2.2 LESS THAN 2.0
SIZE (3" x 0"):
Top size (inches)* max. 3.0" GREATER THAN 3.0"
Fines (% by wgt)
Passing 1/4" screen max. 45 GREATER THAN 50
% BY WEIGHT:
VOLATILE max. 38 GREATER THAN 39
VOLATILE min. 33 LESS THAN 32
FIXED CARBON max. 44 GREATER THAN 47
FIXED CARBON min. 42 LESS THAN 40
GRINDABILITY (HGI) min. 54 LESS THAN 52
BASE ACID RATIO (B/A)
SLAGGING FACTOR** max. 2.9 GREATER THAN 3.3
FOULING FACTOR*** max. 0.4 GREATER THAN 0.5
ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation min. 1985 min. 1960
Softening (H=W) min. 2020 min. 1985
Softening (H=1/2W) min. 2125 min. 2100
Fluid min. 2220 min. 2200
OXIDIZING ATMOSPHERE
Initial Deformation min. 2475 min. 2400
Softening (H=W) min. 2520 min. 2470
Softening (H=1/2W) min. 2540 min. 2510
Fluid min. 2560 min. 2540
</TABLE>
* All the coal will be of such size that it will pass through a
screen having circular perforations three (3) inches in diameter, but shall
not contain more than fifty percent (50%) by
6
<PAGE>
CONTRACT #96-439-026
weight of coal that will pass through a screen having circular perforations
one-quarter (1/4) of an inch in diameter.
** Slagging Factor (R(s))=(B/A) x (Percent Sulfur by Weight(Dry))
*** Fouling Factor (R(f))=(B/A) x (Percent Na(2)0 by Weight(Dry))
The Base Acid Ratio (B/A) is herein defined as:
BASE ACID RATIO (B/A) =
(Fe(2)0(3) + Ca0 + Mg0 + Na(2)0 + K(2)0)
-----------------------------------------
(Si0(2) + Al(2)0(3) + Tl0(2))
Note: As used herein GREATER THAN means greater than:
LESS THAN means less than.
SECTION 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load or a barge lot load, in accordance with Buyer's
sampling and analyzing practices.
SECTION 6.3 REJECTION.
Buyer has the right, but not the obligation, to reject any shipment
which fail(s) to conform to the Rejection Limits set forth in SECTION 6.1 or
contains extraneous materials. Buyer must reject such coal within seventy-two
(72) hours of receipt of the coal analysis provided for in SECTION 7.2 or
such right to reject is waived. In the event Buyer rejects such
non-conforming coal, title to and risk of loss of the coal shall be
considered to have never passed to Buyer and Buyer shall return the coal to
Seller or, at Seller's request, divert such coal to Seller's designee, all at
Seller's cost and risk. Seller shall replace the rejected coal within five
(5) working days from notice of rejection with coal conforming to the
Rejection Limits set forth in SECTION 6.1. If Seller fails to replace the
rejected coal within such five (5) working day period or the replacement coal
is rightfully
7
<PAGE>
CONTRACT #96-439-026
rejected, Buyer may purchase coal from another source in order to replace the
rejected coal. Seller shall reimburse Buyer for (i) any amount by which the
actual price plus transportation costs to Buyer of such coal purchased from
another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred
by Buyer for rightfully rejected coal. This remedy is in addition to all of
Buyer's other remedies under this Agreement and under applicable law and in
equity for Seller's breach.
If Buyer fails to reject a shipment of non-conforming coal which it
had the right to reject for failure to meet any or all of the Rejection
Limits set forth in SECTION 6.1 or because such shipment contained extraneous
materials, then such non-conforming coal shall be deemed accepted by Buyer;
however, the quantity Seller is obligated to sell to Buyer under the
Agreement may or may not be reduced by the amount of each such non-conforming
shipment at Buyer's sole option and the shipment shall nevertheless be
considered "rejectable" under SECTION 6.4. Further, for shipments containing
extraneous materials, which include, but are not limited to, slate, rock,
wood, corn husks, mining materials, metal, steel, etc., the estimated weight
of such materials shall be deducted from the weight of that shipment.
SECTION 6.4 SUSPENSION AND TERMINATION. If the coal sold hereunder
fails to meet one or more of the Discount Points set forth in 8.2, except for
excess moisture and related effect on BTU values caused by weather
conditions, for any three (3) consecutive months in a six (6) month period,
or, except for excess moisture and related effect on BTU values caused by
weather conditions, if nine (9) barge shipments in a 30 day period are
rejectable by Buyer, Buyer may
8
<PAGE>
CONTRACT #96-439-026
upon notice confirmed in writing and sent to Seller by certified mail,
suspend future shipments except shipments already loaded into barges. Seller
shall, within 10 days, provide Buyer with reasonable assurances that
subsequent monthly deliveries of coal shall meet or exceed the Discount
Points set forth in SECTION 8.2 and that the source will exceed the rejection
limits set forth in 6.1. If Seller fails to provide such assurances within
said 10 day period, Buyer may terminate this Agreement by giving written
notice of such termination at the end of the 10 day period. A waiver of this
right for any one period by Buyer shall not constitute a waiver for
subsequent periods. If Seller provides such assurances to Buyer's reasonable
satisfaction, shipments hereunder shall resume and any tonnage deficiencies
resulting from suspension may be made up at Buyer's sole option. Buyer shall
not unreasonably withhold its acceptance of Seller's assurances, or delay the
resumption of shipment. If Seller, after such assurances, fails to meet any
of the Discount Points for any one (1) month within the next six (6) months
or if three (3) barge shipments are rejectable within any one (1) month
during such six (6) month period, then Buyer may terminate this Agreement and
exercise all its other rights and remedies under applicable law and in equity
for Seller's breach.
SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.
SECTION 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights
at the generating station(s) unless another method is mutually agreed upon by
the parties. Such scales shall be duly reviewed by an appropriate testing
agency and maintained in an accurate condition. Seller shall have the right,
at Seller's expense and upon reasonable notice, to have the scales checked
for accuracy at any
9
<PAGE>
CONTRACT #96-439-026
reasonable time or frequency. If the scales are found to be over or under the
tolerance range allowable for the scale based on industry accepted standards,
either party shall pay to the other any amounts owed due to such inaccuracy
for a period not to exceed thirty (30) days before the time any inaccuracy of
scales is determined.
SECTION 7.2 SAMPLING AND ANALYSIS. The sampling and analysis of the
coal delivered hereunder shall be performed by Buyer and the results thereof
shall be accepted and used for the quality and characteristics of the coal
delivered under this Agreement. All analyses shall be made in Buyer's
laboratory at Buyer's expense in accordance with industry-accepted standards.
Samples for analyses shall be taken by any industry-accepted standard,
mutually acceptable to both parties, may be composited and shall be taken
with a frequency and regularity sufficient to provide reasonably accurate
representative samples of the deliveries made hereunder. Seller represents
that it is familiar with Buyer's sampling and analysis practices, and finds
them to be acceptable. Buyer shall notify Seller in writing of any
significant changes in Buyer's sampling and analysis practices. Any such
changes in Buyer's sampling and analysis practices shall, except for industry
accepted changes in practices, provide for no less accuracy than the sampling
and analysis practices existing at the time of the execution of this
Agreement, unless the Parties otherwise mutually agree.
Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if
Buyer in its sole judgment determines it is necessary; one part shall be
retained by Buyer until the 25th of the month following the month of
unloading (the
10
<PAGE>
CONTRACT #96-439-026
"Disposal Date") and shall be delivered to Seller for analysis if Seller so
requests before the Disposal Date; and one part ("Referee Sample") shall be
retained by Buyer until the Disposal Date. Seller shall be given copies of
all analyses made by Buyer by the 12th day of the month following the month
of unloading. Seller, on reasonable notice to Buyer shall have the right to
have a representative present to observe the sampling and analyses performed
by Buyer. Unless Seller requests a Referee Sample analysis before the
Disposal Date, Buyer's analysis shall be used to determine the quality of the
coal delivered hereunder. The Monthly Weighted Averages shall be determined
by utilizing the individual shipment analyses.
If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent
commercial testing laboratory ("Independent Lab") mutually chosen by Buyer
and Seller. For each coal quality specification in question, a dispute shall
be deemed not to exist and Buyer's analysis shall prevail and the analysis of
the Independent Lab shall be disregarded if the analysis of the Independent
Lab differs from the analysis of Buyer by an amount equal to or less than:
(i) 0.50% moisture
(ii) 0.50% ash on a dry basis
(iii) 100 Btu/lb. on a dry basis
(iv) 0.10% sulfur on a dry basis.
For each coal quality specification in question, if the analysis of the
Independent Lab differs from the analysis of Buyer by an amount more than the
amounts listed above, then the analysis of the Independent Lab shall prevail and
Buyer's analysis shall be disregarded. The cost
11
<PAGE>
CONTRACT #96-439-026
of the analysis made by the Independent Lab shall be borne by Seller to the
extent that Buyer's analysis prevails and by Buyer to the extent that the
analysis of the Independent Lab prevails.
SECTION 8. PRICE.
SECTION 8.1 BASE PRICE. Subject to SECTION8.3 and SECTION8.5, the
base price ("Base Price") of the coal to be sold hereunder will be
$0.7750/MMBtu.
SECTION 8.2 QUALITY PRICE DISCOUNTS.
(a) The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in SECTION
6.1. Quality price discounts shall be applied for each specification each
month to reflect failures to meet the Guaranteed Monthly Weighted Averages
set forth in SECTION 6.1, as determined pursuant to SECTION 7.2, subject to
the provisions set forth below. The discount values used are as follows:
<TABLE>
<CAPTION>
DISCOUNT VALUES
----------------
<S> <C>
$/LB./MMBTU
SULFUR 0.1250
ASH 0.0350
</TABLE>
(b) Notwithstanding the foregoing, for each specification each
month, there shall be no discount if the actual Monthly Weighted Average
meets the applicable Discount Point set forth below. However, if the
actual Monthly Weighted Average fails to meet such applicable Discount
Point, then the discount shall apply. For sulfur, the discount shall be
calculated on the basis of the difference between the actual Monthly
Weighted Average AND THE GUARANTEED MONTHLY WEIGHTED AVERAGE pursuant to
the methodology shown below. For ash, the discount
12
<PAGE>
CONTRACT #96-439-026
shall be calculated on the basis of the difference between the actual Monthly
Weighted Average and the Discount Point.
<TABLE>
<CAPTION>
GUARANTEED MONTHLY
WEIGHTED AVERAGE
--------------------
DISCOUNT POINT
--------------
LB/MMBTU:
- ---------
<S> <C> <C>
SULFUR max. 3.75 4.00
ASH max. 8.50 9.17
</TABLE>
For example if the actual Monthly Weighted Average of sulfur equals
4.05 lb/MMBTU, then the applicable discount would be (4.05 lb. - 3.75
lb.) x $.1250/lb/MMBTU = $.03750/MMBTU. And, for example, if the
Monthly Weighted Average of ash equals 9.40 lb/MMBTU, then the
applicable discount would be (9.40 lb. - 9.17 lb.) x $.0350/lb/MMBTU =
$.00805/MMBTU.
SECTION 8.3 PRICE REVIEW. The Base Price and all other terms and
conditions of this Agreement shall be subject to review for any reason at the
request of either party for revisions to become effective on January 1 of any
year hereunder. The party requesting such a review shall give written notice
of its request to the other party on or before any October 1. The parties
then shall negotiate an agreement on new prices and/or other terms and
conditions between October 1 and December 1. If the parties do not reach an
agreement by December 1, then this Agreement will terminate as of December 31
of that year without liability due to such termination for either party.
13
<PAGE>
CONTRACT #96-439-026
SECTION 8.4 PAYMENT CALCULATION. Exhibit B attached hereto shows the
methodology for calculating the coal payment and quality price discounts for
the month Seller's coal was unloaded by Buyer. If there are any such
discounts, Buyer shall apply credit to amounts owed Seller for the month the
coal was unloaded.
SECTION 8.5 GOVERNMENTAL IMPOSITIONS. Seller shall pay when due, and
the Base Price set forth in SECTION 8 of this Agreement without any
adjustments is inclusive of all federal, state, municipal and local taxes,
fees and costs of any kind whether arising from government law, rule,
regulation or otherwise including, without limitation, all costs of
conforming to federal and state mining and reclamation laws, rules and
regulations and all other and/or additional mining and operating costs and
expenses in effect on the effective date of this Agreement.
In the event of any one enactment, promulgation or change in any
statute, regulations, or the like or of any one governmental imposition
(collectively "Governmental Imposition") enacted or promulgated after the
effective date of this Agreement, Seller shall give Buyer prompt written
notice thereof, including the amount of increase or decrease in Seller's cost
of performance caused by such Governmental Imposition. If Buyer and Seller
are unable to come to agreement on the increase or decrease of the Base Price
with regard to such change in cost within fifteen (15) days from notice, then
either Party may terminate this Agreement upon the latter of fifteen (15)
days from date of notice or the effective date of such Governmental
Imposition. In no event shall the increase or decrease in Base Price be more
than the increase or decrease in Seller's change in cost of performance per
MMBTU caused by such Governmental Imposition.
14
<PAGE>
CONTRACT #96-439-026
SECTION 9. INVOICES, BILLING AND PAYMENT.
SECTION 9.1 INVOICING ADDRESS. Invoices will be sent to Buyer at
the following address:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Director, Fuels Procurement and Delivery
With a copy to:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Manager, Accounts Payable
SECTION 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall
invoice Buyer at the Base Price, minus any quality price discounts, for all
coal unloaded in a calendar month by the fifteenth of the following month.
SECTION 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. Payment for coal
unloaded in a calendar month shall be mailed by the 25th of the month
following the month of unloading or within ten days after receipt of Seller's
invoice, whichever is later. Buyer shall mail all payments to Seller's
account at Lafayette Coal Company, P.O. Box 74761, Chicago, Illinois 60694.
SECTION 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any damages
resulting from or likely to result from any breach of this Agreement by Seller,
and (iii) any amounts owed to Buyer from Seller. Buyer shall notify Seller
15
<PAGE>
CONTRACT #96-439-026
promptly in writing of any such issue, stating the basis of its claim and the
amount it intends to withhold.
Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.
SECTION 10. FORCE MAJEURE.
SECTION 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed in
or prevented from performing any of its obligations or from utilizing the coal
sold under this Agreement due to acts of God, war, riots, civil insurrection,
acts of the public enemy, strikes, lockouts, fires, floods or earthquakes, which
are beyond the reasonable control and without the fault or negligence of the
party affected thereby, then the obligations of both parties hereto shall be
suspended to the extent made necessary by such event; provided that the affected
party gives written notice to the other party as early as practicable of the
nature and probable duration of the force majeure event. The party declaring
force majeure shall exercise due diligence to avoid and shorten the force
majeure event and will keep the other party advised as to the continuance of the
force majeure event.
During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this Agreement
at least a pro rata portion (on a per ton basis) of its total contractual
commitments to all its buyers to whom Seller's ability to supply is similarly
affected by such force majeure event
16
<PAGE>
CONTRACT #96-439-026
in place at the beginning of the force majeure event. An event which affects
the Seller's ability to produce or obtain coal from a mine other than the
Coal Property will not be considered a force majeure event hereunder.
During any period in which Buyer's ability to perform hereunder is
affected by a force majeure event, Buyer shall not take delivery of any coal
from any other sellers from whom Buyer's ability to take delivery is similarly
affected by such force majeure event unless contractually committed to do so at
the beginning of the force majeure event; and further shall take delivery from
Seller under this Agreement of at least a pro rata portion (on a per ton basis)
of its total contractual commitments to all its sellers from whom Buyer's
ability to purchase is similarly affected by such force majeure event in place
at the beginning of the force majeure event.
Tonnage deficiencies resulting from a force majeure event shall be made
up by mutual agreement of Buyer and Seller.
SECTION 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory bodies
or the courts may adopt environmental laws, regulations, policies and/or
restrictions which will make it impossible or commercially impracticable for
Buyer to utilize this or like kind and quality coal which thereafter would be
delivered hereunder. If as a result of the adoption of such laws, regulations,
policies, or restrictions, or change in the interpretation or enforcement
thereof, Buyer decides that it will be impossible or commercially impracticable
(uneconomical) for Buyer to utilize such coal, Buyer shall so notify Seller, and
thereupon Buyer and Seller shall promptly consider whether corrective
17
<PAGE>
CONTRACT #96-439-026
actions can be taken in the mining and preparation of the coal at Seller's
mine and/or in the handling and utilization of the coal at Buyer's generating
station; and if in Buyer's sole judgment such actions will not, without
unreasonable expense to Buyer, make it possible and commercially practicable
for Buyer to so utilize coal which thereafter would be delivered hereunder
without violating any applicable law, regulation, policy or order, Buyer
shall have the right, upon the later of 60 days notice to Seller or the
effective date of such restriction, to terminate this Agreement without
further obligation hereunder on the part of either party.
SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at
any time by written notice pursuant to SECTION 12 of this Agreement, make
changes within the general scope of this Agreement in any one or more of the
following: quality of coal or coal specifications, quantity of coal, method
or time of shipments, place of delivery (including transfer of title and risk
of loss), method(s) of weighing, sampling or analysis and such other
provision as may affect the suitability and amount of coal for Buyer's
generating stations.
If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision
of this Agreement, an equitable adjustment shall be made in: price, whether
current or future or both, and/or in such other provisions of this Agreement
as are affected directly or indirectly by such change, and the Agreement
shall thereupon be modified in writing accordingly.
Any claim by the Seller for adjustment under this SECTION 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not
be obligated to proceed under this Agreement as changed until an
18
<PAGE>
CONTRACT #96-439-026
equitable adjustment has been agreed upon. The parties agree to negotiate
promptly and in good faith to agree upon the nature and extent of any
equitable adjustment.
SECTION 12. NOTICES.
SECTION 12.1 FORM AND PLACE OF NOTICE. Any official notice, request
for approval or other document required to be given under this Agreement
shall be in writing, unless otherwise provided herein, and shall be deemed to
have been sufficiently given when delivered in person, transmitted by
facsimile or other electronic media, delivered to an established mail service
for same day or overnight delivery, or dispatched in the United States mail,
postage prepaid, for mailing by first class, certified, or registered mail,
return receipt requested, and addressed as follows:
If to Buyer: Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232
Attn.: Director, Fuels Procurement and Delivery
with a copy to: Louisville Gas and Electric Company
820 West Broadway
P.O. Box 32020
Louisville, Kentucky 40232
Attn.: Manager, Procurement Services
If to Seller: Lafayette Coal Company
200 Frontage Road
Burr Ridge, Illinois 60521
SECTION 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other
party of such change.
19
<PAGE>
CONTRACT #96-439-026
SECTION 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data
to Buyer in a format acceptable to and established by Buyer upon Buyer's
request. Buyer shall provide Seller with the appropriate format and will
inform Seller as to the electronic data requirements at the appropriate time.
SECTION 13. RIGHT TO RESELL. Buyer shall have the unqualified
right to sell all or any of the coal purchased under this Agreement.
SECTION 14. INDEMNITY AND INSURANCE.
SECTION 14.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the barges or
railcars provided by Buyer or Buyer's contractor while such barges or
railcars are in the care and custody of the loading dock or loading facility,
(ii) due to any failure of Seller to comply with laws, regulations or
ordinances, or (iii) due to the acts or omissions of Seller in the
performance of this Agreement.
SECTION 14.2 INSURANCE. Seller represents and warrants that the
Operator has agreed to carry insurance coverage with minimum limits as
follows:
(1) Commercial General Liability, including Completed
Operations and Contractual Liability, $1,000,000 single limit liability.
(2) Automobile General Liability, $1,000,000 single limit
liability.
20
<PAGE>
CONTRACT #96-439-026
(3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.
(4) Workers' Compensation and Employer's Liability with statutory
limits.
If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in
form to the Buyer and signed by the Seller's insurer shall be supplied by the
Seller to the Buyer evidencing that the above insurance is in force and that
not less than 30 calendar days written notice will be given to the Buyer
prior to any cancellation or material reduction in coverage under the
policies. The Seller shall cause its insurer to waive all subrogation rights
against the Buyer respecting all losses or claims arising from performance
hereunder. Evidence of such waiver satisfactory in form and substance to the
Buyer shall be exhibited in the Certificate of Insurance mentioned above.
Seller's liability shall not be limited to its insurance coverage.
SECTION 15. TERMINATION FOR DEFAULT.
Subject to SECTION 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 30 days
after the date of the notice (the "notice period"). If such material breach
is curable and the breaching party cures such material breach within the
notice period, then the Agreement shall not be terminated due to such
material breach. If such material breach is not curable or the breaching
party fails to cure such material breach within the notice period, then this
Agreement shall
21
<PAGE>
CONTRACT #96-439-026
terminate at the end of the notice period in addition to all the other rights
and remedies available to the aggrieved party under this Agreement and at law
and in equity.
SECTION 16. DOCUMENTATION AND RIGHT OF AUDIT.
Seller shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied
under this Agreement for a period lasting through the term of this Agreement
and for two years thereafter. Buyer shall have the right at no additional
expense to Buyer to audit, copy and inspect such records and accounts at any
reasonable time upon reasonable notice during the term of this Agreement and
for 2 years thereafter.
SECTION 17. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are
incorporated herein by reference: Equal Opportunity regulations set forth in
41 CRF SECTION 60-1.4(a) and (c) prohibiting discrimination against any
employee or applicant for employment because of race, color, religion, sex,
or national origin; Vietnam Era Veterans Readjustment Assistance Act
regulations set forth in 41 CRF SECTION 50-250.4 relating to the employment
and advancement of disabled veterans and veterans of the Vietnam Era;
Rehabilitation Act regulations set forth in 41 CRF SECTION 60-741.4 relating
to the employment and advancement of qualified disabled employees and
applicants for employment; the clause known as "Utilization of Small Business
Concerns and Small Business Concerns Owned and Controlled by Socially and
Economically Disadvantaged Individuals" set forth in 15 USC SECTION
637(d)(3); and subcontracting plan requirements set forth in 15 USC SECTION
637(d).
SECTION 18. COAL PROPERTY INSPECTIONS. Buyer and its representatives,
and others as may be required by applicable laws, ordinances and regulations
22
<PAGE>
CONTRACT #96-439-026
shall have the right at all reasonable times and at their own expense to
inspect the Coal Property, including the loading facilities, scales, sampling
system(s), wash plant facilities, and mining equipment for conformance with
this Agreement. Seller shall undertake reasonable care and precautions to
prevent personal injuries to any representatives, agents or employees of
Buyer (collectively, "Visitors") who inspect the Coal Property. Any such
Visitors shall make every reasonable effort to comply with Seller's
regulations and rules regarding conduct on the work site, made known to
Visitors prior to entry, as well as safety measures mandated by state or
federal rules, regulations and laws. Buyer understands that underground mines
and related facilities are inherently high-risk environments. Buyer's failure
to inspect the Coal Property or to object to defects therein at the time
Buyer inspects the same shall not relieve Seller of any of its
responsibilities nor be deemed to be a waiver of any of Buyer's rights
hereunder.
SECTION 19. MISCELLANEOUS.
SECTION 19.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with
such laws.
SECTION 19.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 19.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or
right.
23
<PAGE>
CONTRACT #96-439-026
SECTION 19.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided
under this Agreement or by law or in equity.
SECTION 19.5 SEVERABILITY. If any provision of this Agreement is
found contrary to law or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms,
unless such unlawful or unenforceable provision is material to the
transactions contemplated hereby, in which case the parties shall negotiate
in good faith a substitute provision.
SECTION 19.6 BINDING EFFECT. This Agreement shall bind and inure
to the benefit of the parties and their successors and assigns.
SECTION 19.7 ASSIGNMENT. Neither party may assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld or denied;
provided, however, that Buyer shall have the right, without consent of
Seller, to assign all or any part of this Agreement to any company,
controlling, controlled by, or under common control with Buyer.
SECTION 19.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are
no representations, understandings or agreements, oral or written, which are
not included herein.
SECTION 19.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.
24
<PAGE>
CONTRACT #96-439-026
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
LOUISVILLE GAS AND ELECTRIC
COMPANY LAFAYETTE COAL COMPANY
By: ___________________________ By: ___________________________
Chris Hermann, Vice President &
General Manager, Wholesale Electric Title: ___________________________
Business
Date: ___________________________ Date: ___________________________
</TABLE>
25
<PAGE>
CONTRACT #96-439-026
<TABLE>
<CAPTION>
Exhibit A
Page 1 of 2
EXHIBIT A MID-SULFUR EXAMPLE
SAMPLE COAL PAYMENT CALCULATIONS
TOTAL EVALUATED COAL COSTS FOR CONTRACT NO. 96-440-026
- ------------------------------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be
calculated individually.
<S> <C>
SECTION I BASE DATA
-------------------------- ---------------------
1) Base F.O.B. price per ton: $ 18.93 /ton
----------------
1a) Tons of coal delivered: tons
----------------
2) Guaranteed average heat content: 11,400 BTU/LB.
----------------
2r) As received monthly avg. heat content: BTU/LB.
----------------
2a) Energy delivered in MMBTU: MMBTU
----------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[( ) *2,000 lb./ton*( )]*MMBTU/1,000,000 BTU
2b) Base F.O.B. price per MMBTU: $0.83026 /MMBTU
----------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[( /ton)/( BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
3) Guaranteed monthly avg. max. sulfur 3.40 LBS./MMBTU
----------------
3r) As received monthly avg. sulfur LBS./MMBTU
----------------
4) Guaranteed monthly avg. ash 13.50 LBS./MMBTU
----------------
4r) As received monthly avg. ash LBS./MMBTU
----------------
5) Guaranteed monthly avg. max. moisture 9.00 LBS./MMBTU
----------------
5r) As received monthly avg. moisture LBS./MMBTU
----------------
SECTION II DISCOUNTS
------------------------------------------- ----------------
Assign a (-) to all discounts (round to (5) decimal places)
6d) SULFUR: If line 3r is greater than 3.40 lbs./MMBTU [1-[(line 3r)-(line
3)]}*0.1232/lb. sulfur
[1-[( )/( ]}*0.1232= $ /MMBTU
--------------
7d) ASH: If line 4r is greater than 13.50 lbs./MMBTU [1-[(line 4r)-(line
4)]}*0.0083/MMBTU
[1-[( )/( ]}*0.0083= $ /MMBTU
--------------
8d) MOISTURE: If line 5r is greater than 10.00 lbs./MMBTU [1-[(line
5r)-(line 5)]}*0.0016/MMBTU
[1-[( )/( ]}*0.0016= $ /MMBTU
--------------
26
<PAGE>
CONTRACT #96-439-026
Exhibit A
Page 2 of 2
TOTAL PRICE
SECTION III ADJUSTMENTS
-------------------------------------- -------------
Determine total Discounts as follows:
Assign a (-) to all discounts (round to (5) decimal places)
Line 6d: $------------- /MMBTU
Line 7d $------------- /MMBTU
Line 8d $------------- /MMBTU
10) Total Discounts (-):
Algebraic sum of above: $------------- /MMBTU
11) Total evaluated coal price = (line 2b) + (line 10)
12) Total discount price adjustment for Energy delivered:
(line 2a) * (line 10) (-)
$------- /MMBTU + $------------- /MMBTU = $-------
13) Total base cost of coal
(line 2a) * (line 2b)
$------- /MMBTU + $------------- /MMBTU = $-------
14) Total coal payment for month
(line 12) + (line 13)
$------- /MMBTU + $------------- /MMBTU = $-------
27
<PAGE>
CONTRACT #96-439-026
EXHIBIT B
PAGE 1 OF 2
EXHIBIT B
SAMPLE COAL PAYMENT CALCULATIONS
TOTAL EVALUATED COAL COSTS FOR CONTRACT NO. 96-440-026
- ------------------------------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be calculated
individually.
SECTION I BASE DATA
---------------------------------- --------------
1) Base F.O.B. price per ton: $ 18.60 /ton
--------------
1a) Tons of coal delivered: tons
--------------
2) Guaranteed average heat content: 12,000 BTU/LB.
--------------
2r) As received monthly avg. heat content: BTU/LB.
--------------
2a) Energy delivered in MMBTU: MMBTU
--------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[( ) *2,000 lb./ton*( )]*MMBTU/1,000,000 BTU
2b) Base F.O.B. price per MMBTU: $0.77500 /MMBTU
--------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[( /ton)/( BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
3) Guaranteed monthly avg. max. sulfur 3.75 LBS./MMBTU
--------------
3r) As received monthly avg. sulfur LBS./MMBTU
--------------
4) Guaranteed monthly avg. ash 8.50 LBS./MMBTU
--------------
4r) As received monthly avg. ash
LBS./MMBTU
--------------
5) Guaranteed monthly avg. max. moisture 6.25 LBS./MMBTU
--------------
5r) As received monthly avg. moisture
LBS./MMBTU
--------------
SECTION II DISCOUNTS
------------------------------------------- ----------------
Assign a (-) to all discounts (round to (5) decimal places)
6d) SULFUR: If line 3r is greater than 4.00 lbs./MMBTU
[1-[(line 3r)-(line 3)]}*0.1250/lb. Sulfur
[1-[( )/( ]}*0.1250= $ /MMBTU
--------------
7d) ASH: If line 4r is greater than 9.17 lbs./MMBTU
[1-[(line 4r)-(9.17)]}*0.0350/MMBTU
[1-[( )/(9.17]}*0.0350= $ /MMBTU
--------------
28
<PAGE>
CONTRACT #96-439-026
Exhibit B
Page 2 of 2
TOTAL PRICE
SECTION III ADJUSTMENTS
----------------------------------------- -------------
Determine total Discounts as follows:
Assign a (-) to all discounts (round to (5) decimal places)
Line 6d: $------------- /MMBTU
Line 7d $------------- /MMBTU
10) Total Discounts (-):
Algebraic sum of above: $------------- /MMBTU
11) Total evaluated coal price = (line 2b) + (line 10)
12) Total discount price adjustment for Energy delivered:
(line 2a) * (line 10) (-)
$------- /MMBTU + $------------- /MMBTU = $-------
13) Total base cost of coal
(line 2a) * (line 2b)
$------- /MMBTU + $------------- /MMBTU = $-------
14) Total coal payment for month
(line 12) + (line 13)
$------- /MMBTU + $------------- /MMBTU = $-------
</TABLE>
29
<PAGE>
CONTRACT #96-439-026
AMENDMENT #1
AMENDMENT TO CONTRACT
THIS AMENDMENT IS entered into, effective as of April 28, 1997, by and between
LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to as "LG&E"), whose
address is: 220 W. Main Street, Louisville, Kentucky 40202 and Lafayette Coal
Company, an Illinois corporation, 200 Frontage Road, Burr Ridge, Illinois 60521
("Seller"). In consideration of the agreements herein contained, the parties
hereto agree as follows:
1.0 AMENDMENTS
The Agreement heretofore entered into by the parties, dated effective
January 1, 1997 and identified by the Contract Number set forth above,
(hereinafter referred to as "Agreement"), is hereby amended as follows:
1.1 In Section 3.1 QUANTITY, the base quantity (tons) of coal for
1997 is changed from 600,000 to 670,000.
2.0 STATUS OF AGREEMENT
As amended herein, the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year below written, but effective as of the day and year first set
forth above.
<TABLE>
<CAPTION>
<S> <C>
LOUISVILLE GAS AND ELECTRIC LAFAYETTE COAL COMPANY
COMPANY
By ________________________ By ___________________________
George Basinger
Senior Vice President Title EXECUTIVE VICE PRESIDENT
Power Operations
Date 6/5/97 Date 6/12/97
________________________ _____________________________
</TABLE>
<PAGE>
CONTRACT #96-440-026
Exhibit 10.78
COAL SUPPLY AGREEMENT
This is a coal supply agreement (the "Agreement") dated January 1,
1997 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220
West Main Street, Louisville, Kentucky 40202 ("Buyer") and CHAROLAIS
CORPORATION, a Kentucky corporation, Highway 862, P.O. Box 562, Madisonville,
Kentucky 42431 ("Seller").
The parties hereto agree as follows:
SECTION 1. GENERAL. Seller will sell to Buyer and Buyer will buy
from Seller steam coal under all the terms and conditions of this Agreement.
SECTION 2. TERM. The term of this Agreement shall commence on
January 1, 1997 and shall continue through December 31, 2001, subject to
SECTION 8.3.
SECTION 3. QUANTITY; DELIVERY SCHEDULE; OPTIONS.
SECTION 3.1 BASE QUANTITY. Seller shall sell and deliver and Buyer
shall purchase and accept delivery of 1,000,000 tons of coal per year (the
"Base Quantity").
SECTION 3.2 DELIVERY SCHEDULE. Within 10 business days after this
Agreement becomes fully executed, Buyer shall specify in writing to Seller
the quantities to be delivered in each month of 1997. For subsequent years,
Buyer shall so specify monthly deliveries by December 1 of the preceding
year. Such quantities shall be shipped in accordance with such schedule. Time
is of the essence with respect to the schedule so established; and failure by
Seller to deliver in a timely fashion shall constitute a material breach
within the meaning of SECTION 15 of this Agreement.
SECTION 3.3 BUYER'S OPTIONS. For each year after 1997, Buyer shall
have the option to purchase from Seller up to an additional 350,000 tons of
coal as follows. Buyer shall exercise such option
<PAGE>
CONTRACT #96-440-026
by giving to Seller notice stating Buyer's exercise of the option and
specifying the amount of the tonnage by October 1 of the preceding year. Coal
sold by Seller and purchased by Buyer under Buyer's option set forth in this
SECTION 3.3 shall be subject to all the terms and conditions of this
Agreement.
SECTION 4. SOURCE.
SECTION 4.1 SOURCE. The coal sold hereunder, including coal purchased
by Seller from third parties, shall be supplied from: geological seam Western
Kentucky #13, Wier's Creek or DB94 Mine, Hopkins County, Kentucky; Western
Kentucky #9, Sacramento Surface Mine, McLean County, Kentucky; Western
Kentucky #4, Mark Energy I and II, Hopkins County, Kentucky; or Western
Kentucky #9, Henderson County Property, Henderson County, Kentucky (the "Coal
Property").
SECTION 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents
and warrants that the Coal Property contains economically recoverable coal of
a quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will have
at the Coal Property adequate machinery, equipment and other facilities to
produce, prepare and deliver coal in the quantity and of the quality required
by this Agreement. Seller further agrees to operate and maintain such
machinery, equipment and facilities in accordance with good mining practices
so as to efficiently and economically produce, prepare and deliver such coal.
Seller agrees that Buyer is not providing any capital for the purchase of
such machinery, equipment and/or facilities and that Seller shall operate and
maintain same at its sole expense, including all required permits and
licenses. Seller hereby dedicates to this Agreement
2
<PAGE>
CONTRACT #96-440-026
sufficient reserves of coal meeting the quality specifications hereof and
lying on or in the Coal Property so as to fulfill the quantity requirements
hereof.
SECTION 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal
from the Coal Property in a way that will reduce the economically recoverable
balance of coal in the Coal Property to an amount less than that required to
be supplied to Buyer hereunder.
SECTION 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have
prepared a complete mining plan for the Coal Property with adequate
supporting data to demonstrate Seller's capability to have coal produced from
the Coal Property which meets the quantity and quality specifications of this
Agreement. Seller shall provide Buyer with two copies of such mining plan
which shall contain maps and a narrative depicting areas and seams of coal to
be mined and shall include (but not be limited to) the following information:
(i) reserves from which the coal will be produced during the term hereof and
the mining sequence, by year (or such other time intervals as mutually
agreed) during the term of this Agreement, from which coal will be mined;
(ii) methods of mining such coal; (iii) methods of transporting and, in the
event a preparation plant is constructed at the Coal Property, methods of
washing coal to insure compliance with the quantity and quality requirements
of this Agreement including a description and flow sheet of the preparation
plant; (iv) quality data plotted on the maps depicting data points and
isolines by ash, sulfur, and Btu; (v) quality control plans including
sampling and analysis procedures to insure individual shipments meet quality
specifications; and (vi) Seller's aggregate commitments to
3
<PAGE>
CONTRACT #96-440-026
others to sell coal from the Coal Property during the term of this Agreement.
Such complete mining plan shall be delivered to Buyer on or before April 30,
1997.
Buyer's receipt of the mining plan or other information or data
furnished by Seller shall not in any way relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review
be construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply
coal on a long-term basis to fulfill Buyer's requirements of a dependable
coal supply.
Seller shall annually provide Buyer with a mining plan update
("Update") showing progress to date, conformity to original mining plan, and
then known changes in reserve data and planned changes in mining progression,
plans or procedures. The update shall be submitted annually on or before
April 30 of each year during the term of this Agreement.
SECTION 4.5 SUBSTITUTE COAL. Notwithstanding the above
representations and warranties, in the event that Seller is unable to produce
or obtain coal from the Coal Property in the quantity and of the quality
required by this Agreement, and such inability is not caused by a force
majeure event as defined in SECTION 10, then Buyer will have the option of
requiring that Seller supply substitute coal from other facilities and mines
under all the terms and conditions of this Agreement including, but not
limited to, the price provisions of SECTION 8, the quality specifications of
SECTION 6.1, and the provisions of SECTION 5 concerning reimbursement to
Buyer for increased transportation costs. Seller's delivery of coal not
produced from the Coal Property without having received the express written
consent of Buyer shall constitute a material breach of this Agreement.
4
<PAGE>
CONTRACT #96-440-026
SECTION 5. DELIVERY.
SECTION 5.1 GENERAL. The coal shall be delivered FOB barge or FOB
railcar, at Buyer's option.
SECTION 5.2 BARGE. If Buyer shall have opted for coal to be delivered
FOB barge, then the coal shall be delivered to Buyer F.O.B. barge at the
Sebree dock at mile point 43.6 on the Green River or FOB barge at the Island
loadout at mile point 32.9 on the Green River (the "Delivery Point"). Seller
may deliver the coal at a location different from the Delivery Point,
provided, however, that Seller shall reimburse Buyer for any resulting
increases in the cost of transporting the coal to Buyer's generating
stations. Any resulting savings in such transportation costs shall be
retained by Buyer.
Title to and risk of loss of coal sold will pass to Buyer and the
coal will be considered to be delivered when barges containing the coal are
disengaged by Buyer's barging contractor from the loading dock. Buyer or its
contractor shall furnish suitable barges in accordance with a delivery
schedule provided by Buyer to Seller. Seller shall arrange and pay for all
costs of transporting the coal from the mines to the loading docks and
loading and trimming the coal into barges to the proper draft and the proper
distribution within the barges. Buyer shall arrange for transporting the coal
by barge from the loading dock to its generating station(s) and shall pay for
the cost of such transportation. For delays caused by Seller in handling the
scheduling of shipments with Buyer's barging contractor, Seller shall be
responsible for any demurrage or other penalties assessed by said barging
contractor (or assessed by Buyer) which accrue at the Delivery Point,
including the demurrage, penalties for loading less than the specified
minimum tonnage
5
<PAGE>
CONTRACT #96-440-026
per barge, or other penalties assessed for barges not loaded in conformity
with applicable requirements. Buyer shall be responsible to deliver barges in
as clean and dry condition as practicable. Seller shall require of the
loading dock operator that the barges and towboats provided by Buyer or
Buyer's barging contractor be provided convenient and safe berth free of
wharfage, dockage and port charges; that while the barges are in the care and
custody of the loading dock, all U.S. Coast Guard regulations and other
applicable laws, ordinances, rulings, and regulations shall be complied with,
including adequate mooring and display of warning lights; that any water in
the cargo boxes of the barges be pumped out by the loading dock operator
prior to loading; that the loading operations be performed in a workmanlike
manner and in accordance with the reasonable loading requirements of Buyer
and Buyer's barging contractor; and that the loading dock operator carry
landing owners or wharfinger's insurance with basic coverage of not less than
$300,000.00 and total of basic coverage and excess liability coverage of not
less than $1,000,000.00, and provide evidence thereof to Buyer in the form of
a certificate of insurance from the insurance carrier or an acceptable
certificate of self-insurance with requirement for 30 days advance
notification of Buyer in the event of termination of or material reduction in
coverage under the insurance.
SECTION 5.3 RAIL DELIVERY. If Buyer shall have opted for coal to be
delivered FOB railcar, then the coal shall be delivered to Buyer F.O.B.
railcar at the St. Charles B-4 loadout on the Paducah and Louisville Railway
(the "Delivery Point"). Seller may deliver the coal at a location different
from the Delivery Point, provided, however, that Seller shall reimburse Buyer
for any resulting
6
<PAGE>
CONTRACT #96-440-026
increases in the cost of transporting the coal to Buyer's generating
stations. Any resulting savings in such transportation costs shall be
retained by Buyer.
Title to and risk of loss respecting coal will pass to Buyer
and the coal will be considered to be delivered when it is loaded into the
railcars at the rail loading facility. Buyer or its contractor shall furnish
suitable railcars in accordance with a delivery schedule provided by Buyer to
Seller. Seller shall be responsible for and pay the cost of repairs for any
damages caused by Seller to railcars owned or leased by Buyer while such
railcars are in Seller's control or custody. Seller shall comply with the
applicable provisions of Buyer's rail contractor's tariff.
SECTION 5.4 FREEZE CONDITIONING. At Buyer's request, Seller shall
treat (or have treated) any shipment of coal hereunder with a freeze
conditioning agent approved by Buyer in order to maintain coal handling
characteristics during shipment. If requested by Buyer, Seller shall also
treat (or have treated) any railcars specified by Buyer with a side release
agent approved by Buyer. The price for each such requested chemical treatment
shall be an amount equal to Seller's cost of materials applied on a per
gallon basis for each application of freeze conditioning agent or side
release agent, as the case may be. Seller shall invoice Buyer for all such
treatment which occurred in a calendar month by the fifteenth of the
following month; and payment shall be mailed by the 25th of such following
month or within ten days after receipt of Seller's invoice, whichever is
later.
7
<PAGE>
CONTRACT #96-440-026
SECTION 6. QUALITY.
SECTION 6.1 SPECIFICATIONS.
(a) The coal delivered hereunder shall conform to the
following specifications on an "as received" basis:
QUALITY A COAL
<TABLE>
<CAPTION>
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
---------------------- -------------------- ------------------
<S> <C> <C>
BTU/LB. min. 11,250 LESS THAN 10,800
LBS/MMBTU:
MOISTURE max. 9.50 GREATER THAN 13.0
ASH max. 10.67 GREATER THAN 13.0
SULFUR max. 3.244 GREATER THAN 3.5
SULFUR min. 1.8 LESS THAN 1.8
CHLORINE max. .10 GREATER THAN .10
FLUORINE max. .013 GREATER THAN .013
NITROGEN max. 1.30 GREATER THAN 1.40
ASH/SULFUR RATIO min. 2.5:1 LESS THAN 2.0:1
SIZE (3" x 0"):
Top size (inches)* max. 3"x0 GREATER THAN 3"x0
Fines (% by wgt)
Passing 1/4" screen max. 35% GREATER THAN 40%
% BY WEIGHT:
VOLATILE max. 39 GREATER THAN 40
VOLATILE min. 30 LESS THAN 29
FIXED CARBON max. 50 GREATER THAN 51
FIXED CARBON min. 40 LESS THAN 40
GRINDABILITY (HGI) min. 53 LESS THAN 50
BASE ACID RATIO (B/A) .59 GREATER THAN 1.2
SLAGGING FACTOR** max. 2.2 GREATER THAN 2.5
FOULING FACTOR*** max. 0.5 GREATER THAN 0.5
</TABLE>
8
<PAGE>
CONTRACT #96-440-026
<TABLE>
<CAPTION>
<S> <C> <C>
ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation min. 1940 min. 1900
Softening (H=W) min. 1975 min. 1950
Softening (H=1/2W) min. 2035 min. 2000
Fluid min. 2190 min. 2100
OXIDIZING ATMOSPHERE
Initial Deformation min. 2300 min. 2200
Softening (H=W) min. 2330 min. 2280
Softening (H=1/2W) min. 2425 min. 2300
Fluid min. 2490 min. 2375
QUALITY B COAL
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
----------------------- --------------------- ------------------
BTU/LB. min. 11,250 LESS THAN 10,000
LBS/MMBTU:
MOISTURE max. 10.0 GREATER THAN 13.0
ASH max. 16.0 GREATER THAN 18.0
SULFUR max. 3.95 GREATER THAN 3.95
SULFUR min. 1.8 LESS THAN 1.8
CHLORINE max. .10 GREATER THAN .10
FLUORINE max. .013 GREATER THAN .013
NITROGEN max. 1.30 GREATER THAN 1.40
ASH/SULFUR RATIO min. 2.5:1 LESS THAN 2.5:1
SIZE (3" x 0"):
Top size (inches)* max. 3"x0 GREATER THAN 3"x0
Fines (% by wgt)
Passing 1/4" screen max. 35% GREATER THAN 40%
</TABLE>
9
<PAGE>
CONTRACT #96-440-026
<TABLE>
<CAPTION>
<S> <C> <C>
% BY WEIGHT:
VOLATILE max. 39 GREATER THAN 40
VOLATILE min. 30 LESS THAN 29
FIXED CARBON max. 50 GREATER THAN 51
FIXED CARBON min. 40 LESS THAN 40
GRINDABILITY (HGI) min. 53 LESS THAN 50
BASE ACID RATIO (B/A) .59 GREATER THAN 1.2
SLAGGING FACTOR** max. 2.5 GREATER THAN 2.7
FOULING FACTOR*** max. 0.50 GREATER THAN 0.5
ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation min. 1940 min. 1900
Softening (H=W) min. 1975 min. 1950
Softening (H=1/2W) min. 2035 min. 2000
Fluid min. 2190 min. 2100
OXIDIZING ATMOSPHERE
Initial Deformation min. 2300 min. 2200
Softening (H=W) min. 2330 min. 2280
Softening (H=1/2W) min. 2425 min. 2300
Fluid min. 2490 min. 2375
</TABLE>
* All the coal will be of such size that it will pass through a
screen having circular perforations three (3) inches in diameter, but shall
not contain more than thirty-five per cent (35%) by weight of coal that will
pass through a screen having circular perforations one-quarter (1/4) of an
inch in diameter.
** Slagging Factor (R(s))=(B/A) x (Percent Sulfur by WeightDry)
*** Fouling Factor (R(f))=(B/A) x (Percent Na(2)0 by WeightDry)
10
<PAGE>
CONTRACT #96-440-026
The Base Acid Ratio (B/A) is herein defined as:
BASE ACID RATIO (B/A) = (Fe(2)0(3) + C(a)0 + M(g)0 + Na(2)0 + K(2)0)
----------------------------------------
(Si0(2) + A1(2)0(3) + T10(2))
Note: As used herein GREATER THAN means greater than:
LESS THAN means less than.
(b) At least two-thirds of the total tonnage delivered in any
year hereunder shall be Quality A Coal. For each shipment hereunder, Seller
shall indicate to Buyer whether the shipment is Quality A Coal or Quality B
Coal and such shipment shall be treated accordingly for all purposes
hereunder including determining compliance with specifications under this
SECTION 6 and applying quality price discounts under SECTION 8.2.
SECTION 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load, a barge lot load, or one unit trainload, in
accordance with Buyer's sampling and analyzing practices.
SECTION 6.3 REJECTION. Buyer has the right, but not the obligation,
to reject any shipment which fail(s) to conform to the Rejection Limits set
forth in SECTION 6.1 or contains extraneous materials. Buyer must reject such
coal within seventy-two (72) hours of receipt of the coal analysis provided
for in SECTION 7.2 or such right to reject is waived. In the event Buyer
rejects such non-conforming coal, title to and risk of loss of the coal shall
be considered to have never passed to Buyer and Buyer shall return the coal
to Seller or, at Seller's request, divert such coal to Seller's designee, all
at Seller's cost and risk. Seller shall replace the rejected coal within five
(5) working days from notice of rejection with coal conforming to the
Rejection Limits set forth in SECTION 6.1. If Seller fails to replace the
rejected coal within such five (5) working day period or the
11
<PAGE>
CONTRACT #96-440-026
replacement coal is rightfully rejected, Buyer may purchase coal from another
source in order to replace the rejected coal. Seller shall reimburse Buyer
for (i) any amount by which the actual price plus transportation costs to
Buyer of such coal purchased from another source exceed the price of such
coal under this Agreement plus transportation costs to Buyer from the
Delivery Point; and (ii) any and all transportation, storage, handling, or
other expenses that have been incurred by Buyer for rightfully rejected coal.
This remedy is in addition to all of Buyer's other remedies under this
Agreement and under applicable law and in equity for Seller's breach.
If Buyer fails to reject a shipment of non-conforming coal which it
had the right to reject for failure to meet any or all of the Rejection
Limits set forth in SECTION 6.1 or because such shipment contained extraneous
amount of each such non-conforming shipment at Buyer's sole option and the
shipment shall nevertheless be considered "rejectable" under SECTION 6.4.
Further, for shipments containing extraneous materials, which include, but
are not limited to, slate, rock, wood, corn husks, mining materials, metal,
steel, etc., the estimated weight of such materials shall be deducted from
the weight of that shipment.
SECTION 6.4 SUSPENSION AND TERMINATION.
If the coal sold hereunder fails to meet one or more of the
Guaranteed Monthly Weighted Averages set forth in SECTION 6.1 for any two (2)
months in a six (6) month period, or if nine (9) barge shipments in a 30 day
period are rejectable by Buyer, or if Buyer receives at generating station(s)
12
<PAGE>
CONTRACT #96-440-026
two (2) rail shipments which are rejectable in any 30 day period, Buyer may
upon notice confirmed in writing and sent to Seller by certified mail,
suspend future shipments except shipments already loaded into barges and/or
railcars. Seller shall, within 10 days, provide Buyer with reasonable
assurances that subsequent monthly deliveries of coal shall meet or exceed
the Guaranteed Monthly Weighted Averages set forth in SECTION 6.1 and that
the source will exceed the rejection limits set forth in SECTION 6.1. If
Seller fails to provide such assurances within said 10 day period, Buyer may
terminate this Agreement by giving written notice of such termination at the
end of the 10 day period. A waiver of this right for any one period by Buyer
shall not constitute a waiver for subsequent periods. If Seller provides such
assurances to Buyer's reasonable satisfaction, shipments hereunder shall
resume and any tonnage deficiencies resulting from suspension may be made up
at Buyer's sole option. Buyer shall not unreasonably withhold its acceptance
of Seller's assurances, or delay the resumption of shipment. If Seller, after
such assurances, fails to meet any of the Guaranteed Monthly Weighted
Averages for any one (1) month within the next six (6) months or if three (3)
barge shipments or 1 rail shipment are rejectable within any one (1) month
during such six (6) month period, then Buyer may terminate this Agreement and
exercise all its other rights and remedies under applicable law and in equity
for Seller's breach.
SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.
SECTION 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights
at the generating station(s) unless another method is mutually agreed upon by
the parties. Such scales shall be duly reviewed by an
13
<PAGE>
CONTRACT #96-440-026
appropriate testing agency and maintained in an accurate condition. Seller
shall have the right, at Seller's expense and upon reasonable notice, to have
the scales checked for accuracy at any reasonable time or frequency. If the
scales are found to be over or under the tolerance range allowable for the
scale based on industry accepted standards, either party shall pay to the
other any amounts owed due to such inaccuracy for a period not to exceed
thirty (30) days before the time any inaccuracy of scales is determined.
SECTION 7.2 SAMPLING AND ANALYSIS. The sampling and analysis of the
coal delivered hereunder shall be performed by Buyer and the results thereof
shall be accepted and used for the quality and characteristics of the coal
delivered under this Agreement. All analyses shall be made in Buyer's
laboratory at Buyer's expense in accordance with industry-accepted standards.
Samples for analyses shall be taken by any industry-accepted standard,
mutually acceptable to both parties, may be composited and shall be taken
with a frequency and regularity sufficient to provide reasonably accurate
representative samples of the deliveries made hereunder. Seller represents
that it is familiar with Buyer's sampling and analysis practices, and finds
them to be acceptable. Buyer shall notify Seller in writing of any
significant changes in Buyer's sampling and analysis practices. Any such
changes in Buyer's sampling and analysis practices shall, except for industry
accepted changes in practices, provide for no less accuracy than the sampling
and analysis practices existing at the time of the execution of this
Agreement, unless the Parties otherwise mutually agree.
Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used
14
<PAGE>
CONTRACT #96-440-026
for analysis by Buyer; one part shall be used by Buyer as a check sample, if
Buyer in its sole judgment determines it is necessary; one part shall be
retained by Buyer until the 25th of the month following the month of
unloading (the "Disposal Date") and shall be delivered to Seller for analysis
if Seller so requests before the Disposal Date; and one part ("Referee
Sample") shall be retained by Buyer until the Disposal Date. Seller shall be
given copies of all analyses made by Buyer by the 12th day of the month
following the month of unloading. Seller, on reasonable notice to Buyer shall
have the right to have a representative present to observe the sampling and
analyses performed by Buyer. Unless Seller requests a Referee Sample analysis
before the Disposal Date, Buyer's analysis shall be used to determine the
quality of the coal delivered hereunder. The Monthly Weighted Averages shall
be determined by utilizing the individual shipment analyses.
If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent
commercial testing laboratory ("Independent Lab") mutually chosen by Buyer
and Seller. For each coal quality specification in question, a dispute shall
be deemed not to exist and Buyer's analysis shall prevail and the analysis of
the Independent Lab shall be disregarded if the analysis of the Independent
Lab differs from the analysis of Buyer by an amount equal to or less than:
(i) 0.50% moisture
(ii) 0.50% ash on a dry basis
(iii) 100 Btu/lb. on a dry basis
(iv) 0.10% sulfur on a dry basis.
For each coal quality specification in question, if the analysis of
the Independent Lab differs from the analysis of Buyer by an amount more than
the amounts listed above, then the
15
<PAGE>
CONTRACT #96-440-026
analysis of the Independent Lab shall prevail and Buyer's analysis shall be
disregarded. The cost of the analysis made by the Independent Lab shall be
borne by Seller to the extent that Buyer's analysis prevails and by Buyer to
the extent that the analysis of the Independent Lab prevails.
SECTION 8. PRICE.
SECTION 8.1 BASE PRICE. The base price ("Base Price") of the coal to
be sold hereunder will be firm and will be $.85636/MMBtu for coal delivered
in 1997, $.89061/MMBtu for coal delivered in 1998, and $.92623/MMBtu for coal
delivered in 1999 through 2001.
SECTION 8.2 QUALITY PRICE DISCOUNTS.
(a) The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in SECTION
6.1. For each coal quality, quality price discounts shall be applied for each
specification each month to reflect failures to meet the Guaranteed Monthly
Weighted Averages set forth in SECTION 6.1, as determined pursuant to
SECTION 7.2, subject to the provisions set forth below. The discount values
used are as follows:
<TABLE>
<CAPTION>
DISCOUNT VALUES
$/MMBTU
------------
<S> <C>
BTU/LB. 0.2604
$/LB./MMBTU
-------------
SULFUR 0.1232
ASH 0.0083
MOISTURE 0.0016
</TABLE>
(b) Notwithstanding the foregoing, for each specification each month,
there shall be no discount if the actual Monthly Weighted Average meets the
applicable Discount Point set forth below. However, if the actual Monthly
Weighted Average fails to meet such applicable
16
<PAGE>
CONTRACT #96-440-026
Discount Point, then the discount shall apply and shall be calculated on the
basis of the difference between the actual Monthly Weighted Average AND THE
GUARANTEED MONTHLY WEIGHTED AVERAGE pursuant to the methodology shown in
Exhibit A attached hereto.
QUALITY A COAL
<TABLE>
<CAPTION>
CONTRACT #96-440-026
Guaranteed Monthly
Weighted Average Discount Point
------------------------- --------------------- ---------------
<S> <C> <C>
BTU/LB min. 11,250 10,800
LB/MMBTU:
SULFUR max. 3.244 3.344
ASH max. 10.67 11.67
MOISTURE max. 9.50 10.50
QUALITY B COAL
Guaranteed Monthly
Weighted Average Discount Point
------------------------- --------------------- ---------------
BTU/LB min. 11,250 10,100
LB/MMBTU:
SULFUR max. 3.95 3.95
ASH max. 16.00 16.00
MOISTURE max. 10.00 11.00
</TABLE>
17
<PAGE>
CONTRACT #96-440-026
For example, for Quality A Coal, if the actual Monthly Weighted
Average of sulfur equals 3.544 lb./MMBTU, then the applicable discount
would be (3.544 lb. - 3.244 lb.) X $.1232/lb/MMBTU = $.03696/MMBTU.
SECTION 8.3 PRICE REVIEW. The Base Price and all the terms and
conditions of this Agreement shall be subject to review for any reason at the
request of either party for revisions to become effective on January 1 of
each year hereunder beginning January 1, 1998. The party requesting such a
review shall give written notice of its request to the other party on or
before October 1 preceding the effective January 1 date of the revision. The
parties then shall negotiate an agreement on new prices and/or other terms
and conditions between October 1 and December 1. If the parties do not reach
an agreement by December 1, then this Agreement will terminate as of December
31 of the applicable year without liability due to such termination for
either party. However, the parties will review the Agreement again at
mutually agreeable times between August and November of the year immediately
succeeding termination and will consider reinstating, but shall not be
obligated to reinstate, the Agreement under the same terms or modified terms.
SECTION 8.4 PAYMENT CALCULATION. Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for
the month Seller's coal was unloaded by Buyer. If there are any such
discounts, Buyer shall apply credit to amounts owed Seller for the month the
coal was unloaded.
18
<PAGE>
CONTRACT #96-440-026
SECTION 9. INVOICES, BILLING AND PAYMENT.
SECTION 9.1 INVOICING ADDRESS. Invoices will be sent to Buyer at
the following address:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Director, Fuels Procurement and Delivery
With a copy to:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Manager, Accounts Payable
SECTION 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall
invoice Buyer at the Base Price, minus any quality price discounts, for all
coal unloaded in a calendar month by the fifteenth of the following month.
SECTION 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. Payment for coal
unloaded in a calendar month shall be mailed by the 25th of the month
following the month of unloading or within ten days after receipt of Seller's
invoice, whichever is later. Buyer shall mail all payments to Seller's
account at Seller's address as set forth in the preamble hereto.
SECTION 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any
damages resulting from or likely to result from any breach of this Agreement
by Seller, and (iii) any amounts owed to Buyer from Seller. Buyer shall
notify Seller
19
<PAGE>
CONTRACT #96-440-026
promptly in writing of any such issue, stating the basis of its claim and the
amount it intends to withhold.
Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.
SECTION 10. FORCE MAJEURE.
SECTION 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed
in or prevented from performing any of its obligations or from utilizing the
coal sold under this Agreement due to acts of God, war, riots, civil
insurrection, acts of the public enemy, strikes, lockouts, fires, floods or
earthquakes, which are beyond the reasonable control and without the fault or
negligence of the party affected thereby, then the obligations of both
parties hereto shall be suspended to the extent made necessary by such event;
provided that the affected party gives written notice to the other party as
early as practicable of the nature and probable duration of the force majeure
event. The party declaring force majeure shall exercise due diligence to
avoid and shorten the force majeure event and will keep the other party
advised as to the continuance of the force majeure event. During any period
in which Seller's ability to perform hereunder is affected by a force majeure
event, Seller shall not deliver any coal to any other buyers to whom Seller's
ability to supply is similarly affected by such force majeure event unless
contractually committed to do so at the beginning of the force majeure event;
and further shall deliver to Buyer under this Agreement at least a pro rata
portion (on a per ton basis) of its total contractual commitments to all its
buyers to whom Seller's ability to supply is similarly affected by such force
majeure event in place at the
20
<PAGE>
CONTRACT #96-440-026
beginning of the force majeure event. An event which affects the Seller's
ability to produce or obtain coal from a mine other than the Coal Property
will not be considered a force majeure event hereunder.
Tonnage deficiencies resulting from a force majeure event shall be
made up at Buyer's sole option on a reasonable schedule.
SECTION 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory
bodies or the courts may adopt environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially
impracticable for Buyer to utilize this or like kind and quality coal which
thereafter would be delivered hereunder. If as a result of the adoption of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be
impossible or commercially impracticable (uneconomical) for Buyer to utilize
such coal, Buyer shall so notify Seller, and thereupon Buyer and Seller shall
promptly consider whether corrective actions can be taken in the mining and
preparation of the coal at Seller's mine and/or in the handling and
utilization of the coal at Buyer's generating station; and if in Buyer's sole
judgment such actions will not, without unreasonable expense to Buyer, make
it possible and commercially practicable for Buyer to so utilize coal which
thereafter would be delivered hereunder without violating any applicable law,
regulation, policy or order, Buyer shall have the right, upon the later of 60
days notice to Seller or the effective date of such restriction, to terminate
this Agreement without further obligation hereunder on the part of either
party.
21
<PAGE>
CONTRACT #96-440-026
SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at
any time by written notice pursuant to SECTION 12 of this Agreement, make
changes within the general scope of this Agreement in any one or more of the
following: quality of coal or coal specifications, quantity of coal, method
or time of shipments, place of delivery (including transfer of title and risk
of loss), method(s) of weighing, sampling or analysis and such other
provision as may affect the suitability and amount of coal for Buyer's
generating stations.
If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision
of this Agreement, an equitable adjustment shall be made in: price, whether
current or future or both, and/or in such other provisions of this Agreement
as are affected directly or indirectly by such change, and the Agreement
shall thereupon be modified in writing accordingly.
Any claim by the Seller for adjustment under this SECTION 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not
be obligated to proceed under this Agreement as changed until an equitable
adjustment has been agreed upon. The parties agree to negotiate promptly and
in good faith to agree upon the nature and extent of any equitable adjustment.
SECTION 12. NOTICES.
SECTION 12.1 FORM AND PLACE OF NOTICE. Any official notice, request
for approval or other document required to be given under this Agreement
shall be in writing, unless otherwise provided herein, and shall be deemed to
have been sufficiently given when delivered in person,
22
<PAGE>
CONTRACT #96-440-026
transmitted by facsimile or other electronic media, delivered to an
established mail service for same day or overnight delivery, or dispatched in
the United States mail, postage prepaid, for mailing by first class,
certified, or registered mail, return receipt requested, and addressed as
follows:
If to Buyer: Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232
Attn.: Director, Fuels Procurement and Delivery
with a copy to: Louisville Gas and Electric Company
820 West Broadway
P.O. Box 32020
Louisville, Kentucky 40232
Attn.: Manager, Procurement Services
If to Seller: Charolais Corporation
P.O. Box 526
Highway 862
Madisonville, Kentucky 42431
Attn.: President
SECTION 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other
party of such change.
SECTION 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data
to Buyer in a format acceptable to and established by Buyer upon Buyer's
request. Buyer shall provide Seller with the appropriate format and will
inform Seller as to the electronic data requirements at the appropriate time.
SECTION 13. RIGHT TO RESELL. Buyer shall have the unqualified
right to sell all or any of the coal purchased under this Agreement.
23
<PAGE>
CONTRACT #96-440-026
SECTION 14. INDEMNITY AND INSURANCE.
SECTION 14.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the barges or
railcars provided by Buyer or Buyer's contractor while such barges or
railcars are in the care and custody of the loading dock or loading facility,
(ii) due to any failure of Seller to comply with laws, regulations or
ordinances, or (iii) due to the acts or omissions of Seller in the
performance of this Agreement.
SECTION 14.2 INSURANCE. Seller agrees to carry insurance coverage
with minimum limits as follows:
(1) Commercial General Liability, including Completed
Operations and Contractual Liability, $1,000,000 single limit liability.
(2) Automobile General Liability, $1,000,000 single limit
liability.
(3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.
(4) Workers' Compensation and Employer's Liability with
statutory limits.
If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in
form to the Buyer and signed by the Seller's insurer shall be supplied by the
Seller to the Buyer evidencing that the above insurance is in force and that
not less than 30
24
<PAGE>
CONTRACT #96-440-026
calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence
of such waiver satisfactory in form and substance to the Buyer shall be
exhibited in the Certificate of Insurance mentioned above. Seller's liability
shall not be limited to its insurance coverage.
SECTION 15. TERMINATION FOR DEFAULT.
Subject to SECTION 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 30 days
after the date of the notice (the "notice period"). If such material breach
is curable and the breaching party cures such material breach within the
notice period, then the Agreement shall not be terminated due to such
material breach. If such material breach is not curable or the breaching
party fails to cure such material breach within the notice period, then this
Agreement shall terminate at the end of the notice period in addition to all
the other rights and remedies available to the aggrieved party under this
Agreement and at law and in equity.
SECTION 16. TAXES, DUTIES AND FEES.
Seller shall pay when due, and the price set forth in SECTION 8 of
this Agreement shall be inclusive of, all taxes, duties, fees and other
assessments of whatever nature imposed by governmental authorities with
respect to the transactions contemplated under this Agreement.
25
<PAGE>
CONTRACT #96-440-026
SECTION 17. DOCUMENTATION AND RIGHT OF AUDIT.
Seller shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied
under this Agreement for a period lasting through the term of this Agreement
and for two years thereafter. Buyer shall have the right at no additional
expense to Buyer to audit, copy and inspect such records and accounts at any
reasonable time upon reasonable notice during the term of this Agreement and
for 2 years thereafter.
SECTION 18. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are
incorporated herein by reference: Equal Opportunity regulations set forth in
41 CRF SECTION 60-1.4(a) and (c) prohibiting discrimination against any
employee or applicant for employment because of race, color, religion, sex,
or national origin; Vietnam Era Veterans Readjustment Assistance Act
regulations set forth in 41 CRF SECTION 50-250.4 relating to the employment
and advancement of disabled veterans and veterans of the Vietnam Era;
Rehabilitation Act regulations set forth in 41 CRF SECTION 60-741.4 relating
to the employment and advancement of qualified disabled employees and
applicants for employment; the clause known as "Utilization of Small Business
Concerns and Small Business Concerns Owned and Controlled by Socially and
Economically Disadvantaged Individuals" set forth in 15 USC SECTION
637(d)(3); and subcontracting plan requirements set forth in 15 USC SECTION
637(d).
SECTION 19. COAL PROPERTY INSPECTIONS. Buyer and its representatives,
and others as may be required by applicable laws, ordinances and regulations
shall have the right at all reasonable times and at their own expense to
inspect the Coal Property, including the loading facilities, scales, sampling
system(s), wash plant facilities, and mining
26
<PAGE>
CONTRACT #96-440-026
equipment for conformance with this Agreement. Seller shall undertake
reasonable care and precautions to prevent personal injuries to any
representatives, agents or employees of Buyer (collectively, "Visitors") who
inspect the Coal Property. Any such Visitors shall make every reasonable
effort to comply with Seller's regulations and rules regarding conduct on the
work site, made known to Visitors prior to entry, as well as safety measures
mandated by state or federal rules, regulations and laws. Buyer understands
that underground mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller
of any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.
SECTION 20. MISCELLANEOUS.
SECTION 20.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with
such laws.
SECTION 20.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 20.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or
right.
SECTION 20.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided
under this Agreement or by law or in equity.
27
<PAGE>
CONTRACT #96-440-026
SECTION 20.5 SEVERABILITY. If any provision of this Agreement is
found contrary to law or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms,
unless such unlawful or unenforceable provision is material to the
transactions contemplated hereby, in which case the parties shall negotiate
in good faith a substitute provision.
SECTION 20.6 BINDING EFFECT. This Agreement shall bind and inure
to the benefit of the parties and their successors and assigns.
SECTION 20.7 ASSIGNMENT. Neither party may assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld or denied;
provided, however, that Seller shall have the right, without consent of
Buyer, to assign all or any part of this Agreement to Centennial Resources,
Inc., a Delaware corporation, or any company controlling, controlled by, or
under common control with Centennial Resources, Inc.
SECTION 20.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are
no representations, understandings or agreements, oral or written, which are
not included herein.
SECTION 20.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
28
<PAGE>
CONTRACT #96-440-026
LOUISVILLE GAS AND ELECTRIC
COMPANY CHAROLAIS CORPORATION
By: ___________________________ By: ___________________________
Chris Hermann, Vice President &
General Manager, Wholesale Electric Title: ___________________________
Business
Date: ___________________________ Date: ___________________________
29
<PAGE>
CONTRACT #96-440-026
Exhibit A Quality A
EXHIBIT A QUALITY A Page 1 of 2
SAMPLE COAL PAYMENT CALCULATIONS
TOTAL EVALUATED COAL COSTS FOR CONTRACT NO. 96-440-026
- -------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be calculated
individually.
<TABLE>
<CAPTION>
SECTION I BASE DATA
- ----- ---------------------------------------------------- ------------------------------------
<S> <C> <C> <C>
1) Base F.O.B. price per ton: $ 19.27 /ton
-----------------------
1a) Tons of coal delivered: tons
-----------------------
2) Guaranteed average heat content: 11,250 BTU/LB.
-----------------------
2r) As received monthly avg. heat content: BTU/LB.
-----------------------
2a) Energy delivered in MMBTU: MMBTU
-----------------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[( ) *2,000 lb./ton*( )]*MMBTU/1,000,000 BTU
2b) Base F.O.B. price per MMBTU: $ /MMBTU
-----------------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[( /ton)/( BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
3) Guaranteed monthly avg. max. sulfur 3.244 LBS./MMBTU
-----------------------
3r) As received monthly avg. sulfur LBS./MMBTU
-----------------------
4) Guaranteed monthly avg. ash 10.67 LBS./MMBTU
-----------------------
4r) As received monthly avg. ash LBS./MMBTU
-----------------------
5) Guaranteed monthly avg. max. moisture 9.50 LBS./MMBTU
-----------------------
5r) As received monthly avg. moisture LBS./MMBTU
-----------------------
SECTION II DISCOUNTS
- ----- ---------------------------------------------------- ----------------------------------
Assign a (-) to all discounts (round to (5) decimal places)
6d) BTU/LB.: If line 2r is less than 10,800 BTU/lb.
then: {1-(line 2r)/(line 2)}*$0.2604/MMBTU
{1-( )/(11,000)}*$0.2604= $ /MMBTU
--------------
7d) SULFUR: If line 3r is greater than 3.344 lbs./MMBTU
[1-[(line 3r)-(line 3)]}*0.1232/lb. Sulfur
[1-[( )/( ]}*0.1232= $ /MMBTU
--------------
8d) ASH: If line 4r is greater than 11.67 lbs./MMBTU
[1-[(line 4r)-(line 4)]}*0.0083/MMBTU
[1-[( )/( ]}*0.0083= $ /MMBTU
--------------
9d) MOISTURE: If line 5r is greater than 10.50 lbs./MMBTU
[1-[(line 5r)-(line 5)]}*0.0016/MMBTU
[1-[( )/( ]}*0.0016= $ /MMBTU
--------------
</TABLE>
30
<PAGE>
CONTRACT #96-440-026
Exhibit A Quality A
Page 2 of 2
<TABLE>
<CAPTION>
TOTAL PRICE
SECTION III ADJUSTMENTS
- ----- ---------------------------------------------------- ------------------------------------
<S> <C> <C> <C>
Determine total Discounts as follows:
Assign a (-) to all discounts
(round to (5) decimal places)
Line 6d: $ /MMBTU
-----------------------
Line 7d $ /MMBTU
-----------------------
Line 8d $ /MMBTU
-----------------------
Line 9d $ /MMBTU
-----------------------
10) Total Discounts (-):
Algebraic sum of above: $ /MMBTU
-----------------------
11) Total evaluated coal price = (line 2b) + (line 10)
12) Total discount price adjustment for Energy delivered:
(line 2a) * (line 10) (-)
$ /MMBTU + $ /MMBTU = $
-------------- ----------------------- ---------
13) Total base cost of coal (line 2a) * (line 2b)
$ /MMBTU + $ /MMBTU = $
-------------- ----------------------- ---------
14) Total coal payment for month (line 12) + (line 13)
$ /MMBTU + $ = $
-------------- ----------------------- ---------
</TABLE>
31
<PAGE>
CONTRACT #96-440-026
LOUISVILLE GAS AND ELECTRIC COMPANY
ACKNOWLEDGMENT OF ASSIGNMENT AND RELEASE OF ASSIGNOR
Louisville Gas and Electric Company ("LG&E") hereby (a) acknowledges
the assignment by Charolais Corporation ("Charolais") of the Coal Supply
Agreement dated January 1, 1997 (the "Coal Supply Agreement"), between LG&E
and Charolais, to Centennial Resources, Inc. ("Centennial") pursuant to the
terms of Section 20.7 of the Coal Supply Agreement and the Assignment and
Assumption Agreement between Charolais and Centennial, a copy of which is
attached hereto; and (b) hereby releases and forever discharges Charolais
from any and all obligations and liabilities under the Coal Supply Agreement
effective as of the assignment of the Coal Supply Agreement to Centennial.
LOUISVILLE GAS AND ELECTRIC COMPANY
By _________________________________
Vice President and General Manager
Wholesale Electric Business
Date: MARCH 7, 1997
------------------------------
32
<PAGE>
CONTRACT #96-440-026
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated March 7, 1997, between
CHAROLAIS CORPORATION, a Kentucky corporation (the "Assignor") and CENTENNIAL
RESOURCES, INC., a Delaware corporation (the "Assignee").
W I T N E S S E T H:
WHEREAS, Assignor, Assignee, Betty J. Bowles, Donald E. Bowles, and
Mark Energy, Inc., a Kentucky corporation, have entered into a Stock and
Asset Purchase Agreement, dated February 13, 1997 (the "Agreement"), pursuant
to which Assignee has agreed to purchase from Assignor all of the "Acquired
Assets" (as defined in the Agreement); and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's
interests in the customer contracts and other agreements listed in Schedule 1
attached hereto (the "Assigned Contracts") currently possessed by Assignor;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy is hereby acknowledged by both Assignor and Assignee, the parties
hereto hereby agree as follows:
SECTION 1: DEFINITIONS.
Capitalized terms used herein and not otherwise defined herein shall
have the meaning given to those terms in the Agreement.
SECTION 2: ASSIGNMENT.
Assignor hereby grants, transfers and assigns to Assignee all of the
rights, title, and interest of Assignor in, to and under the Assigned
Contracts; PROVIDED, HOWEVER, that with respect to any Assigned Contract the
assignment of which requires the consent of any other party
33
<PAGE>
CONTRACT #96-440-026
thereto, which consent has not been obtained as of the date hereof, the
assignment contemplated hereby shall be conditional until such consent shall
have been obtained as to such contract. Upon obtaining such consent, such
Assigned Contract for which consent has not heretofore been obtained shall,
automatically and without the taking of any further action hereunder, be
assigned. Notwithstanding the foregoing, this Section 2 is deemed to be
subject to and not to vary in any respect the terms of the Agreement.
SECTION 3: COVENANTS OF ASSIGNEE.
Subject to Section 2.3 of the Agreement, Assignee hereby expressly
and unconditionally assumes and agrees to perform fully and faithfully each
and every term, covenant and condition of each Assigned Contract required to
be performed by Assignor thereunder, arising after the date hereof (but
excluding any liability arising under such agreements as a result of any
breach, default or failure of Assignor to perform any covenants or
obligations required to be performed by Assignor thereunder on or prior to
the date hereof), and shall indemnify and hold harmless Assignor from and
against any loss, claim, damage or expense caused by or attributable to the
failure of Assignee to so perform its obligations hereunder; PROVIDED,
HOWEVER, that to the extent that such breach or default by Assignor arises
from Assignor's performance or failure to perform a non-monetary obligation,
Assignee shall promptly take any and all reasonable actions to cure any such
breach or default by Assignor and to mitigate the liability for such breach
or default subject to Assignor's obligation to indemnify Assignee for any and
all reasonable expenses incurred by Assignee in connection with curing such
breach or default by Assignor.
34
<PAGE>
CONTRACT #96-440-026
SECTION 4: COVENANTS OF ASSIGNOR.
Pursuant to the terms of Section 6.3 of the Agreement, Assignor shall
indemnify and hold harmless Assignee from and against any loss, claim, damage
or expense caused by or attributable to the failure of Assignor to perform
each and every term, covenant and condition of the Assigned Contracts
required to be performed by it on or prior to the Closing Date.
SECTION 5: MISCELLANEOUS
Nothing contained herein shall limit or otherwise affect any of
Assignee's rights under the Agreement, including Assignee's rights to
indemnification contained in the Agreement, or any other document or other
instrument executed in connection therewith or the consummation of the
transactions contemplated thereby.
This Assignment shall be governed by and construed under the laws of
the Commonwealth of Kentucky.
Reference is made to Section 6.1(d) of the Agreement for certain
further assurances and procedures with respect to obtaining the consent of
other parties applicable to the assignments contemplated by the Agreement.
This Assignment and Assumption Agreement may be amended, and the
observance of any term of this Assignment and Assumption Agreement may be
waived, with, but only with, the prior written consent of both parties hereto.
Two or more duplicate originals of this Assignment Agreement may be
signed by the parties hereto, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
35
<PAGE>
CONTRACT #96-440-026
IN WITNESS WHEREOF, each of the parties hereto has caused this
Assignment Agreement to be executed on its behalf by officers thereunto duly
authorized, all as of the day and year first written above.
CENTENNIAL RESOURCES, INC. CHAROLAIS CORPORATION
(Assignee) (Assignor)
By: ______________________ By: __________________________
Name: Douglas P. Sumner Name: Donald E. Bowles
Title: President Title: President
36
<PAGE>
CONTRACT #96-440-026
March 7, 1997
Louisville Gas and Electric Company
220 West Main Street
Louisville, Kentucky 40202
Attention: Director, Fuels Procurement and Delivery
Manager, Accounts Payable
Gentlemen:
Effective March 7, 1997, Charolais Corporation ("Charolais") assigned
to Centennial Resources, Inc. ("Centennial") all of Charolais' rights and
obligations under the Coal Supply Agreement dated January 1, 1997, between
Louisville Gas and Electric Company ("LG&E") and Charolais (Contract
#96-440-026) (the "Supply Agreement"), pursuant to an Assignment and
Assumption Agreement dated March 7, 1997 (the "Assignment"), between
Charolais and Centennial. Pursuant to the Assignment, Centennial has assumed
and agreed to perform fully and faithfully each and every term, covenant and
condition of the Supply Agreement.
Pursuant to the assignment of the Supply Agreement, all payments for
any coal loaded or shipped to LG&E under the Supply Agreement on or before
March 7, 1997 (the "Effective Date") shall be made to Charolais at P.O. Box
526, Highway 862, Madisonville, Kentucky 42431. With respect to any payments
for coal loaded or shipped to LG&E after the Effective Date, LG&E shall
direct all payments for such coal shipments to Centennial at 220 West Main
Street, Suite 2200, Louisville, Kentucky 40202.
We appreciate your cooperation and assistance in this matter. Please
contact either Charolais or Centennial if you have any questions related to
this matter.
Sincerely,
CHAROLAIS CORPORATION
By ________________________
Donald E. Bowles
President
CENTENNIAL RESOURCES, INC.
By ________________________
Douglas P. Sumner
President
37
<PAGE>
CONTRACT #96-440-026
AMENDMENT #1
AMENDMENT TO CONTRACT
THIS AMENDMENT IS entered into, effective as of August 1, 1997, by and
between LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to as
"LG&E"), whose address is: 220 W. Main Street, Louisville, Kentucky 40202 and
Centennial Resources, Inc., a Delaware corporation, whose address is: 220 W.
Main Street, Suite 2200, Louisville, Kentucky 40202 ("Seller"). In
consideration of the agreements herein contained, the parties agree as
follows:
1.0 AMENDMENTS
The Agreement heretofore entered into by the parties, dated effective
January 1, 1997 and identified by the Contract Number set forth above,
(hereinafter referred to as "Agreement"), is hereby amended as follows:
1.1 In Section 6.1 SPECIFICATIONS, the sulfur max. in Quality A
Coal is changed from 3.244 lbs/MMBTU to 3.25 lbs/MMBTU.
1.2 Section 8.2 QUALITY PRICE DISCOUNTS, the sulfur discount
point in Quality A Coal is changed from 3.344 lbs/MMBTU to 3.35
lbs/MMBTU.
2.0 STATUS OF AGREEMENT
As amended herein, the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year below written, but effective as of the day and year first set
forth above.
LOUISVILLE GAS AND ELECTRIC CENTENNIAL RESOURCES, INC.
COMPANY
By ________________________ By ___________________________
George Basinger
Senior Vice President Title PRESIDENT & CEO
Power Operations ----------------
Date 12/23/97 Date 12/23/97
------------------------ --------------------
38
<PAGE>
CONTRACT #96-440-026
AMENDMENT #2
AMENDMENT NO. 2 TO CONTRACT
THIS AMENDMENT NO. 2 IS entered into effective as of January 1, 1998,
by and between LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to
as "LG&E"), whose address is: 220 West Main Street, Louisville, Kentucky
40202, and CENTENNIAL RESOURCES, INC., a Delaware corporation, whose address
is: 220 West Main Street, Suite 2200, Louisville, Kentucky 40202 ("Seller").
In consideration of the agreements herein contained, the parties hereto agree
as follows.
1.0 AMENDMENTS.
The Agreement heretofore entered into by the parties, dated effective
January 1, 1997, and identified by the Contract Number set forth above, as
amended by Amendment dated effective August 1, 1997 (hereinafter together
referred to as "Agreement"), is hereby further amended as follows:
2.0 STATUS OF AGREMENT
2.1 Section 2, TERM, is hereby revised as follows: "The parties
hereto acknowledge that because no agreement was reached regarding "Price"
under the price review requirements of Section 8.3 of the Agreement, the
Agreement terminated on December 31, 1997. The parties agree that, in order
for Seller to provide to LG&E the Shortfall, as defined below, the Term of
the Agreement is hereby extended through February 28, 1998 (the "Temporary
Extension"), at which time the Agreement shall automatically terminate
without liability therefor for either party.
2.2 Section 3.1, BASE QUANTITY, is hereby revised to add the
following sentence: "During the Temporary Extension, the Base Quantity shall
mean the Shortfall."
2.3 Section 3.2, DELIVERY SCHEDULE, is hereby revised to provide that
the quantity to be delivered during the Temporary Extension shall be the
Shortfall, which is defined as the difference between the Base Quantity,
defined in SECTION 3.1, and the amount of coal delivered by Seller during
1997. The Shortfall is agreed by the parties to be 93,000 tons. Seller shall
deliver such Shortfall ratably during the Temporary Extension
3.0 STATUS OF AGREEMENT
As amended herein, the Agreement is hereby ratified and confirmed and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
on the day and year below written, but effective as of the day and year first
set forth above.
LOUISVILLE GAS AND ELECTRIC CENTENNIAL RESOURCES, INC.
COMPANY
By ___________________________ By ______________________________
George Basinger
Senior Vice President,
Power Operations Title VICE PRESIDENT, SALES AND SERVICE
---------------------------------
39
<PAGE>
CONTRACT #96-440-026
Date 2/27/98 Date 2/27/98
---------------- ------------------
40
<PAGE>
CONTRACT # 96-413-026
Exhibit 10.79
COAL SUPPLY AGREEMENT
This is a coal supply agreement (the "Agreement") dated January 1,
1997 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220
West Main Street, Louisville, Kentucky 40202 ("Buyer") and WARRIOR COAL
CORPORATION, a Kentucky corporation, P.O. Box 1223, 1690 Columbia School
House Road, Madisonville, Kentucky 42431 ("Seller").
The parties hereto agree as follows:
SECTION 1. GENERAL; PRIOR AGREEMENTS.
(a) Seller will sell to Buyer and Buyer will buy from Seller
steam coal under all the terms and conditions of this Agreement.
(b) This Agreement supersedes the Option Agreement dated
February 27, 1997 and the letter agreement dated February 27, 1997 covering
52,500 tons.
SECTION 2. TERM. The term of this Agreement shall commence on January
1, 1997 and shall continue through December 31, 2002, subject to the
provisions of Section 8.3.
SECTION 3. QUANTITY.
SECTION 3.1 BASE QUANTITY. Seller shall sell and deliver and Buyer
shall purchase and accept delivery of the following annual base quantity of
coal ("Base Quantity"):
<TABLE>
<CAPTION>
YEAR BASE QUANTITY (TONS)
---- --------------------
<S> <C>
1997 750,000
1998 1,000,000
1999 1,000,000
2000 1,000,000
2001 1,000,000
2002 1,000,000
</TABLE>
1
<PAGE>
CONTRACT # 96-413-026
SECTION 3.2 DELIVERY SCHEDULE. By December 1 of each year, Buyer
shall specify in writing to Seller the quantities to be delivered in each
month of the following year (except that, for 1997, such delivery schedule
shall be specified within 10 business days after this Agreement becomes fully
executed). The monthly schedule specified by Buyer shall be in approximately
equal monthly amounts provided that Seller shall coordinate shipments so as
to meet Buyer's changing requirements so long as such scheduling variations
do not hamper the efficient operations of Seller's facilities. Such
quantities shall be shipped in accordance with such schedule. Time is of the
essence with respect to the schedule so established; and failure by Seller to
deliver in a timely fashion shall constitute a material breach within the
meaning of SECTION 16 of this Agreement.
SECTION 3.3 RIGHT OF FIRST REFUSAL.
(a) Buyer shall have the right of first refusal to purchase
any additional tonnage which becomes available from the Coal Property during
the term of this Agreement which is beyond Seller's contract commitments as
of January 1, 1997. Seller shall notify Buyer by the 15th of each month of
the expected available tonnage for the succeeding three months or longer if
Seller has a specific sales opportunity with a corresponding term longer than
three months under consideration. Included in this notice Seller shall quote
a price, coal quality and schedule for the coal which may be available to
Buyer. Buyer shall within two working days of receiving the notice give
Seller notice of its purchase or refusal to purchase this coal provided the
aggregate price does not exceed $1.0 million. If the aggregate price exceeds
$1.0 million, Buyer
2
<PAGE>
CONTRACT #96-413-026
shall within seven working days of receiving the notice give Seller notice of
its purchase or refusal to purchase this coal.
(b) If Buyer refuses to purchase this coal or does not accept
the purchase of this coal within the aforementioned time period, Seller shall
be free to sell this coal to a third party at an equivalent quality and at a
price no lower than that quoted to Buyer. If Seller obtains an offer from a
third party to purchase at an equivalent quality and at a lower price (or at
a higher quality) than that quoted to Buyer which is acceptable to Seller,
then Seller must offer Buyer the new sale price or quality terms under the
acceptance provisions of Subsection (a) above. Within five working days after
Seller enters into any contract with the third party to sell coal pursuant to
this Section 3.3, Seller shall give written confirmation to Buyer of the
sale. Buyer shall have the right to audit Seller's records to verify the sale
and price of any such transactions subject to appropriate confidentiality
restrictions. Any additional tonnage which Buyer exercises its right to
purchase under this SECTION 3.3 hereinafter shall be referred to as "Right of
First Refusal Tonnage."
SECTION 3.4 OPTION TO INCREASE QUANTITY. In addition to Buyer's right
of first refusal set forth in SECTION 3.3, for 1998 through 2002, Buyer shall
have the right to increase the quantity to be delivered hereunder by up to an
additional 250,000 tons. Buyer shall exercise such option by giving to Seller
notice stating Buyer's exercise of the option and specifying the increased
tonnage by July 1 of the year preceding the year in which the increased
tonnage will be delivered. Buyer's exercise of the option for 1998 will not
obligate the Buyer to take delivery of the increased quantity in 1999; and
Buyer's failure to exercise the option in 1998 will not negate the Buyer's
right to exercise the option in 1999 and so forth. Any additional tonnage
which Buyer exercises
3
<PAGE>
CONTRACT #96-413-026
its right to purchase under this SECTION 3.4 hereinafter shall be referred to
as "Option Tonnage" and shall be subject to all the terms and conditions
hereof (including price).
SECTION 4. SOURCE.
SECTION 4.1 SOURCE. The coal sold hereunder, including coal purchased
by Seller from third parties, shall be supplied from the mines and geological
seams, hereinafter referred to as the "Coal Property" as follows: Western Ky.
#9 and #11 from Cardinal Mine, Hopkins County, Kentucky, and Western Ky. #15
(including all splits of these seams) from the East Hanson Mine, Hopkins
County, Kentucky. Seller shall have the right to add coal reserves and/or add
or expand existing or new mining operations to the Coal Property during the
term of this Agreement so long as such mining operation or coal reserves are
under lease, ownership, or are managed or operated by Seller or one of its
affiliated companies. Seller shall notify Buyer at least 30 days in advance
of any election to make such changes to the Coal Property and update Seller's
mining plan as required under SECTION 4.4. Buyer shall have the right to
review and approve the changes to the Coal Property. Buyer's approval shall
not be unreasonably withheld provided the coal meets the quality and delivery
requirements of this Agreement. The price of coal shall not be changed from
that provided under SECTION 8 of this Agreement as a result of changes to the
Coal Property as provided hereunder, except that the provisions of SECTION 5
concerning deliveries at locations other than the Delivery Point shall apply.
SECTION 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents
and warrants that the Coal Property contains economically recoverable coal of
a quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will
4
<PAGE>
CONTRACT #96-413-026
have at the Coal Property adequate machinery, equipment and other facilities
to produce, prepare and deliver coal in the quantity and of the quality
required by this Agreement. Seller further agrees to operate and maintain
such machinery, equipment and facilities in accordance with good mining
practices so as to efficiently and economically produce, prepare and deliver
such coal. Seller agrees that Buyer is not providing any capital for the
purchase of such machinery, equipment and/or facilities and that Seller shall
operate and maintain same at its sole expense, including all required permits
and licenses. Seller hereby dedicates to this Agreement sufficient reserves
of coal meeting the quality specifications hereof and lying on or in the Coal
Property so as to fulfill the quantity requirements hereof.
SECTION 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal
from the Coal Property in a way that will reduce the economically recoverable
balance of coal in the Coal Property to an amount less than that required to
be supplied to Buyer hereunder.
SECTION 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have
prepared a complete mining plan for the Coal Property with adequate
supporting data to demonstrate Seller's capability to have coal produced from
the Coal Property which meets the quantity and quality specifications of this
Agreement. Seller shall provide Buyer with two copies of such mining plan
which shall contain maps and a narrative depicting areas and seams of coal to
be mined and shall include (but not be limited to) the following information:
(i) reserves from which the coal will be produced during the term hereof and
the mining sequence, by year (or such other time intervals as mutually
agreed) during the term of this Agreement, from which coal will be mined;
(ii) methods of
5
<PAGE>
CONTRACT #96-413-026
mining such coal; (iii) methods of transporting and, in the event a
preparation plant is constructed at the Coal Property, methods of washing
coal to insure compliance with the quantity and quality requirements of this
Agreement including a description and flow sheet of the preparation plant;
(iv) quality data plotted on the maps depicting data points and isolines by
ash, sulfur, and Btu; (v) quality control plans including sampling and
analysis procedures to insure individual shipments meet quality
specifications; and (vi) Seller's aggregate commitments to others to sell
coal from the Coal Property during the term of this Agreement. Such complete
mining plan shall be delivered to Buyer on or before April 30, 1997.
Buyer's receipt of the mining plan or other information or data
furnished by Seller shall not in any many relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review
be construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply
coal on a long-term basis to fulfill Buyer's requirements of a dependable
coal supply.
Seller shall annually provide Buyer with a mining plan update
("Update") showing progress to date, conformity to original mining plan, and
then known changes in reserve data and planned changes in mining progression,
plans or procedures. The update shall be submitted annually on or before
January 31 of each year during the term of this Agreement.
SECTION 4.5 SUBSTITUTE COAL. Notwithstanding the above
representations and warranties, in the event that Seller is unable to produce
or obtain coal from the Coal Property in the quantity and of the quality
required by this Agreement, then Seller will have the option to supply
substitute coal
6
<PAGE>
CONTRACT #96-413-026
from other facilities and mines under all the terms and conditions of this
Agreement including, but not limited to, the price provisions of SECTION 8,
the quality specifications of SECTION 6.1, and the provisions of SECTION 5
concerning reimbursement to Buyer for increased transportation costs.
Seller's delivery of coal not produced from the Coal Property without having
received the express written consent of Buyer shall constitute a material
breach of this Agreement.
SECTION 5. DELIVERY.
5.1 RAIL OR TRUCK DELIVERY. The coal shall be delivered to Buyer
either F.O.B. railcar at the rail loading facility near the Cardinal Mine on
the Paducah and Louisville Railway or FOB truck at the Cardinal Mine (the
"Delivery Point") as specified from time to time by Buyer. Seller may deliver
the coal at a location different from the Delivery Point, provided, however,
that Seller shall reimburse Buyer for any resulting increases in the cost of
transporting the coal to Buyer's generating stations. Any resulting savings
in such transportation costs shall be retained by Buyer.
Title to and risk of loss respecting coal will pass to Buyer and the
coal will be considered to be delivered when it is loaded into the railcars
at the rail loading facility or trucks, as the case may be. Buyer or its
contractor shall furnish suitable railcars or trucks in accordance with a
delivery schedule provided by Buyer to Seller. Seller shall be responsible
for and pay the cost of repairs for any damages caused by Seller to railcars
or trucks owned or leased by Buyer while such railcars or trucks are in
Seller's control or custody. Seller shall comply with the applicable
provisions of Buyer's rail or truck contractor's tariff.
7
<PAGE>
CONTRACT #96-413-026
SECTION 5.2 FREEZE CONDITIONING. At Buyer's request, Seller shall
treat (or have treated) any shipment of coal hereunder with a freeze
conditioning agent approved by Buyer in order to maintain coal handling
characteristics during shipment. If requested by Buyer, Seller shall also
treat (or have treated) any railcars specified by Buyer with a side release
agent approved by Buyer. The price for each such requested chemical treatment
shall be an amount equal to Seller's cost of materials applied on a per
gallon basis for each application of freeze conditioning agent or side
release agent, as the case may be. Seller shall invoice Buyer for all such
treatment which occurred in a calendar month by the fifteenth of the
following month; and payment shall be mailed by the 25th of such following
month or within ten days after receipt of Seller's invoice, whichever is
later.
SECTION 6. QUALITY.
SECTION 6.1 SPECIFICATIONS. (a) The coal delivered hereunder
shall conform to the following specifications on an "as received" basis:
<TABLE>
<CAPTION>
LOW-SULFUR COAL
---------------
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ ----------------
<S> <C> <C>
BTU/lb. 12,150 LESS THAN 11,750
lbs./MMBTU
- ----------
Ash 9.00 GREATER THAN 12.00
Moisture 9.00 GREATER THAN 12.00
Sulfur 2.90 GREATER THAN 3.30
</TABLE>
8
<PAGE>
CONTRACT #96-413-026
<TABLE>
<CAPTION>
MID-SULFUR COAL
---------------
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ ----------------
<S> <C> <C>
BTU/lb. 11,400 LESS THAN 10,950
lbs./MMBTU
- ----------
Ash 13.50 GREATER THAN 14.25
Moisture 9.00 GREATER THAN 12.00
Sulfur 3.40 GREATER THAN 3.45
</TABLE>
<TABLE>
<CAPTION>
HIGH-SULFUR COAL
----------------
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- -------------- ------------------ ----------------
<S> <C> <C>
BTU/lb. 10,650 LESS THAN 10,300
lbs./MMBTU
- ----------
Ash 19.00 GREATER THAN 21.00
Moisture 9.00 GREATER THAN 12.00
Sulfur 4.00 GREATER THAN 4.40
</TABLE>
All the coal will also meet the following specifications on an "as received"
basis:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CHLORINE max. 0.20 lbs/MMBTU GREATER THAN 0.25
FLUORINE max. 0.006 lbs/MMBTU GREATER THAN 0.01
NITROGEN max. 1.20 lbs/MMBTU GREATER THAN 1.50
ASH/SULFUR RATIO min. 2.5:1 LESS THAN 2.5:1
SIZE (3" x 0"):
Top size (inches)* max. 3"x 0" GREATER THAN 3"x 0"
Fines (% by wgt)
Passing 1/4" screen max. 45% GREATER THAN 50%
</TABLE>
9
<PAGE>
CONTRACT #96-413-026
<TABLE>
<CAPTION>
GUARANTEED MONTHLY REJECTION LIMITS
SPECIFICATIONS WEIGHTED AVERAGE (PER SHIPMENT)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
% BY WEIGHT:
------------
VOLATILE max. 40.0% GREATER THAN45.0%
VOLATILE min. 30.0% LESS THAN 29.0%
FIXED CARBON max. 50.0% GREATER THAN 55.0%
FIXED CARBON min. 30.0% LESS THAN 30.0%
GRINDABILITY (HGI) min. 50 LESS THAN 48
BASE ACID RATIO (B/A)
SLAGGING FACTOR** max. 2.0 GREATER THAN 2.0
FOULING FACTOR*** max. 1.0 GREATER THAN 1.0
ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)
-------------------------------------------
REDUCING ATMOSPHERE
-------------------
Initial Deformation min. 1940 min. 1900
Softening (H=W) min. 2035 min. 1975
Softening (H=1/2W) min. 2085 min. 2000
Fluid min. 2190 min. 2100
OXIDIZING ATMOSPHERE
--------------------
Initial Deformation min. 2300 min. 2200
Softening (H=W) min. 2330 min. 2280
Softening (H=1/2W) min. 2425 min. 2300
Fluid min. 2490 min. 2375
</TABLE>
* All the coal will be of such size that it will pass through a
screen having circular perforations three (3) inches in diameter, but shall
not contain more than forty five percent (45%) by weight of coal that will
pass through a screen having circular perforations one-quarter (1/4) of an
inch in diameter.
** Slagging Factor (R(s))=(B/A) x (Percent Sulfur by WeightDry)
*** Fouling Factor (R(f))=(B/A) x (Percent Na(2)0 by WeightDry)
The Base Acid Ratio (B/A) is herein defined as:
BASE ACID RATIO (B/A) = (Fe(2)0(3) + Ca0 + Mg0 + Na(2)0 + K(2)0)
------------------------------------------
(Si0(2) + Al(2)0(3) + Tl0(2))
10
<PAGE>
CONTRACT #96-413-026
Note: As used herein GREATER THAN means greater than:
LESS THAN means less than.
(b) Seller shall deliver Low Sulfur Coal, Mid Sulfur Coal, or High
Sulfur Coal in any ratio Buyer desires hereunder at Buyer's option, subject
to the pricing provision set forth in SECTION 8.1. Buyer may change the
nominated qualities from time to time by giving to Seller at least thirty
(30) days advance notice of such change.
SECTION 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load, a barge lot load, one unit trainload, or the
aggregate of the truckloads that are unloaded on any one day, in accordance
with Buyer's sampling and analyzing practices.
SECTION 6.3 REJECTION.
Buyer has the right, but not the obligation, to reject any shipment
which fail(s) to conform to the Rejection Limits set forth in SECTION 6.1 or
contains extraneous materials. Buyer must reject such coal within seventy-two
(72) hours of receipt of the coal analysis provided for in SECTION 7.2 or
such right to reject is waived. In the event Buyer rejects such
non-conforming coal, title to and risk of loss of the coal shall be
considered to have never passed to Buyer and Buyer shall return the coal to
Seller or, at Seller's request, divert such coal to Seller's designee, all at
Seller's cost and risk. Seller shall replace the rejected coal within five
(5) working days from notice of rejection with coal conforming to the
Rejection Limits set forth in SECTION 6.1. If Seller fails to replace the
rejected coal within such five (5) working day period or the replacement coal
is rightfully rejected, Buyer may purchase coal from another source in order
to replace the rejected coal. Seller shall reimburse Buyer for (i) any amount
by which the actual price plus transportation
11
<PAGE>
CONTRACT #96-413-026
costs to Buyer of such coal purchased from another source exceed the price of
such coal under this Agreement plus transportation costs to Buyer from the
Delivery Point; and (ii) any and all transportation, storage, handling, or
other expenses that have been incurred by Buyer for rightfully rejected coal.
This remedy is in addition to all of Buyer's other remedies under this
Agreement and under applicable law and in equity for Seller's breach.
If Buyer fails to reject a shipment of non-conforming coal which it
had the right to reject for failure to meet any or all of the Rejection
Limits set forth in SECTION6.1 or because such shipment contained extraneous
materials, then such non-conforming coal shall be deemed accepted by Buyer;
however, the quantity Seller is obligated to sell to Buyer under the
Agreement may or may not be reduced by the amount of each such non-conforming
shipment at Buyer's sole option and the shipment shall nevertheless be
considered "rejectable" under SECTION 6.4. Further, for shipments containing
extraneous materials, which include, but are not limited to, slate, rock,
wood, corn husks, mining materials, metal, steel, etc., the estimated weight
of such materials shall be deducted from the weight of that shipment.
SECTION 6.4 SUSPENSION AND TERMINATION.
If the coal sold hereunder fails to meet any two of the following
criteria ("Suspension Criteria") based upon coal quality selected by Buyer
pursuant to SECTION 6.1(b):
<TABLE>
<CAPTION>
LOW SULFUR SUSPENSION CRITERIA
------------------------------
<S> <C>
11,900 BTU/lb.
9.00 lbs./MMBTU Ash
2.90 lbs./MMBTU Sulfur
9.75 lbs./MMBTU Moisture
</TABLE>
12
<PAGE>
CONTRACT #96-413-026
<TABLE>
<CAPTION>
MID SULFUR SUSPENSION CRITERIA
------------------------------
<S> <C>
11,100 BTU/lb.
13.50 lbs./MMBTU Ash
3.40 lbs./MMBTU Sulfur
10.00 lbs./MMBTU Moisture
</TABLE>
<TABLE>
<CAPTION>
HIGH SULFUR SUSPENSION CRITERIA
-------------------------------
<S> <C>
10,650 BTU/lb.
19.00 lbs./MMBTU Ash
4.00 lbs./MMBTU Sulfur
12.00 lbs./MMBTU Moisture
</TABLE>
on a Monthly Weighted Average basis for any two (2) consecutive months in a
six (6) month period, or if nine (9) barge shipments or nine (9) truck
shipments in a 30 day period are rejectable by Buyer, or if Buyer receives at
generating station(s) two (2) rail shipments which are rejectable in any 30
day period, Buyer may upon notice confirmed in writing and sent to Seller by
certified mail, suspend future shipments except shipments already loaded into
barges and/or railcars. Seller shall, within 10 days, provide Buyer with
reasonable assurances that subsequent monthly deliveries of coal shall meet
or exceed the Suspension Criteria and that the source will exceed the
rejection limits set forth in SECTION 6.1. If Seller fails to provide such
assurances within said 10 day period, Buyer may terminate this Agreement by
giving written notice of such termination at the end of the 10 day period. A
waiver of this right for any one period by Buyer shall not constitute a
waiver for subsequent periods. If Seller provides such assurances to Buyer's
reasonable satisfaction, shipments hereunder shall resume and any tonnage
deficiencies resulting from suspension may be made up at Buyer's sole option.
Buyer shall not unreasonably withhold its acceptance of Seller's assurances,
or delay the resumption of shipment. If Seller, after such assurances, fails
to meet any of the Suspension Criteria on a Monthly Weighted Average basis
13
<PAGE>
CONTRACT #96-413-026
for any one (1) month within the next six (6) months or if three (3) barge
shipments or three (3) truck shipments or 1 rail shipment are rejectable
within any one (1) month during such six (6) month period, then Buyer may
terminate this Agreement and exercise all its other rights and remedies under
applicable law and in equity for Seller's breach.
SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.
SECTION 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights
at the generating station(s) unless another method is mutually agreed upon by
the parties. Such scales shall be duly reviewed by an appropriate testing
agency and maintained in an accurate condition. Seller shall have the right,
at Seller's expense and upon reasonable notice, to have the scales checked
for accuracy at any reasonable time or frequency. If the scales are found to
be over or under the tolerance range allowable for the scale based on
industry accepted standards, either party shall pay to the other any amounts
owed due to such inaccuracy for a period not to exceed thirty (30) days
before the time any inaccuracy of scales is determined.
SECTION 7.2 SAMPLING AND ANALYSIS. The sampling and analysis of the
coal delivered hereunder shall be performed by Buyer and the results thereof
shall be accepted and used for the quality and characteristics of the coal
delivered under this Agreement. Buyer shall send to Seller by telecopier or
electronic data transmittal a copy of the analysis within ten (10) business
days after sampling the applicable shipment. All analyses shall be made in
Buyer's laboratory at Buyer's expense in accordance with industry-accepted
standards. Samples for analyses shall be taken by any industry-accepted
standard, mutually acceptable to both parties, may be composited and shall
14
<PAGE>
CONTRACT #96-413-026
be taken with a frequency and regularity sufficient to provide reasonably
accurate representative samples of the deliveries made hereunder. Seller
represents that it is familiar with Buyer's sampling and analysis practices,
and finds them to be acceptable. Buyer shall notify Seller in writing of any
significant changes in Buyer's sampling and analysis practices. Any such
changes in Buyer's sampling and analysis practices shall, except for industry
accepted changes in practices, provide for no less accuracy than the sampling
and analysis practices existing at the time of the execution of this
Agreement, unless the Parties otherwise mutually agree.
Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if
Buyer in its sole judgment determines it is necessary; one part shall be
retained by Buyer until the 25th of the month following the month of
unloading (the "Disposal Date") and shall be delivered to Seller for analysis
if Seller so requests before the Disposal Date; and one part ("Referee
Sample") shall be retained by Buyer until the Disposal Date. Seller shall be
given copies of all analyses made by Buyer by the 12th day of the month
following the month of unloading. Seller, on reasonable notice to Buyer shall
have the right to have a representative present to observe the sampling and
analyses performed by Buyer. Unless Seller requests a Referee Sample analysis
before the Disposal Date, Buyer's analysis shall be used to determine the
quality of the coal delivered hereunder. The Monthly Weighted Averages shall
be determined by utilizing the individual shipment analyses.
If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent
commercial testing laboratory ("Independent Lab")
15
<PAGE>
CONTRACT #96-413-026
mutually chosen by Buyer and Seller. For each coal quality specification in
question, a dispute shall be deemed not to exist and Buyer's analysis shall
prevail and the analysis of the Independent Lab shall be disregarded if the
analysis of the Independent Lab differs from the analysis of Buyer by an
amount equal to or less than:
(i) 0.50% moisture
(ii) 0.50% ash on a dry basis
(iii) 100 Btu/lb. on a dry basis
(iv) 0.10% sulfur on a dry basis.
For each coal quality specification in question, if the analysis of
the Independent Lab differs from the analysis of Buyer by an amount more than
the amounts listed above, then the analysis of the Independent Lab shall
prevail and Buyer's analysis shall be disregarded. The cost of the analysis
made by the Independent Lab shall be borne by Seller to the extent that
Buyer's analysis prevails and by Buyer to the extent that the analysis of the
Independent Lab prevails.
SECTION 8. PRICE.
SECTION 8.1 BASE PRICE. The base price ("Base Price") of the coal to
be sold hereunder will be firm and will be determined by the nominated coal
quality and the year in which the coal is delivered as defined in SECTION 5
in accordance with the following schedule:
<TABLE>
<CAPTION>
LOW-SULFUR
----------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
<S> <C>
1997 $0.94321
1998 $0.95896
1999 $0.97498
2000 $0.99186
2001 $1.00781
2002 $1.02464
</TABLE>
16
<PAGE>
CONTRACT #96-413-026
<TABLE>
<CAPTION>
MID-SULFUR
----------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
<S> <C>
1997 $0.83026
1998 $0.85351
1999 $0.87368
2000 $0.89989
2001 $0.92689
2002 $0.95470
</TABLE>
<TABLE>
<CAPTION>
HIGH-SULFUR
-----------
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
<S> <C>
1997 $0.81831
1998 $0.83198
1999 $0.84587
2000 $0.85600
2001 $0.87030
2002 $0.88483
</TABLE>
SECTION 8.2 QUALITY PRICE DISCOUNTS.
(a) The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in SECTION
6.1. Quality price discounts shall be applied for each specification each
month to reflect failures to meet the Guaranteed Monthly Weighted Averages
set forth in SECTION 6.1, as determined pursuant to SECTION 7.2, subject to
the provisions set forth below. The discount values used are as follows:
<TABLE>
<CAPTION>
DISCOUNT VALUES
---------------
$/LB./MMBTU
-----------
<S> <C>
SULFUR 0.1232
ASH 0.0083
MOISTURE 0.0016
</TABLE>
17
<PAGE>
CONTRACT #96-413-026
(b) Notwithstanding the foregoing, for each specification each month,
there shall be no discount if the actual Monthly Weighted Average meets the
applicable Discount Point set forth below. However, if the actual Monthly
Weighted Average fails to meet such applicable Discount Point, then the
discount shall apply and shall be calculated on the basis of the difference
between the actual Monthly Weighted Average AND THE GUARANTEED MONTHLY
WEIGHTED AVERAGE pursuant to the methodology shown in Exhibit A attached
hereto.
<TABLE>
<CAPTION>
LOW SULFUR
----------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
SPECIFICATIONS
LBS./MBTU
- ---------------
<S> <C> <C>
Ash 9.00 9.75
Moisture 9.00 9.75
Sulfur 2.90 3.0
</TABLE>
<TABLE>
<CAPTION>
MID SULFUR
----------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
SPECIFICATIONS
LBS./MBTU
- ---------------
<S> <C> <C>
Ash 13.50 13.5
Moisture 9.00 10.0
Sulfur 3.40 3.4
</TABLE>
<TABLE>
<CAPTION>
HIGH SULFUR
-----------
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
SPECIFICATIONS
LBS./MBTU
- ---------------
<S> <C> <C>
Ash 19.00 19.0
Moisture 9.00 12.0
Sulfur 4.00 4.2
</TABLE>
18
<PAGE>
CONTRACT #96-413-026
For example, for Low Sulfur Coal, if the actual Monthly Weighted
Average of sulfur equals 3.3 lb/MMBTU, then the applicable discount
would be (3.3 lb. - 2.90 lb.) X $0.1232/lb/MMBTU = $.04928/MMBTU.
SECTION 8.3 PRICE REVIEW. The Base Price and all other terms and
conditions of this Agreement shall be subject to review for any reason at the
request of either party for revisions to become effective on January 1, 2000.
The party requesting such a review shall give written notice of its request
to the other party on or before July 1, 1999. The parties then shall
negotiate an agreement on new prices and/or other terms and conditions
between July 1 and October 1. If the parties do not reach an agreement by
December 1, then this Agreement will terminate as of December 31, 1999
without liability due to such termination for either party.
SECTION 8.4 PAYMENT CALCULATION. Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for
the month Seller's coal was unloaded by Buyer. If there are any such
discounts, Buyer shall apply credit to amounts owed Seller for the month the
coal was unloaded.
SECTION 9. INVOICES, BILLING AND PAYMENT.
SECTION 9.1 INVOICING ADDRESS. Invoices will be sent to Buyer at
the following address:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Director, Fuels Procurement and Delivery
19
<PAGE>
CONTRACT #96-413-026
With a copy to:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Manager, Accounts Payable
SECTION 9.2 INVOICE AND BI-MONTHLY PAYMENT PROCEDURES. For all coal
delivered (as defined in SECTION 5 hereof) between the first and fifteenth
days of any calendar month, Buyer shall make preliminary payment by the
twenty-fifth day of such month. For all coal delivered between the sixteenth
and the last days of any calendar month, Buyer shall make preliminary payment
by the tenth day of the succeeding calendar month. Payment shall be made by
electronic funds transfer to Seller's account at Farmer's Bank and Trust,
Madisonville, Kentucky. Preliminary payment shall be in the amount of 75% of
the then current price on a dollar per ton basis as calculated by applicable
coal type, guaranteed monthly weighted average Btu, and the then current Base
Price in cents per MMBTU. After the end of each calendar month, there will be
a true-up as follows. The amount due for all coal (based on the Base Price
minus any Quality Price Discounts) delivered during any calendar month shall
be calculated and compared to the sum of the preliminary payments made for
coal delivered during such month. The difference shall be paid by or paid to
the Seller, as applicable, by the twenty-fifth day of the following month.
SECTION 9.3 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any
damages resulting from or likely to result from any breach of this Agreement
by Seller, and (iii) any amounts owed to Buyer from Seller. Buyer shall
notify Seller
20
<PAGE>
CONTRACT #96-413-026
promptly in writing of any such issue, stating the basis of its claim and the
amount it intends to withhold.
Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.
SECTION 10. FORCE MAJEURE.
SECTION 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed
in or prevented from performing any of its obligations or from utilizing the
coal sold under this Agreement due to acts of God, war, riots, civil
insurrection, acts of the public enemy, strikes, lockouts, fires, floods or
earthquakes, which are beyond the reasonable control and without the fault or
negligence of the party affected thereby, then the obligations of both
parties hereto shall be suspended to the extent made necessary by such event;
provided that the affected party gives written notice to the other party as
early as practicable of the nature and probable duration of the force majeure
event. The party declaring force majeure shall exercise due diligence to
avoid and shorten the force majeure event and will keep the other party
advised as to the continuance of the force majeure event. During any period
in which Seller's ability to perform hereunder is affected by a force majeure
event, Seller shall not deliver any coal to any other buyers to whom Seller's
ability to supply is similarly affected by such force majeure event unless
contractually committed to do so at the beginning of the force majeure event;
and further shall deliver to Buyer under this Agreement at least a pro rata
portion (on a per ton basis) of its total contractual commitments to all its
buyers to whom Seller's ability to supply is similarly affected by such force
majeure event in place at the
21
<PAGE>
CONTRACT #96-413-026
beginning of the force majeure event. An event which affects the Seller's
ability to produce or obtain coal from a mine other than the Coal Property
will not be considered a force majeure event hereunder.
Tonnage deficiencies resulting from a force majeure event shall be
made up at Buyer's sole option on a reasonable schedule.
SECTION 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory
bodies or the courts may adopt environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially
impracticable for Buyer to utilize this or like kind and quality coal which
thereafter would be delivered hereunder. If as a result of the adoption of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be
impossible or commercially impracticable (uneconomical) for Buyer to utilize
such coal, Buyer shall so notify Seller, and thereupon Buyer and Seller shall
promptly consider whether corrective actions can be taken in the mining and
preparation of the coal at Seller's mine and/or in the handling and
utilization of the coal at Buyer's generating station; and if in Buyer's sole
judgment such actions will not, without unreasonable expense to Buyer, make
it possible and commercially practicable for Buyer to so utilize coal which
thereafter would be delivered hereunder without violating any applicable law,
regulation, policy or order, Buyer shall have the right, upon the later of 60
days notice to Seller or the effective date of such restriction, to terminate
this Agreement without further obligation hereunder on the part of either
party.
22
<PAGE>
CONTRACT #96-413-026
SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at
any time by written notice pursuant to SECTION 12 of this Agreement, make
changes within the general scope of this Agreement in any one or more of the
following: quality of coal or coal specifications, quantity of coal, method
or time of shipments, place of delivery (including transfer of title and risk
of loss), method(s) of weighing, sampling or analysis and such other
provision as may affect the suitability and amount of coal for Buyer's
generating stations.
If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision
of this Agreement, an equitable adjustment shall be made in: price, whether
current or future or both, and/or in such other provisions of this Agreement
as are affected directly or indirectly by such change, and the Agreement
shall thereupon be modified in writing accordingly.
Any claim by the Seller for adjustment under this SECTION 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not
be obligated to proceed under this Agreement as changed until an equitable
adjustment has been agreed upon. The parties agree to negotiate promptly and
in good faith to agree upon the nature and extent of any equitable adjustment.
SECTION 12. NOTICES.
SECTION 12.1 FORM AND PLACE OF NOTICE. Any official notice, request
for approval or other document required to be given under this Agreement
shall be in writing, unless otherwise provided herein, and shall be deemed to
have been sufficiently given when delivered in person, transmitted by
facsimile or other electronic media, delivered to an established mail service
for
23
<PAGE>
CONTRACT #96-413-026
same day or overnight delivery, or dispatched in the United States mail,
postage prepaid, for mailing by first class, certified, or registered mail,
return receipt requested, and addressed as follows:
If to Buyer: Louisville Gas and Electric Company
P.O. Box 32010
Louisville, Kentucky 40232
Attn.: Director, Fuels Procurement and Delivery
with a copy to: Louisville Gas and Electric Company
820 West Broadway
P.O. Box 32020
Louisville, Kentucky 40232
Attn.: Manager, Procurement Services
If to Seller: Warrior Coal Corporation
1690 Columbia Schoolhouse Road
P.O. Box 1223
Madisonville, Kentucky 42431
SECTION 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other
party of such change.
SECTION 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data
to Buyer in a format acceptable to and established by Buyer upon Buyer's
request. Buyer shall provide Seller with the appropriate format and will
inform Seller as to the electronic data requirements at the appropriate time.
SECTION 13. EARLY TERMINATION. Each party hereto shall have the right
of early termination for any reason or no reason, in whole or in part, of its
rights and obligations under this Agreement as follows: The party desiring to
exercise its right of early termination shall give written notice thereof to
the other party and pay the price for early termination (the
24
<PAGE>
CONTRACT #96-413-026
"Early Termination Price") as described herein. Notice may be given by either
party no later than September 1 of any calendar year; and this Agreement will
be terminated at the end of such year. If this Agreement is terminated early
in whole, then the Early Termination Price shall be $3.50 times the Remaining
Quantity. For the purposes of this SECTION13, the "Remaining Quantity" shall
mean the Base Quantity plus any Right of First Refusal Tonnage and Option
Tonnage for the year immediately preceding termination hereunder multiplied
by the number of years until the effective date of the next price review
hereunder (e.g., January 1, 2000) or the termination date of this Agreement,
as applicable. For example, if Buyer nominates an additional 250,000 tons of
Option Tonnage for 1998, and if Seller terminates this Agreement in whole
effective December 31, 1998 pursuant to this SECTION13, then Seller would owe
Buyer $4,375,000 (1,250,000 x $3.50) under this SECTION13. If this Agreement
is terminated early in part, then the Early Termination Price shall be $3.50
times the total tonnage reduced from the Remaining Quantity. For example, if
Buyer nominates an additional 250,000 tons of Option Tonnage for 1998, and if
Seller terminates this Agreement in part effective December 31, 1998 by
reducing the Base Quantity from 1,000,000 to 500,000 tons, then Seller would
be obligated to deliver 750,000 tons in 1999 (500,000 tons Base Quantity plus
250,000 tons Option Tonnage) and would owe Buyer $1,750,000 (500,000 x $3.50)
under this SECTION13. The Early Termination Price shall be paid in four equal
installments on January 1, April 1, July 1, and October 1 of the year
immediately succeeding the early termination. This provision is not intended
to limit, liquidate, or otherwise affect in any manner damages recoverable
for breach of this Agreement.
25
<PAGE>
CONTRACT #96-413-026
SECTION 14. RIGHT TO RESELL. Buyer shall have the unqualified
right to sell all or any of the coal purchased under this Agreement.
SECTION 15. INDEMNITY AND INSURANCE.
SECTION 15.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the barges or
railcars provided by Buyer or Buyer's contractor while such barges or
railcars are in the care and custody of the loading dock or loading facility,
(ii) due to any failure of Seller to comply with laws, regulations or
ordinances, or (iii) due to the acts or omissions of Seller in the
performance of this Agreement.
SECTION 15.2 INSURANCE. Seller agrees to carry insurance coverage
with minimum limits as follows:
(1) Commercial General Liability, including Completed
Operations and Contractual Liability, $1,000,000 single limit liability.
(2) Automobile General Liability, $1,000,000 single limit
liability.
(3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.
(4) Workers' Compensation and Employer's Liability with
statutory limits.
If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of
26
<PAGE>
CONTRACT #96-413-026
Insurance satisfactory in form to the Buyer and signed by the Seller's
insurer shall be supplied by the Seller to the Buyer evidencing that the
above insurance is in force and that not less than 30 calendar days written
notice will be given to the Buyer prior to any cancellation or material
reduction in coverage under the policies. The Seller shall cause its insurer
to waive all subrogation rights against the Buyer respecting all losses or
claims arising from performance hereunder. Evidence of such waiver
satisfactory in form and substance to the Buyer shall be exhibited in the
Certificate of Insurance mentioned above. Seller's liability shall not be
limited to its insurance coverage.
SECTION 16. TERMINATION FOR DEFAULT.
Subject to SECTION 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 30 days
after the date of the notice (the "notice period"). If such material breach
is curable and the breaching party cures such material breach within the
notice period, then the Agreement shall not be terminated due to such
material breach. If such material breach is not curable or the breaching
party fails to cure such material breach within the notice period, then this
Agreement shall terminate at the end of the notice period in addition to all
the other rights and remedies available to the aggrieved party under this
Agreement and at law and in equity.
27
<PAGE>
CONTRACT #96-413-026
SECTION 17. TAXES, DUTIES AND FEES.
Seller shall pay when due, and the price set forth in SECTION 8 of
this Agreement shall be inclusive of, all taxes, duties, fees and other
assessments of whatever nature imposed by governmental authorities with
respect to the transactions contemplated under this Agreement.
SECTION 18. DOCUMENTATION AND RIGHT OF AUDIT.
Seller shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied
under this Agreement for a period lasting through the term of this Agreement
and for two years thereafter. Buyer shall have the right at no additional
expense to Buyer to audit, copy and inspect such records and accounts at any
reasonable time upon reasonable notice during the term of this Agreement and
for 2 years thereafter.
SECTION 19. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are
incorporated herein by reference: Equal Opportunity regulations set forth in
41 CRF SECTION 60-1.4(a) and (c) prohibiting discrimination against any
employee or applicant for employment because of race, color, religion, sex,
or national origin; Vietnam Era Veterans Readjustment Assistance Act
regulations set forth in 41 CRF SECTION 50-250.4 relating to the employment
and advancement of disabled veterans and veterans of the Vietnam Era;
Rehabilitation Act regulations set forth in 41 CRF SECTION 60-741.4 relating
to the employment and advancement of qualified disabled employees and
applicants for employment; the clause known as "Utilization of Small Business
Concerns and Small Business Concerns Owned and Controlled by Socially and
Economically Disadvantaged Individuals" set forth in 15 USC SECTION
637(d)(3); and subcontracting plan requirements set forth in 15 USC SECTION
637(d).
28
<PAGE>
CONTRACT #96-413-026
SECTION 20. COAL PROPERTY INSPECTIONS. Buyer and its representatives
shall have the right at all reasonable times with prior notice to Seller at
its own expense and at its own risk without liability to Seller to inspect
the Coal Property, including the loading facilities, scales, sampling
system(s), wash plant facilities, and mining equipment for conformance with
this Agreement. Seller shall undertake reasonable care and precautions to
prevent personal injuries to any representatives, agents or employees of
Buyer (collectively, "Visitors") who inspect the Coal Property. Any such
Visitors shall make every reasonable effort to comply with Seller's
regulations and rules regarding conduct on the work site, made known to
Visitors prior to entry, as well as safety measures mandated by state or
federal rules, regulations and laws. Buyer understands that underground mines
and related facilities are inherently high-risk environments. Buyer's failure
to inspect the Coal Property or to object to defects therein at the time
Buyer inspects the same shall not relieve Seller of any of its
responsibilities nor be deemed to be a waiver of any of Buyer's rights
hereunder.
SECTION 21. MISCELLANEOUS.
SECTION 21.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with
such laws.
SECTION 21.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
29
<PAGE>
CONTRACT #96-413-026
SECTION 21.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or
right.
SECTION 21.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided
under this Agreement or by law or in equity.
SECTION 21.5 SEVERABILITY. If any provision of this Agreement is
found contrary to law or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms,
unless such unlawful or unenforceable provision is material to the
transactions contemplated hereby, in which case the parties shall negotiate
in good faith a substitute provision.
SECTION 21.6 BINDING EFFECT. This Agreement shall bind and inure
to the benefit of the parties and their successors and assigns.
SECTION 21.7 ASSIGNMENT. Neither party may assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld or denied.
SECTION 21.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are
no representations, understandings or agreements, oral or written, which are
not included herein.
30
<PAGE>
CONTRACT #96-413-026
SECTION 21.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
LOUISVILLE GAS AND ELECTRIC
COMPANY WARRIOR COAL CORPORATION
By: ___________________________ By: ___________________________
Chris Hermann, Vice President &
General Manager, Wholesale Electric Title: ___________________________
Business
Date: ___________________________ Date: ___________________________
31
<PAGE>
Contract #96-413-026
Amendment #1
AMENDMENT TO CONTRACT
THIS AMENDMENT IS entered into, effective as of May 1, 1997, by and between
LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to as "LG&E"),
whose address is: 220 W. Main St., Louisville, Kentucky 40202 and WARRIOR
COAL CORPORATION, a Kentucky corporation, P.O. Box 1223, 1690 Columbia School
House Road, Madisonville, Kentucky 42431 ("Seller"). In consideration of the
agreements herein contained, the parties hereto agree as follows:
1.0 AMENDMENTS
The Agreement heretofore entered into by the parties, dated effective
January 1, 1997 and identified by the Contract Number set forth above,
(hereinafter referred to as "Agreement"), is hereby amended as follows:
1.1 In Section 3.1 QUALITY, the base quantity (tons) of coal for
1997 is changed from 750,000 to 780,000.
1.2 In Section 3.2 DELIVERY SCHEDULE, is amended to add the following
at the end: Additional 30,000 tons in 1997 shall be delivered in
May (15,000 tons) and June (15,000 tons).
2.0 PRICING SUMMARY
2.1 Pricing for the additional 30,000 tons shall be $0.95395/MMBTU
f.o.b. railcar, Cardinal #9 load-out.
3.0 STATUS OF AGREEMENT
As amended herein, the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
on the day and year below written, but effective as of the day and year first
set forth above.
LOUISVILLE GAS AND ELECTRIC WARRIOR COAL COMPANY
COMPANY
By: ________________________ By: ________________________
George Basinger
Senior Vice President Title: ________________________
Power Operations
Date ________________________ Date ________________________
<PAGE>
Contract #96-413-026
Amendment #2
AMENDMENT NO. 2 TO CONTRACT
THIS AMENDMENT NO. 2 IS entered into, effective as of December 1, 1997, by
and between LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to as
"LG&E"), whose address is: 220 W. Main Street, Louisville, Kentucky 40202 and
WARRIOR COAL CORPORATION, a Kentucky corporation, P.O. Box 1223, 1690
Columbia School House Road, Madisonville, Kentucky 42431 ("Seller"). In
consideration of the agreements herein contained, the parties hereto agree as
follows:
1.0 AMENDMENTS
The Agreement heretofore entered into by the parties, dated effective
January 1, 1997 and identified by the Contract Number set forth above,
(hereinafter referred to as "Agreement") is hereby amended as follows:
1.1 In Section 3.1 QUANTITY, the base quantity (tons) of coal for
1997 is changed from 780,000 to 795,000.
1.2 Section 3.2 DELIVERY SCHEDULE, is amended to add the following at
the end: The additional 15,000 tons referenced above shall be
delivered in December, 1997.
2.3 PRICING SUMMARY
2.1 Pricing for the additional 15,000 tons to be delivered in
December 1997 shall be $0.95395/MMBTU F.O.B. railcar at the
Delivery Point.
3.0 STATUS OF AGREEMENT
As amended herein, the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 2 on the day and year below written, but effective as of the day and year
first set forth above.
LOUISVILLE GAS AND ELECTRIC WARRIOR COAL CORPORATION
COMPANY
By: _____________________________ By: __________________________
George Basinger David L. Roberts
Senior Vice President President
Power Operations
Date: ____________________________ Date: __________________________
<PAGE>
CONTRACT #96-412-026
Exhibit 10.80
COAL SUPPLY AGREEMENT
This is a coal supply agreement (the "Agreement") dated April 1, 1997
between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West
Main Street, Louisville, Kentucky 40202 ("Buyer") and ANDALEX RESOURCES,
INC., a Delaware corporation, 1200 Hurstbourne Place, 9300 Shelbyville Road,
Louisville, Kentucky 40222 ("Seller").
The parties hereto agree as follows:
SECTION 1. GENERAL
Seller will sell to Buyer and Buyer will buy from Seller steam coal
under all the terms and conditions of this Agreement.
SECTION 2. TERM
The term of this Agreement shall commence on April 1, 1997 and shall
continue through December 31, 2001, subject to SECTION 8.3.
SECTION 3. QUANTITY
Seller shall sell and deliver and Buyer shall purchase and accept
delivery of 62,500 tons of coal per month. Such coal shall be delivered ratably
in accordance with reasonable delivery schedules to be mutually agreed upon by
Buyer and Seller.
SECTION 4. SOURCE
SECTION 4.1 SOURCE. The coal sold hereunder shall be supplied from
geological seam Western Kentucky #11, #12, and #9 (surface and underground), any
of the mines in Seller's Cimarron
<PAGE>
CONTRACT #96-412-026
Division as of the effective date of this Agreement (the "Coal Property").
Seller shall have the right to add to the Coal Property mines in Seller's
Cimarron Division developed after the effective date of this Agreement with
Buyer's prior written consent, which will not be unreasonably withheld.
SECTION 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents
and warrants that the Coal Property contains economically recoverable coal of
a quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will have
at the Coal Property adequate machinery, equipment and other facilities to
produce, prepare and deliver coal in the quantity and of the quality required
by this Agreement. Seller further agrees to operate and maintain such
machinery, equipment and facilities in accordance with good mining practices
so as to efficiently and economically produce, prepare and deliver such coal.
Seller agrees that Buyer is not providing any capital for the purchase of
such machinery, equipment and/or facilities and that Seller shall operate and
maintain same at its sole expense, including all required permits and
licenses. Seller hereby dedicates to this Agreement sufficient reserves of
coal meeting the quality specifications hereof and lying on or in the Coal
Property so as to fulfill the quantity requirements hereof.
SECTION 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal
from the Coal Property in a way that will reduce the economically recoverable
balance of coal in the Coal Property to an amount less than that required to
be supplied to Buyer hereunder.
SECTION 5. DELIVERY
SECTION 5.1 BUYER'S OPTION. The coal shall be delivered F.O.B. railcar
at the Cimarron rail loading facility near Madisonville, Kentucky on the Paducah
and Louisville Railway (the
2
<PAGE>
CONTRACT #96-412-026
"Delivery Point"). Seller may deliver the coal at a location different from
the Delivery Point, provided, however, that Seller shall reimburse Buyer for
any resulting increases in the cost of transporting the coal to Buyer's
generating stations. Any resulting savings in such transportation costs shall
be retained by Buyer. Buyer may request to change the Delivery Point to
either F.O.B. truck or F.O.B. barge. Upon Buyer's notification to Seller of
its desire to change the Delivery Point, Buyer and Seller shall mutually
agree in writing upon the change(s) and the time frame wherein such change
will take place.
SECTION 5.2 RAIL OR TRUCK DELIVERY. If the coal is delivered F.O.B.
railcar or F.O.B. truck, then title to and risk of loss respecting the coal
will pass to Buyer and the coal will be considered to be delivered when it is
loaded into the railcars or trucks at the rail or truck loading facility.
Buyer or its contractor shall furnish suitable railcars or trucks in
accordance with a delivery schedule provided by Buyer to Seller. Seller shall
be responsible for and pay the cost of repairs for any damages caused by
Seller to railcars or trucks owned or leased by Buyer while such railcars or
trucks are in Seller's control or custody. Seller shall comply with the
applicable provisions of Buyer's rail or truck contractor's tariff. At
Buyer's request, Seller shall treat (or have treated) any shipment of coal
hereunder with a freeze conditioning agent approved by Buyer in order to
maintain coal handling characteristics during shipment. If requested by
Buyer, Seller shall also treat (or have treated) any railcars specified by
Buyer with a side release agent approved by Buyer. The price for each such
requested chemical treatment shall be an amount equal to Seller's cost of
materials applied on a per gallon basis for each applicable of freeze
conditioning agent or side release agent, as the case may be. Seller shall
invoice Buyer for all such treatment which occurred in a calendar month by
the
3
<PAGE>
CONTRACT #96-412-026
fifteenth of the following month; and payment shall be mailed by the 25th of
such following month or within ten days after receipt of Seller's invoice,
whichever is later.
SECTION 5.3 BARGE DELIVERY. If the coal is delivered F.O.B. barge, then
title to and risk of loss of coal sold will pass to Buyer and the coal will be
considered to be delivered when barges containing the coal are disengaged by
Buyer's barging contractor from the loading dock. Buyer or its contractor shall
furnish suitable barges in accordance with a delivery schedule provided by Buyer
to Seller. Seller shall arrange and pay for all costs of transporting the coal
from the mines to the loading docks and loading and trimming the coal into
barges to the proper draft and the proper distribution within the barges. Buyer
shall arrange for transporting the coal by barge from the loading dock to its
generating station(s) and shall pay for the cost of such transportation. For
delays caused by Seller in handling the scheduling of shipments with Buyer's
barging contractor, Seller shall be responsible for any demurrage or other
penalties assessed by said barging contractor (or assessed by Buyer) which
accrue at the Delivery Point, including the demurrage, penalties for loading
less than the specified minimum tonnage per barge, or other penalties assessed
for barges not loaded in conformity with applicable requirements. Buyer shall be
responsible to deliver barges in as clean and dry condition as practicable.
Seller shall require of the loading dock operator that the barges and towboats
provided to Buyer or Buyer's barging contractor be provided convenient and safe
berth free of wharfage, dockage and port charges; that while the barges are in
the care and custody of the loading dock, all U.S. Coast Guard regulations and
other applicable laws, ordinances, rulings, and regulations shall be complied
with, including adequate mooring and display of warning lights; that any water
in the cargo boxes of the barges be pumped out by the loading dock operator
prior to loading; that the loading operations be performed in a workmanlike
manner
4
<PAGE>
CONTRACT #96-412-026
and in accordance with the reasonable loading requirements of Buyer and
Buyer's barging contractor; and that the loading dock operator carry landing
owners or wharfinger's insurance with basic coverage of not less than
$300,000.00 and total of basic coverage and excess liability coverage of not
less than $1,000,000.00, and provide evidence thereof to Buyer in the form of a
certificate of insurance from the insurance carrier or an acceptable certificate
of self-insurance with requirement for 30 days advance notification of Buyer in
the event of termination of or material reduction in coverage under the
insurance.
SECTION 6. QUALITY
SECTION 6.1 SPECIFICATIONS. The coal delivered hereunder shall
conform to the following specifications on an "as received" basis:
<TABLE>
<CAPTION>
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
-------------- ------------------ ----------------
<S> <C> <C>
BTU/LB. min. 11,500 LESS THAN 11,200
LBS/MMBTU:
MOISTURE max. 10.5 GREATER THAN 12
ASH max. 10.5 GREATER THAN 13
SULFUR max. 3.0 GREATER THAN 3.3
SULFUR min. 1.8 LESS THAN 1.8
CHLORINE max. .04 GREATER THAN .05
FLUORINE max. .006 GREATER THAN .006
NITROGEN max. 1.1 GREATER THAN 1.5
ASH/SULFUR RATIO min. 2.5:1 LESS THAN 2.5:1
Size (3" x 0"):
Top size (inches)* max. 3x0 GREATER THAN 3x0
Fines (% by wgt)
Passing 1/4" screen max. 45% GREATER THAN 50%
</TABLE>
5
<PAGE>
CONTRACT #96-412-026
<TABLE>
<CAPTION>
Guaranteed Monthly Rejection Limits
Specifications Weighted Average (per shipment)
-------------- ------------------ ----------------
<S> <C> <C>
% BY WEIGHT:
VOLATILE max. 40 GREATER THAN 41
VOLATILE min. 35 LESS THAN 33
FIXED CARBON max. 48 GREATER THAN 49
FIXED CARBON min. 44 LESS THAN 40
GRINDABILITY (HGI) min. 55 LESS THAN 52
BASE ACID RATIO (B/A) .39 .43
SLAGGING FACTOR** max. 1.6 GREATER THAN 1.9
FOULING FACTOR*** max. .2 GREATER THAN .3
ASH FUSION TEMPERATURE ((DEGREE)F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation min. 1940 min. 1900
Softening (H=W) min. 2035 min. 1975
Softening (H=1/2W) min. 2085 min. 2000
Fluid min. 2190 min. 2100
OXIDIZING ATMOSPHERE
Initial Deformation min. 2300 min. 2200
Softening (H=W) min. 2320 min. 2280
Softening (H=1/2W) min. 2425 min. 2300
Fluid min. 2490 min. 2375
</TABLE>
* All the coal will be of such size that it will pass through a screen
having circular perforations three (3) inches in diameter, but shall not contain
more than thirty-five percent (35%) by weight of coal that will pass through a
screen having circular perforations one-quarter (1/4) of an inch in diameter.
** Slagging Factor (R(s))=(B/A) x (Percent Sulfur by WeightDry)
*** Fouling Factor (R(f))=(B/A) x (Percent Na(2)0 by WeightDry)
The Base Acid Ratio (B/A) is herein defined as:
BASE ACID RATIO (B/A) =
(Fe(2)0(3) + Ca0 + Mg0 + Na(2)0 + K(2)0)
----------------------------------------
(Si0(2) + Al(2)0(3) + Tl0(2))
Note: As used herein GREATER THAN means greater than:
LESS THAN means less than.
6
<PAGE>
CONTRACT #96-412-026
SECTION 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load, a barge lot load, or one unit trainload, in
accordance with Buyer's actual sampling and analyzing practices.
SECTION 6.3 REJECTION.
Buyer has the right, but not the obligation, to reject any shipment
which fail(s) to conform to the Rejection Limits set forth in SECTION 6.1 or
contains extraneous materials. Buyer must reject such coal within seventy-two
(72) hours of receipt of the coal analysis provided for in SECTION 7.2 or
such right to reject is waived. In the event Buyer rejects such
non-conforming coal, Buyer shall return the coal to Seller or, at Seller's
request, divert such coal to Seller's designee, all at Seller's cost. Seller
shall replace the rejected coal within five (5) working days from notice of
rejection with coal conforming to the Rejection Limits set forth in SECTION
6.1. If Seller fails to replace the rejected coal within such five (5)
working day period or the replacement coal is rightfully rejected, Buyer may
purchase coal from another source in order to replace the rejected coal.
Seller shall reimburse Buyer for (i) any amount by which the actual price
plus transportation costs to Buyer of such coal purchased from another source
exceed the price of such coal under this Agreement (as adjusted under SECTION
8.3 for coal of the quality actually supplied by the other source) plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred
by Buyer for rightfully rejected coal. This remedy is in addition to all of
Buyer's other remedies under this Agreement and under applicable law and in
equity for Seller's breach.
7
<PAGE>
CONTRACT #96-412-026
If Buyer fails to reject a shipment of non-conforming coal which it
had the right to reject for failure to meet any or all of the Rejection
Limits set forth in SECTION 6.1 or because such shipment contained extraneous
materials, then such non-conforming coal shall be deemed accepted by Buyer;
however, the price shall be adjusted in accordance with SECTION 8.3 and the
quantity Buyer is obligated to purchase from Seller, at Buyer's sole option,
shall be reduced by the amount of each such non-conforming shipment. Further,
for shipments containing extraneous materials, which include, but are not
limited to, slate, rock, wood, corn husks, mining materials, metal, steel,
etc., the estimated weight of such materials shall be deducted from the
weight of that shipment.
SECTION 6.4 SUSPENSION AND TERMINATION.
If the coal sold hereunder fails to meet one or more of the
Guaranteed Monthly Weighted Averages set forth in SECTION 6.1 for any one
month during the term of this Agreement, or if 3 barge shipments in a 7 day
period are rejectable by Buyer, of if Buyer receives at generating station(s)
2 rail shipments which are rejectable in any 10 day period, Buyer may, upon
notice confirmed in writing and sent to Seller by certified mail, terminate
this Agreement and exercise all its other rights and remedies under
applicable law and in equity for Seller's breach.
SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS
SECTION 7.1 WEIGHTS. The weight of the coal delivered hereunder shall be
determined on a per shipment basis by Buyer on the basis of scale weights at the
generating station(s) unless another method is mutually agreed upon by the
parties. Such scales shall be duly reviewed by an appropriate testing agency and
maintained in an accurate condition. Seller shall have the right, at Seller's
expense and upon reasonable notice, to have the scales checked for accuracy
8
<PAGE>
CONTRACT #96-412-026
at any reasonable time or frequency. If the scales are found to be
inaccurate, over or under the tolerance range allowable for the scale, either
party shall pay to the other any amounts owed due to such inaccuracy for a
period not to exceed thirty (30) days before the time any inaccuracy of
scales is determined.
SECTION 7.2 SAMPLING AND ANALYSIS. The sampling and analysis of the
coal delivered hereunder shall be performed by Buyer and the results thereof
shall be accepted and used for the quality and characteristics of the coal
delivered under this Agreement. Buyer shall send to Seller by telecopier or
electronic data transmittal a copy of the analysis within (10) business days
after sampling the applicable shipment. All analyses shall be made in Buyer's
laboratory at Buyer's expense in accordance with reliable and industry
accepted standards. Samples for analyses shall be taken by any reliable and
industry accepted standard acceptable to both parties, may be composited, and
shall be taken with a frequency and regularity sufficient to provide
reasonably accurate representative samples of the deliveries made hereunder.
Seller represents that it is familiar with Buyer's sampling and analysis
practices, and finds them to be acceptable. Buyer shall notify Seller in
writing of any significant changes in Buyer's sampling and analysis
practices. Any such changes in Buyer's sampling and analysis practices shall,
except for industry accepted changes in practices, provide for no less
accuracy than the sampling and analysis practices existing at the time of the
execution of this Agreement, unless the Parties otherwise mutually agree.
Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if Buyer
in its sole judgment determines it is necessary; one part shall be retained by
Buyer until the 25th of the month following the month
9
<PAGE>
CONTRACT #96-412-026
of unloading (the "Disposal Date") and shall be delivered to Seller for
analysis if Seller so requests before the Disposal Date; and one part
("Referee Sample") shall be retained by Buyer until the Disposal Date. Seller
shall be given copies of all analyses made by Buyer by the 12th day of the
month following the month of unloading. Seller, on reasonable notice to Buyer
shall have the right to have a representative present to observe the sampling
and analyses performed by Buyer. Unless Seller requests a Referee Sample
analysis before the Disposal Date, Buyer's analysis shall be used to
determine the quality of the coal delivered hereunder. The Monthly Weighted
Averages shall be determined by utilizing the individual shipment analyses.
If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent commercial
testing laboratory ("Independent Lab") mutually chosen by Buyer and Seller. For
each coal quality specification in question, a dispute shall be deemed not to
exist and Buyer's analysis shall prevail and the analysis of the Independent Lab
shall be disregarded if the analysis of the Independent Lab differs from the
analysis of Buyer by an amount equal to or less than:
(i) 0.50% moisture
(ii) 0.50% ash on a dry basis
(iii) 100 Btu/lb. on a dry basis
(iv) 0.10% sulfur on a dry basis.
For each coal quality specification in question, if the analysis of the
Independent Lab differs from the analysis of Buyer by an amount more than the
amounts listed above, then the analysis of the Independent Lab shall prevail and
Buyer's analysis shall be disregarded. The cost of the analysis made by the
Independent Lab shall be borne by Seller to the extent that
10
<PAGE>
CONTRACT #96-412-026
Buyer's analysis prevails and by Buyer to the extent that the analysis of the
Independent Lab prevails.
SECTION 8. PRICE
SECTION 8.1 BASE PRICE. The base price (the "Base Price") of the coal to
be sold hereunder will be firm and will be determined by the year in which the
coal is delivered as defined in SECTION 5 in accordance with the following
schedule:
<TABLE>
<CAPTION>
YEAR BASE PRICE ($ PER MMBTU)
---- ------------------------
<S> <C>
1997 $0.78000
1998 $0.79000
1999 $0.80000
2000 $0.81000
2001 $0.82000
</TABLE>
SECTION 8.2 QUALITY PRICE ADJUSTMENTS.
(a) The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in SECTION
6.1. Quality price discounts shall be applied for each specification each
month to reflect failures to meet the Guaranteed Monthly Weighted Averages
set forth in SECTION 6.1, as determined pursuant to SECTION 7.2, subject to
the provisions set forth below. The discount values used are as follows:
DISCOUNT VALUES
$/MMBTU
-------
BTU/LB 0.2604
$/LB./MMBTU
-----------
SULFUR 0.1232
ASH 0.0083
MOISTURE 0.0016
(b) Notwithstanding the foregoing, for each specification each month,
there shall be no discount if the actual Monthly Weighted Average meets the
applicable Discount Point set
11
<PAGE>
CONTRACT #96-412-026
forth below. However, if the actual Monthly Weighted Average fails to meet
such applicable Discount Point, then the discount shall be calculated on the
basis of the difference between the actual Monthly Weighted Average AND THE
GUARANTEED MONTHLY WEIGHTED AVERAGE pursuant to the methodology shown in
Exhibit A attached hereto.
<TABLE>
<CAPTION>
GUARANTEED MONTHLY
WEIGHTED AVERAGE DISCOUNT POINT
------------------ --------------
<S> <C> <C>
BTU/LB min. 11,500 11,350
LB/MMBTU
- --------
SULFUR max. 3.0 3.2
ASH max. 10.5 12.0
MOISTURE max. 10.5 11.0
</TABLE>
For example, if the actual Monthly Weighted Average of ash equals
12.5 lb/MMBTU, then the applicable discount would be (12.5 lb. - 10.5 lb.) x
$0.0083/lb./MMBTU = $.0166/MMBTU.
SECTION 8.3 PRICE REVIEW. The Base Price and all other terms and
conditions of this Agreement shall be subject to review for any reason at the
request of either party for revisions to become effective on January 1, 1999,
January 1, 2000, and January 1, 2001, respectively. The party requesting such a
review shall give written notice of its request to the other party on or before
the September 1 preceding the applicable revision effective date. The parties
then shall negotiate an agreement on new prices and/or other terms and
conditions between October 1 and December 1. If the parties do not reach an
agreement by December 1, then this Agreement will terminate as of December 31 of
the applicable year without liability due to such termination for either party.
If this Agreement is terminated under this SECTION 8.3, the Seller
12
<PAGE>
CONTRACT #96-412-026
nevertheless shall have the opportunity to propose a new coal supply
agreement each subsequent October through 2001. Buyer shall consider any such
proposals, but shall have no obligation to accept any of them.
SECTION 8.4 PAYMENT CALCULATION. Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer. If there are any such discounts,
Buyer shall apply credit to amounts owed Seller for the month the coal was
unloaded.
SECTION 9. INVOICES, BILLING AND PAYMENT.
SECTION 9.1 INVOICING ADDRESS. Invoices will be sent to Buyer at
the following address:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Director, Fuels Procurement and Delivery
With a copy to:
Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, KY 40232
Attention: Manager, Accounts Payable
SECTION 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall invoice
Buyer at the Base Price, minus any quality price discounts, for all coal
unloaded in a calendar month by the fifteenth of the following month.
SECTION 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. By the 25th of the
month following the month of unloading or within ten days after receipt of
Seller's invoice, whichever is later, Buyer shall pay for coal unloaded in a
calendar month either by mailing payment to Seller's
13
<PAGE>
CONTRACT #96-412-026
account at Andalex Resources, Inc., Dept. 97292, Louisville, Kentucky 40297,
or by transferring the payment by wire to Seller's account.
SECTION 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any
damages resulting from or likely to result from any breach of this Agreement
by Seller, and (iii) any amounts owed to Buyer from Seller. Buyer shall
notify Seller promptly in writing of any such issue, stating the basis of its
claim and the amount it intends to withhold.
Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.
SECTION 10. FORCE MAJEURE
If either party hereto is delayed in or prevented from performing any
of its obligations or from utilizing the coal sold under this Agreement due
to (i) acts of God, (ii) war, (iii) riots, (iv) civil insurrection, (v) acts
of the public enemy, (vi) strikes, (vii) lockouts, (viii) fires, (ix) floods,
(x) earthquakes, (xi) explosions, (xii) mine accidents that are solely
responsible for delaying or preventing performance of Seller for 10
consecutive days, (xiii) breakdown of or damage to equipment, plant,
transmission systems, or transportation providers that is solely responsible
for delaying or preventing the performance of Seller for 10 consecutive days,
(xiv) unforeseen adverse geologic conditions which were not detected despite
prudent mine planning and mining processes and which are solely responsible
for delaying or preventing the performance of Seller for 10 consecutive days,
or (xv) the inability to obtain necessary mining permit(s) after applying for
such with prudent and reasonable diligence, and such event is
14
<PAGE>
CONTRACT #96-412-026
beyond the reasonable control and without the fault or negligence of the
party affected thereby, then the obligations of both parties hereto shall be
suspended to the extent made necessary by such event; provided that the
affected party gives written notice to the other party as early as
practicable of the nature and probable duration of the force majeure event.
The party declaring force majeure shall exercise due diligence to avoid and
shorten the force majeure event and will keep the other party advised as to
the continuance of the force majeure event.
During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning
of the force majeure event; and further shall deliver to Buyer under this
Agreement at least a pro-rata portion (on a per ton basis) of its total
contractual commitments to all its buyers to whom Seller's ability to supply
is similarly affected by such force majeure event in place at the beginning
of the force majeure event. An event which affects the Seller's ability to
produce or obtain coal from a mine other than the Coal Property will not be
considered a force majeure event hereunder.
Tonnage deficiencies resulting from Seller's declared force majeure
event shall be made up at Buyer's sole option on a reasonable schedule.
Tonnage deficiencies resulting from Buyer's declared force majeure event
shall be made up at Seller's sole option on a reasonable schedule.
SECTION 11. NOTICES
SECTION 11.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person,
15
<PAGE>
CONTRACT #96-412-026
transmitted by facsimile or other electronic media, delivered to an
established mail service for same day or overnight delivery, or dispatched in
the United States mail, postage prepaid, for mailing by first class,
certified, or registered mail, return receipt requested, and addressed as
follows:
<TABLE>
<CAPTION>
<S> <C>
If to Buyer: Louisville Gas and Electric Company
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232
Attn: Director, Fuels Procurement and Delivery
with a copy to: Louisville Gas and Electric Company
820 West Broadway
P.O. Box 32020
Louisville, Kentucky 40232
Attn: Manager, Procurement Services
If to Seller: Andalex Resources, Inc.
1200 Hurstbourne Place
9300 Shelbyville Road
Louisville, Kentucky 40222
Attn: Director of Eastern Sales
</TABLE>
SECTION 11.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other party
of such change.
SECTION 12. RIGHT TO SELL
Buyer shall have the unqualified right to sell all or any of the coal
purchased under this Agreement.
SECTION 13. INDEMNITY AND INSURANCE
SECTION 13.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable attorney's fees) (i) relating to the barges or railcars provided by
Buyer or
16
<PAGE>
CONTRACT #96-412-026
Buyer's contractor while such barges or railcars are in the care and
custody of the loading dock or loading facility, (ii) due to any failure of
Seller to comply with laws, regulations or ordinances, or (iii) due to the acts
or omissions of Seller in the performance of this Agreement.
SECTION 13.2 INSURANCE. Seller agrees to carry insurance coverage
with minimum limits as follows:
(1) Commercial General Liability, including Completed Operations
and Contractual Liability, $1,000,000 single limit liability.
(2) Automobile General Liability, $1,000,000 single limit
liability.
(3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.
(4) Workers' Compensation and Employer's Liability with statutory
limits.
If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in form
to the Buyer and signed by the Seller's insurer shall be supplied by the Seller
to the Buyer evidencing that the above insurance is in force and that not less
than 30 calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence of
such waiver satisfactory in form and substance to the Buyer shall be exhibited
in the Certificate of Insurance mentioned above. Seller's liability shall not be
limited to its insurance coverage.
SECTION 14. TERMINATION FOR DEFAULT.
17
<PAGE>
CONTRACT #96-412-026
Subject to SECTION 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 15 days
after the date of the notice (the "notice period"). If such material breach
is curable and the breaching party cures such material breach within the
notice period, then the Agreement shall not be terminated due to such
material breach. If such material breach is not curable or the breaching
party fails to cure such material breach within the notice period, then this
Agreement shall terminate at the end of the notice period in addition to all
the other rights and remedies available to the aggrieved party under this
Agreement and at law and in equity.
SECTION 15. TAXES, DUTIES AND FEES
Seller shall pay when due, and the price set forth in SECTION 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement.
SECTION 16. DOCUMENTATION AND RIGHT OF AUDIT
Seller shall maintain all records and accounts pertaining to payments,
quantities, quality analyses and source of all coal supplied under this
Agreement for a period lasting through the term of this Agreement and for two
years thereafter. Buyer shall have the right at no additional expense to Buyer
to audit, copy and inspect such records and accounts at any reasonable time upon
reasonable notice during the term of this Agreement and for 2 years thereafter.
SECTION 17. EQUAL EMPLOYMENT OPPORTUNITY.
To the extent applicable, Seller shall comply with all of the following
provisions which are incorporated herein by reference: Equal Opportunity
regulations set forth in 41 CRF SECTION 60-
18
<PAGE>
CONTRACT #96-412-026
1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations set forth in 41
CRF SECTION 50-250.4 relating to the employment and advancement of disabled
veterans and veterans of the Vietnam Era; Rehabilitation Act regulations set
forth in 41 CRF SECTION 60-741.4 relating to the employment and advancement
of qualified disabled employees and applicants for employment; the clause
known as "Utilization of Small Business Concerns and Small Business Concerns
Owned and Controlled by Socially and Economically Disadvantaged Individuals"
set forth in 15 USC SECTION 637(d)(3); and subcontracting plan requirements
set forth in 15 USC SECTION 637(d).
SECTION 18. COAL PROPERTY INSPECTIONS
Buyer and its representatives, and others as may be required by
applicable laws, ordinances and regulations shall have the right at all
reasonable times and at their own expense to inspect the Coal Property,
including the loading facilities, scales, sampling system(s), wash plant
facilities, and mining equipment for conformance with this Agreement. Seller
shall undertake reasonable care and precautions to prevent personal injuries
to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall comply
with Seller's regulations and rules regarding conduct on the work site, made
known to Visitors prior to entry, as well as safety measures mandated by
state or federal rules, regulations and laws. Buyer understands that
underground mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller
of any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.
19
<PAGE>
CONTRACT #96-412-026
SECTION 19. MISCELLANEOUS
SECTION 19.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.
SECTION 19.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning of
interpretation of this Agreement.
SECTION 19.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.
SECTION 19.4 REMEDIES CUMULATIVE. Remedies provided under this Agreement
shall be cumulative and in addition to other remedies provided under this
Agreement or by law or in equity.
SECTION 19.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.
SECTION 19.6 BINDING EFFECT. This Agreement shall bind and inure
to the benefit of the parties and their successors and assigns.
SECTION 19.7 ASSIGNMENT. Neither party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party, which consent shall not be unreasonably withheld or denied; provided,
however, that Buyer shall have the right,
20
<PAGE>
CONTRACT #96-412-026
without consent of Seller, to assign all or any part of this Agreement to any
company, controlling, controlled by, or under common control with Buyer.
SECTION 19.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein.
SECTION 19.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
LOUISVILLE GAS AND ELECTRIC
ANDALEX RESOURCES, INC. COMPANY
By: __________________________ By: __________________________
Chris Hermann, Vice President &
Title: _________________________ General Manager
Wholesale Electric Business
Date: __________________________ Date: __________________________
</TABLE>
21
<PAGE>
CONTRACT #96-412-026
Exhibit A
Page 1 of 2
EXHIBIT A
SAMPLE COAL PAYMENT CALCULATIONS
TOTAL EVALUATED COAL COSTS FOR CONTRACT NO.
- -------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be calculated
individually.
<TABLE>
<CAPTION>
SECTION I BASE DATA
----------------------------------------------- --------------
<S> <C>
1) Base F.O.B. price per ton: $ 17.94 /ton
--------------
1a) Tons of coal delivered: tons
--------------
2) Guaranteed average heat content: 11,500 BTU/LB.
--------------
2r) As received monthly avg. heat content: BTU/LB.
--------------
2a) Energy delivered in MMBTU: MMBTU
--------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[( ) *2,000 lb./ton*( )]*MMBTU/1,000,000 BTU
2b) Base F.O.B. price per MMBTU: $ 0.78000 MMBTU
--------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[( /ton)/( BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
3) Guaranteed monthly avg. max. sulfur 3.00 LBS./MMBTU
--------------
3r) As received monthly avg. sulfur LBS./MMBTU
--------------
4) Guaranteed monthly avg. ash 10.50 LBS./MMBTU
--------------
4r) As received monthly avg. ash LBS./MMBTU
--------------
5) Guaranteed monthly avg. max. moisture 10.50 LBS./MMBTU
--------------
5r) As received monthly avg. moisture LBS./MMBTU
--------------
SECTION II DISCOUNTS
---------------------------------------------- ----------------
Assign a (-) to all discounts (round to
(5) decimal places)
6d) BTU/LB.: If line 2r is greater than 11,350 BTU/lb. then:
{1-(line 2r)/(line 2)}*$0.2604/MMBTU
{1-( )/(11,350)}*$0.2604= $ /MMBTU
--------------
7d) SULFUR: If line 3r is greater than 3.20 lbs./MMBTU
[1-[(line 3r)-(line 3)]}*0.1232/lb. Sulfur
[1-[( )/(3.20)]}*0.1232= $ /MMBTU
--------------
8d) ASH: If line 4r is greater than 12.00 lbs./MMBTU
[1-[(line 4r)-(line 4)]}*0.0083/MMBTU
[1-[( )/(12.00)]}*0.0083= $ /MMBTU
--------------
9d) MOISTURE: If line 5r is greater than 11.0 lbs./MMBTU
[1-[(line 5r)-(line 5)]}*0.0016/MMBTU
[1-[( )/(11.0)]}*0.0016= $ /MMBTU
--------------
</TABLE>
22
<PAGE>
CONTRACT #96-412-026
Exhibit A
Page 2 of 2
<TABLE>
<CAPTION>
TOTAL PRICE
SECTION II ADJUSTMENTS
---------------------------------------------- ----------------
<S> <C>
Determine total Discounts as follows:
Assign a (-) to all discounts (round to (5)
decimal places)
Line 6d: $ /MMBTU
--------------
Line 7d $ /MMBTU
--------------
Line 8d $ /MMBTU
--------------
Line 9d $ /MMBTU
--------------
10) Total Discounts (-):
Algebraic sum of above: $ /MMBTU
--------------
11) Total evaluated coal price = (line 2b) + (line 10)
12) Total discount price adjustment for Energy delivered:
(line 2a) * (line 10) (-)
$ /MMBTU + $ /MMBTU = $
------ -------------- ------
13) Total base cost of coal
(line 2a) * (line 2b)
$ /MMBTU + $ /MMBTU = $
------ -------------- ------
14) Total coal payment for month
(line 12) + (line 13)
$ /MMBTU + $ = $
------ -------------- ------
</TABLE>
23
<PAGE>
EXHIBIT B
[NONE]
24
<PAGE>
CONTRACT #96-412-026
AMENDMENT TO COAL SUPPLY AGREEMENT
This is an amendment (the "Amendment") effective ____________, 1997 to
the Coal Supply Agreement dated April 1, 1997 (the "Agreement") between
LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main
Street, Louisville, Kentucky 40202 ("Buyer") and ANDALEX RESOURCES, INC., a
Delaware corporation, 1200 Hurstbourne Place, 9300 Shelbyville Road, Louisville,
Kentucky 40222 ("Seller").
The parties hereto agree as follows:
1. Section 5.1 of the Agreement is deleted in its entirety and replaced
with the following:
SECTION 5.1 BUYER'S OPTION. The coal shall be delivered to one of
the following locations as directed by Buyer (collectively, the
"Delivery Point"): (a) F.O.B. railcar at the Cimarron rail
loading facility near Madisonville, Kentucky on the Paducah and
Louisville Railway; and (b) F.O.B. Sebree Dock, mile point 44 on
the Green River. Seller may deliver the coal at a location
different from the Delivery Point, provided, however, that Seller
shall reimburse Buyer for any resulting increases in the cost of
transporting the coal to Buyer's generating stations. Any
resulting savings in such transportation costs shall be retained
by Buyer. Buyer may request to change the Delivery Point to
either F.O.B. truck or F.O.B. barge. Upon Buyer's notification to
Seller of its desire to change the Delivery Point, Buyer and
Seller shall mutually agree in writing upon the change(s) and the
time frame wherein such change will take place.
2. Section 5.4 is added to the Agreement and shall read as follows:
SECTION 5.4 DELIVERY TO SEBREE DOCK. For coal delivered F.O.B.
Sebree Dock, title to and risk of loss respecting the coal will
pass to Buyer and the coal will be considered to be delivered
when the coal is unloaded at Sebree Dock. Buyer or its contractor
shall furnish suitable barges in accordance with a delivery
schedule provided by Buyer to Seller. Seller shall arrange and
pay for all costs of transporting the coal from the mines to the
loading docks, and Buyer shall arrange and pay for all costs of
loading and trimming the coal into barges to the proper draft and
the proper distribution within the barges. Buyer shall also
arrange for transporting the coal by barge from the loading dock
to its generating station(s) and shall pay for the cost of such
transportation.
3. The first sentence of Section 7.2 is amended to read as follows:
Unless another method of sampling and analysis is mutually agreed
upon by the parties, the sampling and analysis of the coal
delivered hereunder shall be performed by Buyer and the results
thereof shall be accepted and used for the quality and
characteristics of the coal delivered under this Agreement.
<PAGE>
CONTRACT #96-412-026
4. Section 8.1 of the Agreement is deleted in its entirety and replaced
with the following:
SECTION 8.1 BASE PRICE AND TRANSPORTATION CHARGE.
(a) BASE PRICE. The base price (the "Base Price") of the coal
to be sold hereunder will be firm and will be determined by
the year in which the coal is delivered as defined in
SECTION 5 in accordance with the following schedule:
<TABLE>
<CAPTION>
YEAR BASE PRICE ($ PER MMBTU)
------- ------------------------
<S> <C> <C>
1997 $0.78000
1998 $0.79000
1999 $0.80000
2000 $0.81000
2001 $0.82000
</TABLE>
(b) TRANSPORTATION CHARGE. In addition to the Base Price, Buyer
shall pay a transportation charge for coal delivered pursuant to
SECTION5.1(b) in an amount equal to $3.00/ton.
5. Except as specifically amended herein, all provisions of the
Agreement will remain in full force and effect. In case of any conflict between
the provisions of this Amendment and the provisions of the Agreement, the
provisions of this Amendment shall prevail.
6. This is the final and complete agreement of the parties relating to
the subject matter hereof and hereby supersedes any prior or contemporaneous
oral or written understanding, statements or agreements between the parties
relating thereto.
The parties have executed this Amendment through their duly authorized
representatives on the dates set forth below.
LOUISVILLE GAS AND ELECTRIC COMPANY
By: ______________________________
Title: ______________________________
Date: ______________________________
ANDALEX RESOURCES, INC.
By: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE>
CONTRACT #96-412-026
CONSENT TO ASSIGNMENT
AND ESTOPPEL AGREEMENT
THIS CONSENT TO ASSIGNMENT AND ESTOPPEL AGREEMENT (this "Agreement") is
made and entered into this 23rd day of January 1998, by and among Louisville Gas
and Electric Company, a Kentucky corporation ("Coal Buyer"), having an address
at 220 West Main Street, Louisville, Kentucky 40202; ANDALEX RESOURCES, INC., a
Delaware corporation ("Assignor"), having an address at Suite 401, 45 West 10000
South, Sandy, Utah 84070; and HOPKINS COUNTY COAL LLC, a Delaware limited
liability company ("Assignee"), having an address in care of MAPCO Coal, Inc.,
771 Corporate Drive, Suite 1000, Lexington, Kentucky 40503; Attn: Thomas J.
Dostart, Esq.
W I T N E S S E T H:
WHEREAS, Assignor is the seller and Coal Buyer is the buyer of certain
coal, as more fully described in the coal supply agreement (the "Coal Supply
Agreement"), a copy of which is attached hereto and made a part hereof as
EXHIBIT A and as amended by EXHIBIT B; and
WHEREAS, Assignor and Assignee have heretofore entered into or
anticipate they may enter into an Agreement for Purchase and Sale of Assets
whereby Assignee has agreed or may agree to acquire certain assets of the
Assignor, including the Coal Supply Agreement (such acquisition hereinafter
referred to as the "Transfer"); and
WHEREAS, to facilitate the Transfer, Coal buyer is willing [i] to grant
its consent to Assignee's replacement of Assignor under the Coal Supply
Agreement subject to the terms of the Coal Supply Agreement and this Agreement,
and [ii] to make the representations and agreements set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiently of which are hereby acknowledged, the parties hereto agree as
follows:
1. Coal Buyer represents and warrants to Assignor and Assignee that it
has full right and lawful authority to enter into this Agreement.
2. Coal Buyer hereby consents to and waives any objection to or claim
based on assignment of the Coal Supply Agreement by Assignor to Assignee. Such
consent is given only to the assignment by Assignor to Assignee and any further
assignment, sublease, or other transfer of any interest in the Coal Supply
Agreement shall be made only after compliance with all of the terms and
conditions set forth in the Coal Supply Agreement.
3. Coal Buyer hereby agrees, represents and warrants for the benefit of
Assignor and Assignee, and Assignor hereby agrees, represents and warrants for
the benefit of Coal Buyer as follows:
a. The Coal Supply Agreement is in full force and effect and has
not been amended or modified except as provided in EXHIBIT B
and such modifications are binding on the parties and are a
part of the Coal Supply Agreement. The attached EXHIBIT A and
EXHIBIT B together constitute a true, accurate and complete
copy of the Coal Supply Agreement.
b. Assignor is not presently in default pursuant to any
provision of the Coal Supply Agreement or this Agreement.
<PAGE>
CONTRACT #96-412-026
c. There has been no act or omission which would with notice or
the passage of time constitute a default pursuant to the terms
of the Coal Supply Agreement or this Agreement.
d. The assignment of the Coal Supply Agreement by Assignor to
Assignee will not or if completed did not, in and of itself,
constitute a default pursuant to the terms of the Coal Supply
Agreement.
e. All payments and deliveries under the Coal Supply Agreement
are current through ______________, 199___ (taking into
account all modifications reflected on EXHIBIT B), and all of
the covenants and obligations of any party to be performed and
observed under the Coal Supply Agreement prior to the
Effective Date have been fully performed and observed. The
term "Effective Date" as used in this Agreement shall mean the
later of the date specified above in this subpart (e) or such
later "Effective Date" as may be set forth in any writing
signed or agreed to by Coal Buyer and hereafter provided to
Assignor and/or Assignee.
4. The Assignee shall not be responsible for any liabilities,
obligations or performance of Assignor under the Coal Supply Agreement which
arose or were due prior to the Effective Date (except for those liabilities
and obligations the performance of which has been expressly extended past the
Effective Date as reflected on EXHIBIT B), nor shall Assignee be responsible
for any acts or omissions which occurred or failed to occur prior to the
Effective Date.
5. Upon the assignment of the Coal Supply Agreement by Assignor to
Assignee and the assumption by Assignee of all of Assignor's liabilities and
obligations thereunder (taking into account the modifications reflected on
EXHIBIT B) arising on or after the Effective Date, Assignor shall be released
from any liabilities and obligations arising on and after the Effective Date and
Assignor shall not be responsible for any acts or omissions of the Assignee
which occur or failed to occur after the Effective Date.
6. Assignor, Assignee and Webster County Coal Corporation have executed
Amendment No. 2, attached hereto as Exhibit C, of the Coal Supply Agreement to
evidence the terms and conditions pursuant to which Coal Buyer has given its
consent to the assignment and assumption.
7. The provisions of this Agreement shall bind and inure to the benefit
of the heirs, representatives, successors and assigns of the parties hereto.
8. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
9. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be mailed by first-class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally at the addresses in the introduction of this
Agreement or to such other address of which the addressee shall have notified
the sender in writing. Notices mailed in accordance with this section shall be
deemed given when mailed and notices sent by overnight courier service shall be
deemed given when placed in the hands of a representative of such service.
10. This Agreement shall at all times be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky, without regard to the
choice of law principles thereof.
<PAGE>
CONTRACT #96-412-026
11. This Agreement and the Coal Supply Agreement contain the entire
agreement between Assignor and Coal buyer with respect to the subject matter
hereof and the Coal Supply Agreement, and supersede all prior or contemporaneous
representations, understandings or agreements, oral or written between Assignor
and Coal Buyer, which pertain to the subject matter hereof, and are not included
herein. This Agreement and the Coal Supply Agreement contain the entire
agreement between Assignee and Coal Buyer with respect to the subject matter
hereof and the Coal Supply Agreement, and supersede all prior or contemporaneous
representations, understandings or agreements, oral or written between Assignee
and coal Buyer, which pertain to the subject matter hereof, and are not included
herein. This Agreement may not be changed or modified in any manner except by an
instrument in writing duly executed by the authorized officer or representative
of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives the date and
year first above written.
"COAL BUYER"
LOUISVILLE GAS AND ELECTRIC COMPANY,
a Kentucky corporation
By:
--------------------------------
Name: GEORGE W. BASINGER
Title: SENIOR VICE PRESIDENT POWER OPERATIONS
"ASSIGNOR"
ANDALEX RESOURCES, INC.,
a Delaware corporation
By:
--------------------------------
Name: DOUGLAS H. SMITH
Title: PRESIDENT
"ASSIGNEE"
HOPKINS COUNTY COAL LLC,
a Delaware limited liability company
By:
---------------------------------
Name: W. DELL JAGGERS
Title: V.P. ENGINEERING AND PLANNING
<PAGE>
CONTRACT #96-412-026
EXHIBIT A
[ATTACH A COPY OF THE COAL SUPPLY AGREEMENT]
<PAGE>
EXHIBIT 10.81
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006002
OWENSBORO, KENTUCKY 42304 N0415
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated
November 1, 1993, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, QUANTITY, Sections 2.2, 2.3, 2.4, and 2.5 for the 2-year
agreement shall be deleted in their entirety and the following inserted in place
thereof.
2.2 The maximum daily quantity of gas which Texas Gas shall be obligated to
transport and redeliver to Customer, and which Customer shall be obligated to
receive, is Customer's applicable Contract Demand expressed on a seasonal basis
as set forth below:
<TABLE>
<CAPTION>
DAILY
CONTRACT DEMAND MMBTU/D
--------------- -------
<S> <C>
Winter 61,633
Summer 20,000
Shoulder Month (April) 32,480
Shoulder Month (October) 39,007
</TABLE>
2.3 The above Contract Demands consist of a Nominated Daily Quantity, for which
Customer is responsible for scheduling the delivery of gas supplies into Texas
Gas's system, and an Unnominated Daily Quantity, which is automatically
delivered from storage by Texas Gas to meet Customer's requirements. Those
quantities, expressed on a seasonal basis, are set forth below:
<TABLE>
<CAPTION>
NOMINATED DAILY QUANTITY MMBTU/D
------------------------ -------
<S> <C>
Winter 49,000
Summer (except October) 20,000
October 24,000
</TABLE>
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
<TABLE>
<CAPTION>
UNNOMINATED DAILY QUANTITY MMBTU/D
-------------------------- -------
<S> <C>
Winter 12,633
Summer (except October) 6,316
October 8,843
</TABLE>
2.4 Customer's Excess Unnominated Daily Quantity shall be 6,163 MMBtu per day,
which is ten percent (10%) of its Winter Contract Demand.
2.5 The maximum seasonal quantities of gas which Texas Gas shall be obligated
to transport and deliver to Customer, and which Customer shall be obligated to
receive, are Customer's Seasonal Quantity Entitlements as set forth below:
<TABLE>
<CAPTION>
SEASONAL
QUANTITY ENTITLEMENT MMBTU/D
-------------------- ----------
<S> <C>
Winter 8,740,000
Summer 1,900,000
</TABLE>
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
------------------------------------- ----------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
----------------------------------- --------------------
AGREED TO AND ACCEPTED this 30th day of September, 1997.
<PAGE>
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006003
OWENSBORO, KENTUCKY 42304 N0415
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated
November 1, 1993, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, QUANTITY, Sections 2.2, 2.3, 2.4, and 2.5 for the 5-year
agreement shall be deleted in their entirety and the following inserted in place
thereof.
2.2 The maximum daily quantity of gas which Texas Gas shall be obligated to
transport and redeliver to Customer, and which Customer shall be obligated to
receive, is Customer's applicable Contract Demand expressed on a seasonal basis
as set forth below:
<TABLE>
<CAPTION>
DAILY
CONTRACT DEMAND MMBTU/D
--------------- -------
<S> <C>
Winter 61,633
Summer 20,000
Shoulder Month (April) 32,480
Shoulder Month (October) 39,006
</TABLE>
2.3 The above Contract Demands consist of a Nominated Daily Quantity, for which
Customer is responsible for scheduling the delivery of gas supplies into Texas
Gas's system, and an Unnominated Daily Quantity, which is automatically
delivered from storage by Texas Gas to meet Customer's requirements. Those
quantities, expressed on a seasonal basis, are set forth below:
<TABLE>
<CAPTION>
NOMINATED DAILY QUANTITY MMBTU/D
------------------------ -------
<S> <C>
Winter 49,000
Summer (except October) 20,000
October 24,000
</TABLE>
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
<TABLE>
<CAPTION>
UNNOMINATED DAILY QUANTITY MMBTU/D
-------------------------- -------
<S> <C>
Winter 12,633
Shoulder Month (April) 6,317
Shoulder Month (October) 8,843
</TABLE>
2.4 Customer's Excess Unnominated Daily Quantity shall be 6,163 MMBtu per day,
which is ten percent (10%) of its Winter Contract Demand.
2.5 The maximum seasonal quantities of gas which Texas Gas shall be obligated
to transport and deliver to Customer, and which Customer shall be obligated to
receive, are Customer's Seasonal Quantity Entitlements as set forth below:
<TABLE>
<CAPTION>
SEASONAL
QUANTITY ENTITLEMENT MMBTU/D
-------------------- ----------
<S> <C>
Winter 8,740,000
Summer 1,900,000
</TABLE>
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
------------------------------------- ----------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
----------------------------------- --------------------
AGREED TO AND ACCEPTED this 30th day of September, 1997.
<PAGE>
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006004
OWENSBORO, KENTUCKY 42304 N0415
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated
November 1, 1993, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, QUANTITY, Sections 2.2, 2.3, 2.4, and 2.5 for the 8-year
agreement shall be deleted in their entirety and the following inserted in place
thereof.
2.2 The maximum daily quantity of gas which Texas Gas shall be obligated to
transport and redeliver to Customer, and which Customer shall be obligated to
receive, is Customer's applicable Contract Demand expressed on a seasonal basis
as set forth below:
<TABLE>
<CAPTION>
DAILY
CONTRACT DEMAND MMBTU/D
--------------- -------
<S> <C>
Winter 61,634
Summer 20,000
Shoulder Month (April) 32,480
Shoulder Month (October) 39,007
</TABLE>
2.3 The above Contract Demands consist of a Nominated Daily Quantity, for which
Customer is responsible for scheduling the delivery of gas supplies into Texas
Gas's system, and an Unnominated Daily Quantity, which is automatically
delivered from storage by Texas Gas to meet Customer's requirements. Those
quantities, expressed on a seasonal basis, are set forth below:
<TABLE>
<CAPTION>
NOMINATED DAILY QUANTITY MMBTU/D
------------------------ -------
<S> <C>
Winter 49,000
Summer (except October) 20,000
October 24,000
</TABLE>
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
<TABLE>
<CAPTION>
UNNOMINATED DAILY QUANTITY MMBTU/D
-------------------------- -------
<S> <C>
Winter 12,634
Shoulder Month (April) 6,317
Shoulder Month (October) 8,844
</TABLE>
2.4 Customer's Excess Unnominated Daily Quantity shall be 6,163 MMBtu per day,
which is ten percent (10%) of its Winter Contract Demand.
2.5 The maximum seasonal quantities of gas which Texas Gas shall be obligated
to transport and deliver to Customer, and which Customer shall be obligated to
receive, are Customer's Seasonal Quantity Entitlements as set forth below:
<TABLE>
<CAPTION>
SEASONAL
QUANTITY ENTITLEMENT MMBTU/D
-------------------- ----------
<S> <C>
Winter 8,740,000
Summer 1,900,000
</TABLE>
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
------------------------------------- ----------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
----------------------------------- --------------------
AGREED TO AND ACCEPTED this 30th day of September, 1997.
<PAGE>
EXHIBIT 10.82
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006006
OWENSBORO, KENTUCKY 42304 T6487
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated March
1, 1995, as amended, between Texas Gas Transmission Corporation (Texas Gas) and
Louisville Gas and Electric Company (LG&E) providing for the transportation of
natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, Transportation Service, Section 2.1 for the 5-year
agreement shall be deleted in its entirety and the following inserted in place
thereof:
ARTICLE II
TRANSPORTATION SERVICE
2.1 Subject to the terms and provisions of this Agreement, Customer agrees to
deliver or cause to be delivered to Texas Gas, at the Point(s) of Receipt in
Exhibit "A" hereunder, Gas for Transportation, and Texas Gas agrees to receive,
transport, and redeliver, at the Point(s) of Delivery in Exhibit "B" hereunder,
Equivalent Quantities of Gas to Customer or for the account of Customer, in
accordance with Section 3 of Texas Gas's effective FT Rate Schedule and the
terms and conditions contained herein, up to - 0 - MMBtu per day during the
winter season, and up to 18,000 MMBtu per day during the summer season, which
shall be Customer's Firm Transportation Contract Demand, and up to -0- MMBtu
during the winter season, and up to 3,852,000 MMBtu during the summer season,
which shall be Customer's Seasonal Quantity Levels.
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
----------------------------------- -------------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
AGREED TO AND ACCEPTED this 30th day of September , 1997.
------ ------------
<PAGE>
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006007
OWENSBORO, KENTUCKY 42304 T6487
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated March
1, 1995, as amended, between Texas Gas Transmission Corporation (Texas Gas) and
Louisville Gas and Electric Company (LG&E) providing for the transportation of
natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, Transportation Service, Section 2.1 for the 8-year
agreement shall be deleted in its entirety and the following inserted in place
thereof:
ARTICLE II
TRANSPORTATION SERVICE
2.1 Subject to the terms and provisions of this Agreement, Customer agrees to
deliver or cause to be delivered to Texas Gas, at the Point(s) of Receipt in
Exhibit "A" hereunder, Gas for Transportation, and Texas Gas agrees to receive,
transport, and redeliver, at the Point(s) of Delivery in Exhibit "B" hereunder,
Equivalent Quantities of Gas to Customer or for the account of Customer, in
accordance with Section 3 of Texas Gas's effective FT Rate Schedule and the
terms and conditions contained herein, up to - 0 - MMBtu per day during the
winter season, and up to 18,000 MMBtu per day during the summer season, which
shall be Customer's Firm Transportation Contract Demand, and up to -0- MMBtu
during the winter season, and up to 3,852,000 MMBtu during the summer season,
which shall be Customer's Seasonal Quantity Levels.
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
----------------------------------- -------------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
AGREED TO AND ACCEPTED this 30th day of September , 1997.
------ ------------
<PAGE>
TEXAS GAS TRANSMISSION
ONE OF THE WILLIAMS COMPANIES, INC.
P.O. BOX 20008 - 3800 FREDERICA STREET L0006005
OWENSBORO, KENTUCKY 42304 T6487
TEL. (502) 926-8686
September 23, 1997
Louisville Gas and Electric Company
820 West Broadway
Louisville, Kentucky 40202
Attention: Mr. J. Clay Murphy
Gentlemen:
Reference is made to the Transportation Agreement (Agreement) dated March
1, 1995, as amended, between Texas Gas Transmission Corporation (Texas Gas) and
Louisville Gas and Electric Company (LG&E) providing for the transportation of
natural gas by Texas Gas for LG&E.
Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:
A. ARTICLE II, Transportation Service, Section 2.1 for the 2-year
agreement shall be deleted in its entirety and the following inserted in place
thereof:
ARTICLE II
TRANSPORTATION SERVICE
2.1 Subject to the terms and provisions of this Agreement, Customer agrees to
deliver or cause to be delivered to Texas Gas, at the Point(s) of Receipt in
Exhibit "A" hereunder, Gas for Transportation, and Texas Gas agrees to receive,
transport, and redeliver, at the Point(s) of Delivery in Exhibit "B" hereunder,
Equivalent Quantities of Gas to Customer or for the account of Customer, in
accordance with Section 3 of Texas Gas's effective FT Rate Schedule and the
terms and conditions contained herein, up to - 0 - MMBtu per day during the
winter season, and up to 18,000 MMBtu per day during the summer season, which
shall be Customer's Firm Transportation Contract Demand, and up to -0- MMBtu
during the winter season, and up to 3,852,000 MMBtu during the summer season,
which shall be Customer's Seasonal Quantity Levels.
B. EXHIBIT "C", SUPPLY LATERAL CAPACITY, shall be deleted in its entirety
and replaced with the attached EXHIBIT "C", SUPPLY LATERAL CAPACITY.
This amendment shall become effective November 1, 1997 and shall remain in
force for a term to coincide with the term of the Agreement.
The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.
<PAGE>
Louisville Gas and Electric Company
September 23, 1997
Page 2
Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.
If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.
Very truly yours,
LOUISVILLE GAS AND ELECTRIC COMPANY TEXAS GAS TRANSMISSION CORPORATION
By: /s/ Rebecca L. Farrar By: /s/ Signed
----------------------------------- -------------------------------
Title: Vice President-Gas Service Business ATTEST /s/ Sherry L. Rice
AGREED TO AND ACCEPTED this 30th day of September , 1997.
------ ------------
<PAGE>
EXHIBIT 10.83
February 4, 1997
Mr. J. Clay Murphy, Mgr. - Gas Supply
Louisville Gas and Electric Company
P.O. Box 32020
Louisville, KY 40232
RE: Amendment of Gas Transportation Agreement
Dated November 1, 1996
Service Package No. 10609
Dear Clay:
Tennessee Gas Pipeline Company and Louisville Gas and Electric Company agree
to amend the above mentioned Agreement which Amendment will be effective
November 1, 1997; (i) to extend the term of the Agreement for one year
through October 31, 2002; and (ii) to increase the Transportation Quantity
from 30,000 Dth to 51,000 Dth pursuant to the terms and conditions of
Tennessee Gas Pipeline Company's FERC Gas Tariff.
Except as amended herein, all terms and provisions of the Agreement shall
remain in full force and effect as written.
If the foregoing is in accordance with your understanding of the Agreement,
please so indicate by signing and returning to my attention both originals of
this letter. Upon Tennessee's execution, an original will be forwarded to
you for your files.
Should you have any questions, please do not hesitate to contact me at
(713) 757-3720.
Sincerely,
/s/ Gregory P. Jallans
Gregory P. Jallans
Tennessee Gas Pipeline Company
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
This 6th Day of February , 1997 This Day of
----- ---------- ---- --------------
LOUISVILLE GAS AND ELECTRIC CO. TENNESSEE GAS PIPELINE CO.
By: /s/ Rebecca L. Farrar By: /s/ Signed
---------------------------------- -------------------------------
Title: Vice President-Gas Service Business Title: Vice President and
Agent and Attorney-In-Fact
<PAGE>
February 4, 1997
Mr. J. Clay Murphy
Manager-Gas Supply
Louisville Gas and Electric Company
P.O. Box 32020
Louisville, Kentucky 40232
RE: Firm Transportation Discount Agreement
TGP FT-A Contract No. 10609
Dear Clay:
In response to your request and pursuant to Section 5.1 of Tennessee Gas
Pipeline Company's ("TGP") FT-A Rate Schedule (Fifth Revised Volume No. 1,
Original Sheet Number 159), TGP hereby agrees to adjust its Rate Schedule FT-A
Transportation rate, as it may be established from time to time, as follows:
1. a) For the period commencing November 1, 1997 and extending
through October 31, 2002, for gas delivered by TGP on behalf
of Louisville Gas and Electric Company ("LG&E") at Calvary,
meter number 02-0844, or Monroe SMS, meter number 02-0843,
under TGP Service Package No. 10609 (the "FT-A Agreement") the
applicable FT-A rates for volumes received by TGP shall be the
lesser of (i) the 100% load factor derivative of the
then-effective maximum Rate Schedule FT-A reservation and
commodity rate, or (ii) the 100% load factor daily equivalent
weighted average rate of $.3307 per Dth. This rate will be
composed of a monthly reservation rate of $9.08 per Dth and a
daily commodity rate of $.0490 per Dth for receipts in TGP's
Zone 0 and a monthly reservation rate of $7.63 per Dth and a
daily commodity rate of $.0192 per Dth for receipts in TGP's
Zone 1. In the event LG&E amends the FT-A Agreement in a
manner that transfers receipt capacity held in one zone to
another, the parties agree to adjust the aforementioned
reservation and commodity rates such that the 100% load factor
daily equivalent weighted average rate of $.3307 per Dth is
maintained. These rates are inclusive of all surcharges.
b) [Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
<PAGE>
Mr. J. Clay Murphy
February 4, 1997
Page 2
c) LG&E shall provide or otherwise pay for fuel, use and lost and
unaccounted for gas pursuant to the fuel factors and other
terms and conditions of TGP's FERC Gas Tariff. Except as
provided in any settlement or any other agreement between LG&E
and TGP, LG&E shall not be prohibited from challenging such
fuel factors and other provisions of the General Terms and
Conditions of TGP's FERC Gas Tariff.
d) LG&E shall not be subject to any additional charges,
surcharges, or direct bills beyond the rates described above
during the term of this Agreement and any extension thereof.
LG&E also shall not be subject to liability or responsibility
for PCB or other environmental clean-up costs charged against
TGP unless such charges are a result of work performed by LG&E
or its agent(s).
e) [Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
f) [Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
2. a) [Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
b) The special rates in Section 1(a) of this Agreement shall
apply only to firm transportation to Calvary and Monroe. The
discount rates specified herein will continue to be available
to LG&E should LG&E release any portion, including any
segmentation thereof, of the capacity rights secured by this
Agreement at the point(s) of delivery at Calvary and Monroe.
TGP's maximum reservation and commodity rates for firm
transportation under Rate Schedule FT-A shall apply to
deliveries of gas at other points.
3. Upon expiration of the primary term of the FT-A Agreement, LG&E may
elect to extend such FT Agreement for one or more years.
[Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
<PAGE>
Mr. J. Clay Murphy
February 4, 1997
Page 3
[Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
LG&E shall also not be subject to any liability or responsibility
for PCB or other environmental clean-up costs unless said liability
is the direct result of work performed by LG&E.
4. The discounted rate specified herein will become effective subject
to the conditions specified herein. Should the Federal Energy
Regulatory Commission ("FERC"), or any court having jurisdiction,
at any time disallow any rate discount agreed to by TGP herein,
then TGP's maximum applicable FT-A rate shall apply to all
transportation services affected by such disallowances from the
effective date of the order. TGP agrees to seek rehearing of
FERC's order disallowing TGP's rate discount to LG&E agreed to by
TGP herein. LG&E may require TGP to appeal such order to the
appropriate court having jurisdiction. If LG&E elects to require
TGP to file such appeal, LG&E hereby agrees to assume one-half of
the costs of such appeal. Should TGP prevail on rehearing or
appeal, TGP agrees to refund to LG&E the difference between (a) the
maximum FT-A rate charged by TGP to LG&E as of the effective date
of the FERC order disallowing the rate discount, and (b) the
discounted rate agreed to herein. TGP agrees to make such refund
within thirty (30) days of the date that FERC grants rehearing or
the court reverses FERC's order disallowing the rate discount. No
policy statement, rulemaking, or rate order of general
applicability shall be deemed to have disallowed the discount to
LG&E provided for by this Discount Agreement, unless TGP seeks
clarification of such Commission action and the Commission
specifically finds that the discount to LG&E is to be disallowed.
In no event will TGP charge LG&E in excess of the applicable
maximum FT-A transportation rates established in TGP's tariff nor
less than the applicable minimum FT-A rates.
5. In case of a conflict, the terms of this Discount Agreement will
take precedence over the terms of the FT-A Agreement.
6. This agreement and any succeeding agreement pertaining to
discounted rates shall be known as the Discount Agreement.
7. Effective November 1, 1997, this Discount Agreement replaces in its
entirety the discount agreement between TGP and LG&E dated October
18, 1995.
<PAGE>
Mr. J. Clay Murphy
February 4, 1997
Page 4
8. [Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
Please acknowledge your acceptance of this proposal by signing below and
returning one copy to the undersigned. Retain the other original for your
records.
Sincerely,
/s/ Greg Jallans
Gregory P. Jallans
TENNESSEE GAS PIPELINE COMPANY
By: /s/ Signed
----------------------------------
Its: Agent and Attorney-In-Fact
LOUISVILLE GAS AND ELECTRIC COMPANY
By: /s/ Rebecca L. Farrar
----------------------------------
Date: February 6, 1997
<PAGE>
Exhibit "B"
February 4, 1997
Mr. J. Clay Murphy
Manager - Gas Supply
Louisville Gas and Electric Company
P.O. Box 32020
Louisville, KY 40232
Re: Letter of Understanding Regarding
Redesigning Special Reservation and Daily
Commodity Rate Pursuant to Firm
Transportation Discount Agreement Dated
February 4, 1997
Dear Clay:
[Omitted pursuant to confidential treatment request. Material
filed separately with SEC.]
<PAGE>
Mr. J. Clay Murphy
February 4, 1997
Page 2
LG&E does not intend by such agreement to concede to any other
interpretation or construction of Sections 1(e), 1(f), and 9 of the Discount
Agreement or to have waived its right to insist on strict enforcement of all
terms and conditions of the Discount Agreement.
Due to limitations in Tennessee's computerized billing system, Tennessee
agrees to henceforth provide LG&E with individually-generated monthly invoices
to reflect the changes noted above.
Tennessee further agrees that, beginning November 1, 1997, and throughout
the term of the Discount Agreement, at least ten (10) days before rendering its
monthly invoice to LG&E, Tennessee will provide LG&E with a letter setting forth
the base reservation and daily commodity rate components of the Special Rates
and each of the applicable surcharges (E.G., GRI, PCB, GSR, ACA, ETC.) to be
billed pursuant to the terms of the Discount Agreement.
Very truly yours,
/s/ Greg Jallans
Gregory P. Jallans
Agreed and Accepted this Agreed and Accepted this
[Date] day of February , 1997 6th day of February , 1997
- ------ ---------- ---- -----------
/s/ Jay Dickerson /s/ Rebecca L. Farrar
- -------------------------------- --------------------------------------
Jay Dickerson, Rebecca H. Farrar
Director - Central Team Vice President - Gas Service Business
Tennessee Gas Pipeline Company Louisville Gas and Electric Company
<PAGE>
EXHIBIT 12
LOUISVILLE GAS AND ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of $)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income before cumulative effect of a change
in accounting principle per statements
of income . . . . . . . . . . . . . . . . . . . . $ 113,273 $ 107,941 $ 83,184 $ 61,689 $ 90,535
Add:
Federal income taxes - current . . . . . . . . . . . 59,074 34,019 35,824 30,926 42,091
State income taxes - current . . . . . . . . . . . . 14,754 7,589 8,795 7,726 12,954
Deferred Federal income taxes - net. . . . . . . . . (4,171) 19,816 4,261 (950) 4,712
Deferred State income taxes - net. . . . . . . . . . 778 6,648 2,788 956 226
Investment tax credit - net. . . . . . . . . . . . . (4,342) (4,406) (4,742) (4,619) (7,821)
Fixed charges. . . . . . . . . . . . . . . . . . . . 40,928 42,198 43,550 44,665 49,640
------- ------- ------- ------- -------
Earnings. . . . . . . . . . . . . . . . . . . . . 220,294 213,805 173,660 140,393 192,337
------- ------- ------- ------- -------
Fixed Charges:
Interest Charges per statements of income. . . . . . 39,190 40,242 41,918 42,856 47,496
Add:
Interest income (1) . . . . . . . . . . . . . . . - 409 - - -
One-third of rentals charged to
operating expense (2) . . . . . . . . . . . . . 1,738 1,547 1,632 1,809 2,144
------- ------- ------- ------- -------
Fixed charges. . . . . . . . . . . . . . . . $ 40,928 $ 42,198 $ 43,550 $ 44,665 $ 49,640
------- ------- ------- ------- -------
Ratio of Earnings to Fixed Charges . . . . . . . . . . 5.38 5.07 3.99 3.14 3.87
===== ===== ===== ===== =====
</TABLE>
NOTE:
(1) Interest income earned on pollution control revenue bond proceeds held
and invested by trustees - netted against interest charges above.
(2) In the Company's opinion, one-third of rentals represents a reasonable
approximation of the interest factor.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANTS
Louisville Gas and Electric Company (a Kentucky corporation), LG&E Capital Corp.
(a Kentucky corporation), LG&E Power Inc. (a Delaware corporation), LG&E Power
Operations Inc. (a California corporation), LG&E Energy Marketing Inc. (an
Oklahoma corporation), and LG&E International Inc. (a Delaware corporation) are
significant subsidiaries of LG&E Energy Corp. Louisville Gas and Electric
Company and LG&E Capital Corp. are wholly-owned direct subsidiaries of LG&E
Energy Corp. LG&E Power Inc. and LG&E International Inc. are wholly-owned
direct subsidiaries of LG&E Capital Corp., and LG&E Energy Marketing Inc. and
LG&E Power Operations are wholly-owned direct subsidiaries of LG&E Power Inc.
LG&E Energy Marketing Inc., together with one subsidiary operating in the United
States, markets and brokers electric power and natural gas in the United States.
LG&E Power Operations, together with approximately 18 subsidiaries operating in
the United States, operates and maintains domestic power generation facilities.
Approximately twenty-seven other subsidiaries of LG&E Power Inc. (26 operating
in the United States and one operating in Canada) together are involved in the
gathering, processing, storage and transportation of natural gas in the United
States and the marketing of natural gas in Canada. LG&E International Inc.,
together with nine subsidiaries operating in the United States, three operating
in Argentina and two in Spain, holds LG&E Energy Corp.'s investments in the
Argentine gas distribution companies and its current and former investments in
foreign power generation facilities.
Louisville Gas and Electric Company has no subsidiaries.
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 28, 1998, (except with repect to the
matters discussed in the fifth paragraph of Note 7, the eight paragraph of
Note 14 and the second paragraph of Note 15, as to which the date is February
11, 1998) included in this Form 10-K, into the Company's previously filed
Registration Statement No. 333-43985 relating to the Company's Savings Plan
and the 401(K) Savings Plan for Employees of the Louisville Gas and Electric
Company who are represented by Local 2100 of IBEW, Post-Effective Amendment
No. One to Registration Statement No. 33-56942 and Post-Effective Amendment
No.1-C to Registration Statement No. 33-33687 relating to the Automatic
Dividend Reinvestment and Stock Purchase Plan of the Company, Registration
Statement No. 333-05457 and Post-Effective Amendment No. 2-C to Registration
Statement No. 33-33687 relating to the Employee Common Stock Purchase Plan of
the Company, Registration No. 333-05459 and Post-Effective Amendment No. Two
to Registration Statement No. 33-38557 relating to the Omnibus Long-Term
Incentive Plan of the Company, Post-Effective Amendment No. One to
Registration Statement No. 33-56525 relating to the Stock Option Plan for
Non-Employee Directors of the Company, and Post-Effective Amendment No. One
to Registration Statement No. 33-60765 relating to the Deferred Stock
Compensation Plan for Non-Employee Directors of the Company.
______________________________________
Arthur Andersen LLP
Louisville, Kentucky
March 25,1998
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 28, 1998, included in this Form 10-K,
into the Company's previously filed Registration Statement No. 33-13427.
______________________________________
Arthur Andersen LLP
Louisville, Kentucky
March 25,1998
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in LG&E Energy Corp.'s Annual Report on Form 10-K for the year
ended December 31, 1997 of our report dated January 26, 1998 relating to the
Consolidated Financial Statements of KU Energy Corporation which is
incorporated by reference in the Form 10-K of LG&E Energy Corp. for the year
ended December 31, 1997, into LG&E Energy Corp.'s previously filed
Registration Statement No. 333-43985 relating to the LG&E Energy Corp.'s
Savings Plan and the 401(K) Savings Plan for Employees of the Louisville Gas
and Electric Company who are represented by Local 2100 of IBEW,
Post-Effective Amendment No. One to Registration Statement No. 33-56942 and
Post-Effective Amendment No. 1-C to Registration Statement No. 33-33687
relating to the Automatic Dividend Reinvestment and Stock Purchase Plan of
LG&E Energy Corp., Registration Statement No. 333-05457 and Post-Effective
Amendment No. 2-C to Registration Statement No. 33-33687 relating to the
Employee Common Stock Purchase Plan of LG&E Energy Corp., Registration
Statement No. 333-05459 and Post-Effective Amendment No. Two to Registration
Statement No. 33-38557 relating to the Omnibus Long-Term Incentive Plan of
LG&E Energy Corp., Post-Effective Amendment No. One to Registration Statement
No. 33-56525 relating to the Stock Option Plan for Non-Employee Directors of
LG&E Energy Corp., and Post-Effective Amendment No. One to Registration
Statement No. 33-60765 relating to the Deferred Stock Compensation Plan for
Non-Employee Directors of LG&E Energy Corp.
Arthur Andersen LLP
Chicago, Illinois
March 25, 1998
<PAGE>
Exhibit 24.01
POWER OF ATTORNEY
WHEREAS, LG&E ENERGY CORP., a Kentucky corporation, is to file with the
Securities and Exchange Commission, under the provisions of the Securities
Act of 1934, as amended, its Annual Report on Form 10-K for the year ended
December 31, 1997 (the 1997 Form 10-K); and
WHEREAS, each of the undersigned holds the office or offices in LG&E ENERGY
CORP. set opposite his or her name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints ROGER
W. HALE and VICTOR A. STAFFIERI, and each of them, individually, his
attorney, with full power to act for him and in his name, place, and stead,
to sign his name in the capacity or capacities set forth below to the 1997
Form 10-K and to any and all amendments to such 1997 Form 10-K and hereby
ratifies and confirms all that said attorney may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
this 4th day of March 1998.
/s/ Roger W. Hale /s/ J. David Grissom
_______________________ _______________________
ROGER W. HALE J. DAVID GRISSOM
Principal Executive Director
Officer and Director
/s/ William C. Ballard /s/ David B. Lewis
_______________________ _______________________
WILLIAM C. BALLARD DAVID B. LEWIS
Director Director
/s/ Owsley Brown, II /s/ Anne H. McNamara
_______________________ _______________________
OWSLEY BROWN, II ANNE H. McNAMARA
Director Director
/s/ S. Gordon Dabney /s/ T. Ballard Morton, Jr.
_______________________ _______________________
S. GORDON DABNEY T. BALLARD MORTON, JR.
Director Director
/s/ Gene P. Gardner /s/ Dr. Donald C. Swain
_______________________ _______________________
GENE P. GARDNER DR. DONALD C. SWAIN
Director Director
/s/ Jeffrey T. Grade /s/ Victor A. Staffieri
_______________________ _______________________
JEFFREY T. GRADE Victor A. Staffieri, Principal
Director Financial and Accounting Officer
STATE OF KENTUCKY )
)ss.
COUNTY OF JEFFERSON )
1
<PAGE>
Exhibit 24
POWER OF ATTORNEY (cont.)
On this 4th day of March 1998, before me, Margaret L. Cowan, a Notary Public,
State of Kentucky at Large, personally appeared the above named directors and
officers of LG&E ENERGY CORP., a Kentucky corporation, and known to me to be
the persons whose names are subscribed to the foregoing instrument, and they
severally acknowledged to me that they executed the same as their own free
act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
on the date above set forth.
My Commission expires: /s/ Margaret L. Cowan
July 28, 2000 _______________________
Margaret L. Cowan, Notary Public
State of Kentucky at Large
2
<PAGE>
Exhibit 24.02
POWER OF ATTORNEY
WHEREAS, LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, is to
file with the Securities and Exchange Commission, under the provisions of the
Securities Act of 1934, as amended, its Annual Report on Form 10-K for the
year ended December 31, 1997 (the 1997 Form 10-K); and
WHEREAS, each of the undersigned holds the office or offices in LOUISVILLE
GAS AND ELECTRIC COMPANY set opposite his or her name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints ROGER
W. HALE and VICTOR A. STAFFIERI, and each of them, individually, his
attorney, with full power to act for him and in his name, place, and stead,
to sign his name in the capacity or capacities set forth below to the 1997
Form 10-K and to any and all amendments to such 1997 Form 10-K and hereby
ratifies and confirms all that said attorney may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
this 4th day of March 1998.
/s/ Roger W. Hale /s/ J. David Grissom
_______________________ _______________________
ROGER W. HALE J. DAVID GRISSOM
Principal Executive Director
Officer and Director
/s/ William C. Ballard /s/ David B. Lewis
_______________________ _______________________
WILLIAM C. BALLARD DAVID B. LEWIS
Director Director
/s/ Owsley Brown, II /s/ Anne H. McNamara
_______________________ _______________________
OWSLEY BROWN, II ANNE H. McNAMARA
Director Director
/s/ S. Gordon Dabney /s/ T. Ballard Morton, Jr.
_______________________ _______________________
S. GORDON DABNEY T. BALLARD MORTON, JR.
Director Director
/s/ Gene P. Gardner /s/ Dr. Donald C. Swain
_______________________ _______________________
GENE P. GARDNER DR. DONALD C. SWAIN
Director Director
/s/ Jeffrey T. Grade /s/ Victor A. Staffieri
_______________________ _______________________
JEFFREY T. GRADE Victor A. Staffieri, Principal
Director Financial and Accounting Officer
STATE OF KENTUCKY )
)ss.
COUNTY OF JEFFERSON )
1
<PAGE>
Exhibit 24
POWER OF ATTORNEY (cont.)
On this 4th day of March 1998, before me, Margaret L. Cowan, a Notary Public,
State of Kentucky at Large, personally appeared the above named directors and
officers of LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, and
known to me to be the persons whose names are subscribed to the foregoing
instrument, and they severally acknowledged to me that they executed the same
as their own free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on
the date above set forth.
My Commission expires: /s/ Margaret L. Cowan
July 28, 2000 _______________________
Margaret L. Cowan, Notary Public
State of Kentucky at Large
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK>0000060549
<NAME>LOUISVILLE GAS AND ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,706,392
<OTHER-PROPERTY-AND-INVEST> 1,365
<TOTAL-CURRENT-ASSETS> 288,286
<TOTAL-DEFERRED-CHARGES> 59,598
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,055,641
<COMMON> 424,334
<CAPITAL-SURPLUS-PAID-IN> 82
<RETAINED-EARNINGS> 258,910
<TOTAL-COMMON-STOCKHOLDERS-EQ> 683,326
0
95,328
<LONG-TERM-DEBT-NET> 626,800
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 630,187
<TOT-CAPITALIZATION-AND-LIAB> 2,055,641
<GROSS-OPERATING-REVENUE> 845,543
<INCOME-TAX-EXPENSE> 64,081
<OTHER-OPERATING-EXPENSES> 633,276
<TOTAL-OPERATING-EXPENSES> 697,357
<OPERATING-INCOME-LOSS> 148,186
<OTHER-INCOME-NET> 4,277
<INCOME-BEFORE-INTEREST-EXPEN> 152,463
<TOTAL-INTEREST-EXPENSE> 39,190
<NET-INCOME> 113,273
4,585
<EARNINGS-AVAILABLE-FOR-COMM> 108,688
<COMMON-STOCK-DIVIDENDS> 59,000
<TOTAL-INTEREST-ON-BONDS> 37,605
<CASH-FLOW-OPERATIONS> 186,060
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK> 0000861388
<NAME> LG&E ENERGY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,706,392
<OTHER-PROPERTY-AND-INVEST> 658,745
<TOTAL-CURRENT-ASSETS> 877,685
<TOTAL-DEFERRED-CHARGES> 123,569
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,366,391
<COMMON> 468,851<F1>
<CAPITAL-SURPLUS-PAID-IN> 217<F2>
<RETAINED-EARNINGS> 366,004
<TOTAL-COMMON-STOCKHOLDERS-EQ> 835,072
0
98,353
<LONG-TERM-DEBT-NET> 664,339
<SHORT-TERM-NOTES> 360,184
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,388,443
<TOT-CAPITALIZATION-AND-LIAB> 3,366,391
<GROSS-OPERATING-REVENUE> 4,263,820
<INCOME-TAX-EXPENSE> 55,262
<OTHER-OPERATING-EXPENSES> 4,062,352<F3>
<TOTAL-OPERATING-EXPENSES> 4,117,614
<OPERATING-INCOME-LOSS> 146,206
<OTHER-INCOME-NET> 15,476
<INCOME-BEFORE-INTEREST-EXPEN> 161,682
<TOTAL-INTEREST-EXPENSE> 59,280
<NET-INCOME> 102,402
4,585
<EARNINGS-AVAILABLE-FOR-COMM> 97,817
<COMMON-STOCK-DIVIDENDS> 77,807
<TOTAL-INTEREST-ON-BONDS> 37,605
<CASH-FLOW-OPERATIONS> 139,508
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
<FN>
<F1>Includes common stock expense of $1,285.
<F2>Represents unrealized loss on marketable
securities, net of taxes.
<F3>Includes equity in earnings of affiliates
of $21,014.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.01
LG&E Energy Corp. and Louisville Gas and Electric Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage such disclosures without the threat
of litigation providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying important
factors that could cause the actual results to differ materially from those
projected in the statement. Forward-looking statements have been and will be
made in written documents and oral presentations of LG&E Energy Corp. ("LG&E
Energy") and Louisville Gas and Electric Company ("LG&E") (collectively, the
"Companies"). Such statements are based on management's beliefs as well as
assumptions made by and information currently available to management. When
used in the Companies' documents or oral presentations, the words "anticipate,"
"estimate," "expect," "objective" 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 Companies' actual results to differ
materially from those contemplated in any forward-looking statements include,
among others, the following:
* Increased competition in the utility, natural gas and electric power
marketing industries, including effects of: decreasing margins as a result
of competitive pressures; industry restructuring initiatives; transmission
system operation and/or administration initiatives; recovery of
investments made under traditional regulation; nature of competitors
entering the industry; retail wheeling; a new pricing structure; and
former customers entering the generation market;
* Changing market conditions and a variety of other factors associated with
physical energy and financial trading activities including, but not
limited to, price, basis, credit, liquidity, volatility, capacity,
transmission, currency, interest rate and warranty risks;
* Risks associated with price risk management strategies intended to
mitigate exposure to adverse movement in the prices of electricity and
natural gas on both a global and regional basis;
* Legal, regulatory, economic and other factors which may result in
redetermination or cancellation of revenue payment streams under power
sales agreements resulting in reduced operating income and potential asset
impairment related to the Companies' investments in independent power
production ventures, as applicable;
* Economic conditions including inflation rates and monetary fluctuations;
* Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
the Companies have a financial interest;
1
<PAGE>
* Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services;
* Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, state public utility
commissions, state entities which regulate natural gas transmission,
gathering and processing and similar entities with regulatory oversight;
* Availability or cost of capital such as changes in: interest rates,
market perceptions of the utility and energy-related industries, the
Companies or any of their subsidiaries or security ratings;
* Factors affecting utility and non-utility operations such as unusual
weather conditions; catastrophic weather-related damage; unscheduled
generation outages, unusual maintenance or repairs; unanticipated changes
to fossil fuel, or gas supply costs or availability due to higher demand,
shortages, transportation problems or other developments; environmental
incidents; or electric transmission or gas pipeline system constraints;
* Employee workforce factors including changes in key executives, collective
bargaining agreements with union employees, or work stoppages;
* Rate-setting policies or procedures of regulatory entities, including
environmental externalities;
* Social attitudes regarding the utility, natural gas and power industries;
* Identification of suitable investment opportunities to enhance shareholder
returns and achieve long-term financial objectives through business
acquisitions;
* Some future project investments made by the Companies, respectively, as
applicable, could take the form of minority interests, which would limit
the Companies' ability to control the development or operation of the
project;
* Legal and regulatory delays and other unforeseeable obstacles associated
with mergers, acquisitions and investments in joint ventures;
* Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and matters, including but not
limited to those described in Note 16 (for LG&E Energy) and Note 12 (for
LG&E) of the respective Notes to Financial Statements of the Companies'
Annual Reports on Form 10-K for the year ended December 31, 1997, under
the caption Commitments and Contingencies;
2
<PAGE>
* Technological developments, changing markets and other factors that result
in competitive disadvantages and create the potential for impairment of
existing assets;
* Factors associated with non-regulated investments, including but not
limited to: continued viability of partners, foreign government actions,
foreign economic and currency risks, political instability in foreign
countries, partnership actions, competition, operating risks, dependence
on certain customers, third-party operators, suppliers and domestic and
foreign environmental and energy regulations;
* Other business or investment considerations that may be disclosed from
time to time in the Companies' Securities and Exchange Commission filings
or in other publicly disseminated written documents.
In addition, numerous matters associated with the proposed combination of LG&E
Energy and KU Energy Corporation, including:
* Regulatory authorities' decisions regarding business combination issues
including the approval of the business combination as proposed, the rate
structure of utility operating companies after the merger, transmission
system operation and administration, or divestiture of portions of LG&E
Energy's business;
* Qualification of the transaction as a pooling of interest;
* Factors affecting the anticipated cost savings including national and
regional economic conditions, national and regional competitive
conditions, inflation rates, weather conditions, financial market
conditions, and synergies resulting from the business combination;
* Allocation of benefits of cost savings between shareholders and customers,
which will depend, among other things, upon the results of regulatory
proceedings in various jurisdictions;
* Different or additional federal and state regulatory requirements or
restrictions to which LG&E Energy and its subsidiaries may be subject as a
result of the business combination (including conditions which may be
imposed in connection with obtaining the regulatory approvals necessary to
consummate the business combination);
* Factors affecting dividend policy including results of operations and
financial condition of LG&E Energy and its subsidiaries and such other
business considerations as LG&E Energy's Board of Directors considers
relevant.
The Companies undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
3
<PAGE>
EXHIBIT 99.02
DESCRIPTION OF LG&E ENERGY COMMON STOCK
The information under this caption is a succinct summary of certain provisions
and is subject to the detailed provisions of LG&E Energy's (the "Company's")
Restated Articles of Incorporation, as amended, and of its By-Laws, which have
been filed (or incorporated by reference) as exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, and which are
incorporated herein by this reference.
Authorized Stock
Under the Company's Articles of Incorporation, the Company is authorized to
issue 125,000,000 shares of Common Stock, without par value (the "Common
Stock"), of which approximately 66,527,636 shares were outstanding on February
17, 1998.
The Company is also authorized to issue 5,000,000 shares of preferred stock,
without par value (the "Preferred Stock"). As discussed below under the caption
"Rights to Purchase Series A Preferred Stock," the Company has created a series
of Preferred Stock designated as "Series A Preferred Stock," and the number of
shares constituting such series is 750,000. No shares of such Series A
Preferred Stock and no shares of any other Preferred Stock are currently
outstanding. Preferred Stock may be issued in the future in such series as may
be designated by the Company's Board of Directors. In creating any such series,
the Company's Board of Directors has the authority to fix the rights and
preferences of each series with respect to, among other things, the dividend
rate, redemption provisions, liquidation preferences, and sinking fund
provisions.
On October 14, 1997, the Company's shareholders approved an increase in the
Company's authorized shares of Common Stock from 125,000,000 to 300,000,000, in
conjunction with the Company's proposed merger (the "Merger") with KU Energy
Corporation ("KU Energy"). This increase will occur at the time of consummation
of such Merger.
Dividend Rights
Subject to the prior payment in full of all accrued and unpaid dividends on the
Series A Preferred Stock and possible prior rights of holders of other Preferred
Stock that may be issued in the future, holders of the Company's Common Stock
are entitled to receive such dividends as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.
The funds required by the Company to enable it to pay dividends on its Common
Stock are expected to be derived principally from dividends paid by Louisville
Gas and Electric Company, the Company's principal subsidiary ("LG&E"), on LG&E's
Common Stock. The Company's ability to receive dividends on LG&E's Common Stock
is subject to the prior rights of the holders of LG&E's preferred stock and the
covenants of debt instruments limiting the ability of LG&E to pay dividends.
1
<PAGE>
The only existing covenant limiting LG&E's ability to pay dividends is in LG&E's
trust indenture, as supplemented, securing LG&E's first mortgage bonds. It
provides in substance that retained income of LG&E equal to the amount by which
the aggregate of (a) provisions for retirement and depreciation and (b)
expenditures for maintenance, for the period from January 1, 1978, to the end of
the last preceding month for which a balance sheet of LG&E is available, is less
than 2.25% of depreciable property, including construction work in progress, as
of the end of that period, shall not be available for the payment of cash
dividends on the Common Stock of LG&E. No portion of retained income of LG&E is
presently restricted by this provision.
Voting Rights
Every holder of Common Stock and every holder of Series A Preferred Stock that
may be issued in the future is entitled to one vote per share for the election
of directors and upon all other matters on which such holder is entitled to
vote. At all elections of directors, any eligible shareholder may vote
cumulatively. The Board of Directors of the Company has the authority to fix
conversion and voting rights for any new series of Preferred Stock (including
the right to elect directors upon a failure to pay dividends), provided that no
share of Preferred Stock can have more than one vote per share.
Notwithstanding the foregoing, if any Series A Preferred Stock is issued in the
future and if and when dividends payable on such Series A Preferred Stock that
may be issued in the future shall be in default for six full quarterly dividends
and thereafter until all defaults shall have been paid, the holders of the
Series A Preferred Stock, voting separately as one class, to the exclusion of
the holders of Common Stock, will be entitled to elect two (2) directors of the
Company.
The Company's Articles of Incorporation contain "fair price" provisions, which
require that mergers and certain other business combinations or transactions
involving the Company and any substantial (10% or more) holder of the Company's
Voting Stock (as defined below) must be approved by the holders of at least 80%
of the voting power of the Company's outstanding Voting Stock and by the holders
of at least 66-2/3% of the voting power of the Company's Voting Stock not
beneficially owned by the 10% owner unless the transaction is either approved by
a majority of the members of the Board of Directors who are unaffiliated with
the substantial holder or certain minimum price and procedural requirements are
met. Any amendment to the foregoing provisions must be approved by the holders
of at least 80% of the voting power of the Company's outstanding Voting Stock
and by the holders of at least 66-2/3% of the voting power of the Company's
Voting Stock not beneficially owned by any 10% owner. The Company's Voting
Stock consists of all outstanding shares of the Company generally entitled to
vote in the election of directors and currently consists of the Company's Common
Stock.
Subject to the rights of the Series A Preferred Stock (if any are issued) to
elect directors under certain circumstances described above and any voting
rights of the holders of the Company's Preferred Stock that may be issued in the
future, the Company's Articles and By-Laws contain provisions stating that: (a)
the Board of Directors shall be divided into three classes, as nearly equal in
number as possible, each of which, after an interim arrangement, will serve for
three years, with one class being elected each year, (b) directors may be
removed only with the approval of the holders of at least 80% of the voting
power of the shares of the Company
2
<PAGE>
generally entitled to vote, except that so long as cumulative voting applies
no director may be removed if the votes cast against removal would be
sufficient to elect the director if cumulatively voted at an election of the
class of directors of which such director is a part, (c) any vacancy on the
Board of Directors shall be filled by the remaining directors then in office,
though less than a quorum, (d) advance notice of introduction by shareholders
of business at annual shareholders' meetings and of shareholder nominations
for the election of directors shall be given and that certain information be
provided with respect to such matters, (e) shareholder action may be taken
only by unanimous written consent or at an annual meeting of shareholders or
a special meeting of shareholders called by the President, the Board of
Directors or, to the extent required by Kentucky law, shareholders, and (f)
the foregoing provisions may be amended only by the approval of the holders
of at least 80% of the voting power of the shares of the Company generally
entitled to vote. These provisions along with the "fair price" provisions
and cumulative voting provisions discussed above and the Rights described
below, may deter attempts to change control of the Company (by proxy contest,
tender offer or otherwise) and will make more difficult a change in control
of the Company that is opposed by the Company's Board of Directors.
Liquidation Rights
Subject to the prior rights of the holders of the Series A Preferred Stock that
may be issued in the future and the possible prior rights of holders of other
Preferred Stock that may be issued in the future, in the event of liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of the Common Stock are entitled to the remaining assets.
Other Provisions
No holder of Common Stock or any future holder of Preferred Stock has the
preemptive right to subscribe for and purchase any part of any new or additional
issue of stock or securities convertible into stock. The Common Stock is not
subject to redemption and does not have any conversion or sinking fund
provisions. The issued and outstanding shares of Common Stock are fully paid
and nonassessable shares of Common Stock of the Company.
Under the Company's Articles of Incorporation, the Board of Directors may issue
additional shares of authorized but unissued Common Stock for such consideration
as it may from time to time determine.
Rights to Purchase Series A Preferred Stock
On December 5, 1990, the Board of Directors of the Company: (i) declared a
dividend distribution of one Preferred Stock purchase right (a "Right" or
"Rights") for each outstanding share of Common Stock to shareholders of record
on December 19, 1990, and issuable as of such Record Date and (ii) further
authorized the issuance of one Right with respect to each share of Common Stock
of the Company that becomes outstanding after such Record Date and before the
Distribution Date (as defined below).
The Company declared a three-for-two split of the Common Stock to shareholders
of record on
3
<PAGE>
April 30, 1992. As a result of the stock split and in accordance with the
terms of the Rights, the number of Rights associated with a share of Common
Stock was reduced, effective May 15, 1992, from one Right per share to
two-thirds of a Right per share. The Company declared a two-for-one split of
the Common Stock to shareholders of record on April 1, 1996. As a result of
the two-for-one split and in accordance with the terms of the Rights, the
number of Rights associated with a share of Common Stock was reduced from
two-thirds of a Right per share to one-third of a Right per share, effective
April 15, 1996.
On June 7, 1995, the Board of Directors approved the First Amendment to Rights
Agreement, whereby the definition of "Acquiring Person" (see below) was modified
to provide that an "Acquiring Person" shall be any person who has acquired, or
obtained the rights to acquire, beneficial ownership of 15% or more of the
outstanding Common Stock of the Company. The previous ownership threshold was
20%.
In connection with the Merger, on May 20, 1997, the Board of Directors approved
the Second Amendment to Rights Agreement so that the execution, delivery and
performance of the Merger Agreement and the LG&E Energy Stock Option Agreement
(as defined in the Second Amendment to Rights Agreement) will not cause any
Rights to become exercisable, cause KU Energy or any of its affiliates to become
an "Acquiring Person" or give rise to a "Distribution Date" or "Stock
Acquisition Date" (see below).
Each whole Right entitles the holder of record to purchase from the Company one
one-hundredth of a share of Series A Preferred Stock, without par value, of the
Company ("Series A Preferred Stock") at a price of $110 per one one-hundredth of
a share (the "Purchase Price"). The description and terms of the Rights are set
forth in the Rights Agreement, as amended (the "Rights Agreement").
Initially the Rights will not be exercisable, certificates will not be sent to
shareholders and the rights will automatically trade with the Common Stock.
The Rights will be evidenced by the Common Stock certificates until the close of
business on the earlier to occur of the tenth day following (i) a public
announcement (or, if earlier, the date a majority of the Board of Directors of
the Company becomes aware) that a person or group of affiliated or associated
persons has become an "Acquiring Person", which is defined as a person who has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Stock of the Company (the "Stock Acquisition Date"),
or (ii) the commencement of, or public announcement of an intention to commence,
a tender or exchange offer the consummation of which would result in the
ownership of 15% or more of the outstanding Common Stock (the earlier of the
dates in clause (i) or (ii) being called the "Distribution Date").
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a person who would otherwise be an "Acquiring
Person," has become such inadvertently and without any intention of changing or
influencing control of the Company, and such person, as promptly as practicable
after being advised of such determination, divests himself or itself of
beneficial ownership of a sufficient number of shares of Common Stock so that
such person would no longer be an "Acquiring Person," then such person shall not
be deemed to be an "Acquiring Person" for any purposes of the Rights Agreement.
Until the Distribution Date,
4
<PAGE>
(i) the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any
certificates for Common Stock outstanding will also constitute the transfer
of the Rights associated with the Common Stock represented by such
certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Company's Common Stock as of the close of business on the Distribution
Date, and such separate certificates alone will evidence the rights from and
after the Distribution Date.
Each of the following persons (an "Exempt Person") will not be deemed to be an
Acquiring Person, even if they have acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Common Stock of the
Company: (i) the Company, any subsidiary of the Company, any employee benefit
plan or employee stock plan of the Company or of any subsidiary of the Company;
and (ii) any person who becomes an Acquiring Person solely by virtue of a
reduction in the number of outstanding shares of Common Stock, unless and until
such person shall become the beneficial owner of, or make a tender offer for,
any additional shares of Common Stock.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on December 19, 2000, unless earlier redeemed or
exchanged by the Company as described below.
The Purchase Price payable, and the number of shares of Series A Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for Series A
Preferred Stock or convertible securities at less than the current market price
of the Series A Preferred Stock or (iii) upon the distribution to holders of the
Series A Preferred Stock of evidences of indebtedness or assets (excluding
dividends payable in Series A Preferred Stock) or of subscription rights or
warrants (other than those referred to above). The number of Rights associated
with a share of the Company's Common Stock is subject to adjustment from time to
time in the event of a stock dividend on, or a subdivision or combination of,
the Common Stock.
In the event any Person (other than an Exempt Person) becomes the beneficial
owner of 15% or more of the then outstanding shares of Common Stock (except
pursuant to an offer for all outstanding shares of Common Stock that the
independent directors determine to be fair to and otherwise in the best interest
of the Company and its shareholders) or any Exempt Person who is the beneficial
owner of 15% or more of the outstanding Common Stock fails to continue to
qualify as an Exempt Person, then each holder of record of a whole Right, other
than the Acquiring Person, will thereafter have the right to receive, upon
payment of the Purchase Price, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a market value at the time
of the transaction equal to twice the Purchase Price. However, Rights are not
exercisable following such event until such time as the Rights are no longer
5
<PAGE>
redeemable by the Company as set forth below. Any Rights that are or were at
any time, on or after the Distribution Date, beneficially owned by an
Acquiring Person shall become null and void.
For example, at an exercise price of $110 per Right, each whole Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $220 worth
of Common Stock (or other consideration, as noted above) for $110. Assuming
that the Common Stock had a per share value of $22 at such time, the holder of
each valid Right would be entitled to purchase 10 shares of Common Stock for
$110.
After the Rights have become exercisable, if the Company is acquired in a merger
or other business combination (in which any shares of the Company's Common Stock
are changed into or exchanged for other securities or assets) or more than 50%
of the assets or earning power of the Company and its subsidiaries (taken as a
whole) are sold or transferred in one or a series of related transactions, the
Rights Agreement provides that proper provision shall be made so that each
holder of record of a whole Right will have the right to receive, upon payment
of the Purchase Price, that number of shares of common stock of the acquiring
company having a market value at the time of such transaction equal to two times
the Purchase Price.
After any such event, to the extent that insufficient shares of Common Stock are
available for the exercise in full of the Rights, holders of Rights will receive
upon exercise shares of Common Stock to the extent available and then other
securities of the Company, including units of shares of Series A Preferred Stock
with rights substantially comparable to those of the Common Stock, property, or
cash, in proportions determined by the Company, so that the aggregate value
received is equal to twice the Purchase Price. The Company, however, shall not
be required to issue any cash, property or debt securities upon exercise of the
Rights to the extent their aggregate value would exceed the amount of cash the
Company would otherwise be entitled to receive upon exercise in full of the then
exercisable Rights.
No fractional shares of Series A Preferred Stock or Common Stock will be
required to be issued upon exercise of the Rights and, in lieu thereof, a
payment in cash may be made to the holder of such Rights equal to the same
fraction of the current market value of a share of Series A Preferred Stock or,
if applicable, Common Stock.
At any time until ten days after the Stock Acquisition Date (subject to
extension by the Board of Directors), the Company may redeem the Rights in
whole, but not in part, at a price of $0.01 per Right (subject to certain
anti-dilution adjustments) (the "Redemption Price"). After such redemption
period, the Company's right of redemption may be reinstated, under certain
circumstances, if an Acquiring Person reduces his beneficial ownership of
Common Stock to below 10% and there is no other Acquiring Person.
Immediately upon the action of the Board of Directors of the Company
authorizing redemption of the Rights, the right to exercise the rights will
terminate, and the only right of the holders of Rights will be to receive the
Redemption Price without any interest thereon.
The Board of Directors may, at its option, at any time after any Person becomes
an Acquiring
6
<PAGE>
Person, exchange all or part of the outstanding Rights (other than Rights
held by the Acquiring Person and certain related parties) for shares of
Common Stock at an exchange ratio of three (3) shares of Common Stock per
Right (subject to certain anti-dilution adjustments). However, the Board may
not effect such an exchange at any time any Person or group owns 50% or more
of the shares of Common Stock then outstanding. Immediately after the Board
orders such an exchange, the right to exercise the Rights shall terminate and
the holders of Rights shall thereafter only be entitled to receive shares of
Common Stock at the applicable exchange ratio.
The Board of Directors of the Company may amend the Rights Agreement. After the
Distribution Date, however, the provisions of the Rights Agreement may be
amended by the Board only to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person or an affiliate or associate of an Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable. In addition, no
supplement or amendment may be made which changes the Redemption Price, the
final expiration date, the Purchase Price or the number one one-hundredths of a
share of Series A Preferred Stock for which a Right is exercisable, unless at
the time of such supplement or amendment there has been no occurrence of a Stock
Acquisition Date and such supplement or amendment does not adversely affect the
interests of the holders of Rights (other than an Acquiring Person or an
associate or affiliate of an Acquiring Person).
Until a Right is exercised, the holder, as such, will have no rights as a
shareholder of the Company, including, without limitation, the right to vote or
to receive dividends.
The issuance of the Rights is not taxable to the Company or to shareholders
under presently existing federal income tax law, and will not change the way in
which shareholders can presently trade the Company's shares of Common Stock. If
the Rights should become exercisable, shareholders, depending on then existing
circumstances, may recognize taxable income.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors and, accordingly, will make more
difficult a change of control that is opposed by the Company's Board of
Directors. However, the Rights should not interfere with a proposed change of
control (including a merger or other business combination) approved by a
majority of the Board of Directors since the Rights may be redeemed by the
Company at the Redemption Price at any time until ten days after the Stock
Acquisition Date (subject to extension by the Board of Directors). Thus, the
Rights are intended to encourage persons who may seek to acquire control of the
Company to initiate such an acquisition through negotiations with the Board of
Directors. Nevertheless, the Rights also may discourage a third party from
making a partial tender offer or otherwise attempting to obtain a substantial
equity position in, or seeking to obtain control of, the Company. To the extent
any potential acquirors are deterred by the Rights, the Rights may have the
effect of preserving incumbent management in office.
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to the Company's Registration Statement on Form S-8,
Registration No. 33-38557. A
7
<PAGE>
copy of the First Amendment to Rights Agreement has been filed with the SEC
as an Exhibit to the Company's Registration Statement on Form 8-A/A,
Registration No. 1-10568, filed on June 20, 1995. A copy of the Second
Amendment to Rights Agreement has been filed with the SEC as an Exhibit to
the Company's Registration Statement on Form S-4, Registration No. 333-34219.
This summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, as
amended, which is incorporated in this summary description herein by
reference.
Miscellaneous
The Company's outstanding Common Stock is listed on the New York and Chicago
Stock Exchanges.
Transfer Agents and Registrar
The Transfer Agents for the Common Stock are the Company and Harris Trust and
Savings Bank, Chicago, Illinois (effective April 1998). Registrars for the
Common Stock are PNC Bank, Kentucky, Inc., Louisville, Kentucky, and Harris
Trust and Savings Bank, Chicago, Illinois.
8
