<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KU ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$267,505
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(2) Form, Schedule or Registration Statement No.:
Preliminary Schedule 14A and S-4 Registration Statement No. 333-34219
-------------------------------------------------------------------------
(3) Filing Party:
LG&E Energy Corp. and KU Energy Corporation
-------------------------------------------------------------------------
(4) Date Filed:
June 27, 1997 and August 22, 1997
-------------------------------------------------------------------------
Notes:
<PAGE>
LOGO
LOGO
August 22, 1997
LOGO
Dear KU Energy Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of KU
Energy Corporation, a Kentucky corporation ("KU Energy"), which will be held on
October 14, 1997, in the Second Floor Assembly Room at the offices of KU
Energy, One Quality Street, Lexington, Kentucky. The meeting will start at 1:30
p.m., Lexington (Kentucky) time.
At this important meeting, KU Energy shareholders will be asked to approve a
merger agreement (the "Merger Agreement") relating to the merger (the "Merger")
of KU Energy with LG&E Energy Corp., a Kentucky corporation ("LG&E Energy").
Under the terms of the Merger Agreement, KU Energy will be merged into LG&E
Energy, with LG&E Energy as the surviving corporation. As a result of the
Merger, LG&E Energy will become the parent company of KU Energy's principal
operating subsidiary, Kentucky Utilities Company, and will continue as the
parent company of Louisville Gas and Electric Company, the electric and gas
utility subsidiary of LG&E Energy, as well as LG&E Energy's various non-utility
subsidiaries.
Upon completion of the Merger, each outstanding share of KU Energy common
stock will be exchanged for 1.67 shares of common stock of LG&E Energy (the
"Exchange Ratio"). The Exchange Ratio represents a 34 percent premium per KU
Energy common share, based on the respective closing market prices of KU Energy
and LG&E Energy common stock on the trading day preceding the announcement of
the Merger Agreement. It is anticipated that LG&E Energy will continue its
common share dividend payment level at the time the Merger is completed. Based
on current annual dividend levels, this would represent a 9% increase in the
dividend rate for current KU Energy shareholders.
Based upon the number of shares of common stock of KU Energy and LG&E Energy
outstanding at the time the Merger Agreement was signed, upon completion of the
Merger, approximately 48.7% of the then outstanding LG&E Energy common stock
will be owned by former KU Energy shareholders and approximately 51.3% of the
then outstanding LG&E Energy common stock will be owned by those who were
shareholders of LG&E Energy prior to the Merger.
On May 20, 1997, your Board of Directors received the oral opinion of its
financial advisor, Goldman, Sachs & Co. (which was subsequently confirmed in
writing on that date and on the date hereof), that as of such dates and based
on the factors and assumptions described therein, the Exchange Ratio is fair to
the holders of KU Energy common stock.
Your Board of Directors believes that this transaction will create a combined
enterprise well positioned for an increasingly competitive energy industry
environment, benefiting not only shareholders but also customers, employees and
the communities served by our respective utility companies. The new combined
company will possess meaningful strategic advantages. These include continued
highly competitive low rates for our utility customers, with a proposed further
reduction in customer bills and a rate freeze. The combined company will also
enjoy increased financial strength as well as greater opportunities for
earnings and dividend growth through the pooling of KU Energy and LG&E Energy
equity, management, human resources and technical expertise.
<PAGE>
Approval of the Merger Agreement by shareholders of KU Energy and LG&E Energy
is a condition to the consummation of the transaction. The transaction will be
consummated only after certain regulatory approvals are received and other
conditions are satisfied or waived. It is presently anticipated that this will
occur during the second half of 1998.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT THEY ARE IN THE BEST
INTERESTS OF KU ENERGY AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Your vote is important no matter how many shares you hold. Even if you plan
to attend the meeting, we urge you to mark, sign and date the enclosed proxy
and return it promptly. The giving of a proxy will not prevent a shareholder
from voting in person at the meeting.
IF YOU DO NOT VOTE AT THE MEETING IN PERSON OR BY PROXY, IT WILL HAVE THE
SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER AGREEMENT.
The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of KU Energy common stock, and describes the matters to be
acted upon at the Special Meeting. Shareholders are urged to review carefully
the attached Joint Proxy Statement/Prospectus, which contains a detailed
description of the Merger Agreement, the terms and conditions thereof and the
transactions contemplated thereby.
Promptly after the Merger is consummated, a letter of transmittal will be
mailed to each holder of record of shares of KU Energy common stock, as
described in more detail in the accompanying Joint Proxy Statement/Prospectus.
PLEASE DO NOT SEND YOUR KU ENERGY COMMON STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD OR TO THE EXCHANGE AGENT UNLESS AND UNTIL YOU RECEIVE THE LETTER OF
TRANSMITTAL, WHICH WILL INCLUDE INSTRUCTIONS AS TO THE PROCEDURE TO BE USED IN
SENDING YOUR KU ENERGY COMMON STOCK CERTIFICATES.
Sincerely,
/s/ Michael R. Whitley
Michael R. Whitley
Chairman, President and Chief
Executive Officer
<PAGE>
KU ENERGY CORPORATION
One Quality Street
Lexington, KY 40507-1462
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of KU Energy Corporation ("KU Energy")
will be held in the Second Floor Assembly Room at the offices of KU Energy,
One Quality Street, Lexington, Kentucky, on October 14, 1997 at 1:30 p.m.,
Lexington (Kentucky) Time, for the following purpose:
To consider and vote upon a proposal to adopt and approve the Agreement
and Plan of Merger (the "Merger Agreement"), dated as of May 20, 1997,
between LG&E Energy Corp. and KU Energy, a copy of which is attached as
Annex A to the accompanying Joint Proxy Statement/Prospectus.
For further information with respect to the foregoing, reference is made to
the attached Joint Proxy Statement/Prospectus.
Only holders of Common Stock of KU Energy of record on its books at the
close of business on August 8, 1997, are entitled to vote at the Special
Meeting. All such shareholders of record are requested to be represented at
the Special Meeting, either in person or by proxy.
Approval of the Merger Agreement by KU Energy shareholders is a condition to
consummation of the transactions contemplated by the Merger Agreement.
If the Merger is consummated, holders of KU Energy common stock who have
complied with the requirements of the Kentucky Business Corporation Act will
have certain dissenters' rights under Kentucky law, if they wish to assert
such rights, as described in more detail in the accompanying Joint Proxy
Statement/Prospectus, which includes, as Annex J, a copy of the dissenters'
rights provisions of the Kentucky Business Corporation Act. KU Energy will
provide a copy of Annex J to any shareholder entitled to vote at the Special
Meeting upon request of that shareholder.
By order of the Board of Directors,
/s/ George S. Brooks II
George S. Brooks II
General Counsel and Secretary
August 22, 1997
----------------
SHAREHOLDERS WHO CANNOT ATTEND THE SPECIAL MEETING IN PERSON ARE REQUESTED
TO DATE AND SIGN THEIR PROXIES AND RETURN THEM TO KU ENERGY IN THE ENCLOSED
ENVELOPE, AS PROMPTLY AS POSSIBLE. THE BOARD OF DIRECTORS DESIRES THE
REPRESENTATION OF ALL SHAREHOLDERS AT THE SPECIAL MEETING, WHETHER THEIR
HOLDINGS ARE SMALL OR LARGE.
<PAGE>
JOINT PROXY STATEMENT
OF
LG&E ENERGY CORP.
AND
KU ENERGY CORPORATION
----------------
PROSPECTUS
OF
LG&E ENERGY CORP.
This Joint Proxy Statement/Prospectus relates to the proposed merger and
certain related transactions contemplated by the Agreement and Plan of Merger,
dated as of May 20, 1997 (the "Merger Agreement"), by and between LG&E Energy
Corp., a Kentucky corporation ("LG&E Energy"), and KU Energy Corporation, a
Kentucky corporation ("KU Energy").
The Merger Agreement provides for the merger of KU Energy with and into LG&E
Energy (the "Merger"), with LG&E Energy as the surviving corporation. Pursuant
to the Merger Agreement, upon effectiveness of the Merger, each issued and
outstanding share of common stock, no par value, of KU Energy ("KU Energy
Common Stock") (except shares held by KU Energy shareholders who perfect
dissenters' rights with respect thereto ("KU Energy Dissenting Shares")),
together with associated stock purchase rights, will be cancelled and
converted into 1.67 shares (the "Exchange Ratio") of common stock, without par
value, of LG&E Energy ("LG&E Energy Common Stock"), together with associated
stock purchase rights. Each issued and outstanding share of LG&E Energy Common
Stock (except shares held by LG&E Energy shareholders who perfect dissenters'
rights with respect thereto ("LG&E Energy Dissenting Shares")) will remain
outstanding, unchanged, as one share of LG&E Energy Common Stock. Based on the
capitalization of LG&E Energy and KU Energy at May 20, 1997 and the Exchange
Ratio, holders of LG&E Energy Common Stock and KU Energy Common Stock would
have held approximately 51.3% and 48.7%, respectively, of the aggregate number
of shares of LG&E Energy Common Stock that would have been outstanding if the
Merger had been consummated as of such date.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Joint Proxy Statement/Prospectus is August 22, 1997. This
Joint Proxy Statement/ Prospectus is first being mailed to the shareholders of
LG&E Energy and KU Energy on or about August 29, 1997.
This Joint Proxy Statement/Prospectus constitutes a prospectus of LG&E
Energy filed as part of the Registration Statement (as defined herein) with
respect to up to 63,990,254 shares of LG&E Energy Common Stock, together with
associated stock purchase rights, to be issued pursuant to or as contemplated
by the Merger Agreement.
This Joint Proxy Statement/Prospectus is being furnished to the common
shareholders of LG&E Energy in connection with the solicitation of proxies by
the Board of Directors of LG&E Energy (the "LG&E Energy Board") for use at the
special meeting of LG&E Energy common shareholders (the "LG&E Energy Meeting")
<PAGE>
to be held at 10:00 a.m. on October 14, 1997 at The Medallion Ballroom in The
Seelbach Hotel, Louisville, Kentucky, and at any adjournment or postponement
thereof. At the LG&E Energy Meeting, holders of LG&E Energy Common Stock will
consider and vote upon proposals to adopt and approve the Merger Agreement and
transactions contemplated thereby, including the issuance of shares of LG&E
Energy Common Stock pursuant to the terms of the Merger Agreement, and to
approve an amendment to the Restated Articles of Incorporation of LG&E Energy
(the "LG&E Energy Articles") described herein.
This Joint Proxy Statement/Prospectus is also being furnished to the common
shareholders of KU Energy in connection with the solicitation of proxies by
the Board of Directors of KU Energy (the "KU Energy Board") for use at the
special meeting of KU Energy common shareholders (the "KU Energy Meeting") to
be held at 1:30 p.m. on October 14, 1997 in the Second Floor Assembly Room at
the offices of KU Energy, One Quality Street, Lexington, Kentucky, and at any
adjournment or postponement thereof. At the KU Energy Meeting, holders of KU
Energy Common Stock will consider and vote upon a proposal to adopt and
approve the Merger Agreement.
All information herein with respect to LG&E Energy has been furnished by
LG&E Energy and all information herein with respect to KU Energy has been
furnished by KU Energy.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction, to or from any person to whom or from whom it is unlawful to
make such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this Joint Proxy Statement/Prospectus
nor any distribution of securities pursuant to this Joint Proxy
Statement/Prospectus shall, under any circumstances, create an implication
that there has been no change in the affairs of LG&E Energy or KU Energy or in
the information set forth herein since the date of this Joint Proxy
Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of KU Energy upon consummation of
the Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
AVAILABLE INFORMATION
Each of LG&E Energy and KU Energy is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, accordingly, files reports, proxy statements and other information
with the Securities and Exchange Commission ("SEC"). Such reports, proxy
statements and other information filed with the SEC are available for
inspection and copying at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such documents may
also be obtained from the Public Reference Room of the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, any such material and other information concerning LG&E Energy and
KU Energy can be inspected at the New York Stock Exchange, Inc. (the "NYSE"),
20 Broad Street, 7th Floor, New York, New York 10005, on which exchange the
LG&E Energy Common Stock and the KU Energy Common Stock are listed. Such
material and other information concerning LG&E Energy can also be inspected at
the Chicago Stock Exchange, Inc. (the "CSE"), 440 South LaSalle Street,
Chicago, Illinois 60605, on which exchange the LG&E Energy Common Stock is
also listed, and such material and other information concerning KU Energy can
be inspected at the Pacific Exchange (the "PE"), 301 Pine Street, San
Francisco, California 94104, on which exchange the KU Energy Common Stock is
also listed. In addition, electronically filed documents, including reports,
proxy statements and other information regarding LG&E Energy and KU Energy,
can be obtained from the SEC's website at http://www.sec.gov.
2
<PAGE>
LG&E Energy has filed a registration statement on Form S-4 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") with
the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of LG&E Energy Common Stock to be issued
pursuant to or as contemplated by the Merger. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. The Registration Statement is available
for inspection and copying as set forth above. Statements contained in this
Joint Proxy Statement/Prospectus or in any document incorporated by reference
in this Joint Proxy Statement/Prospectus as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO LG&E ENERGY,
CHARLES A. MARKEL, TREASURER, LG&E ENERGY CORP., 220 W. MAIN STREET,
LOUISVILLE, KENTUCKY 40202, (502) 627-2203 AND, IN THE CASE OF DOCUMENTS
RELATING TO KU ENERGY, WILLIAM N. ENGLISH, TREASURER, KU ENERGY CORPORATION,
ONE QUALITY STREET, LEXINGTON, KENTUCKY 40507, (606) 367-1120. TO ENSURE TIMELY
DELIVERY OF LG&E ENERGY DOCUMENTS, ANY REQUEST TO LG&E ENERGY SHOULD BE MADE BY
OCTOBER 7, 1997. TO ENSURE TIMELY DELIVERY OF KU ENERGY DOCUMENTS, ANY REQUEST
TO KU ENERGY SHOULD BE MADE BY OCTOBER 7, 1997.
LG&E Energy and KU Energy hereby undertake to provide without charge to each
person, including any beneficial owner, to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered, upon the written or oral request of
such person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy (without exhibits, except those
specifically incorporated by reference) of any and all of the documents
referred to below which have been or may be incorporated in this Joint Proxy
Statement/Prospectus by reference. Requests for such documents should be
directed to the persons indicated above.
The following documents, previously filed with the SEC by LG&E Energy or KU
Energy pursuant to the Exchange Act, are hereby incorporated by reference:
1. LG&E Energy's Annual Report on Form 10-K for the year ended December 31,
1996.
2. LG&E Energy's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
3. LG&E Energy's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
4. LG&E Energy's Current Reports on Form 8-K dated January 6, 1997,
February 10, 1997, February 14, 1997, February 25, 1997, March 20, 1997,
April 28, 1997, May 22, 1997 and May 30, 1997.
5. KU Energy's Annual Report on Form 10-K for the year ended December 31,
1996.
6. KU Energy's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
7. KU Energy's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
8. KU Energy's Current Reports on Form 8-K dated May 21, 1997 and May 30,
1997.
In lieu of incorporating by reference the description of (i) LG&E Energy
Common Stock contained as Exhibit 99.02 to LG&E Energy's Annual Report on Form
10-K for the year ended December 31, 1996, which updates the description of
LG&E Energy Common Stock incorporated by reference in LG&E Energy's
Registration Statement on Form 8-B dated June 22, 1990, and (ii) LG&E Energy
Rights to Purchase Series A Preferred Stock contained in Exhibit 99.02 to LG&E
Energy's Annual Report on Form 10-K for the year ended December 31, 1996, which
updates the description of LG&E Energy Rights to Purchase Series A Preferred
Stock which is contained in LG&E Energy's Registration Statement on Form 8-A
dated December 5, 1990, as amended December 17, 1990, June 20, 1995 and May 22,
1997, such description is included in this Joint Proxy Statement/Prospectus.
See "Description of LG&E Energy Capital Stock."
3
<PAGE>
The information relating to LG&E Energy and KU Energy contained in this Joint
Proxy Statement/Prospectus does not purport to be comprehensive and should be
read together with the information in the documents incorporated by reference
herein.
All documents filed by LG&E Energy and KU Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
date of the LG&E Energy Meeting on October 14, 1997, and any adjournment or
postponement thereof, or the KU Energy Meeting on October 14, 1997 and any
adjournment or postponement thereof, respectively, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION BY REFERENCE................................................ 3
TABLE OF CONTENTS......................................................... 5
INDEX OF DEFINED TERMS.................................................... 8
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS............................... 12
The Parties............................................................. 12
The Meetings............................................................ 12
Required Vote........................................................... 13
The Merger.............................................................. 13
Exchange of Stock Certificates.......................................... 15
Stock Option Agreements................................................. 15
Treatment of Shares; Exchange Ratio..................................... 16
Background.............................................................. 16
Reasons for the Merger.................................................. 16
Recommendations of the Boards of Directors.............................. 17
Opinions of Financial Advisors.......................................... 18
Interests of Certain Persons in the Merger.............................. 18
Management of LG&E Energy............................................... 19
Conditions to the Merger................................................ 20
Rights to Terminate, Amend or Waive Conditions.......................... 20
Certain Federal Income Tax Consequences................................. 21
Operations After the Merger............................................. 21
Regulatory Matters...................................................... 22
Accounting Treatment.................................................... 22
Dissenters' Rights...................................................... 22
Dividends............................................................... 23
Amendment to LG&E Energy Articles....................................... 23
Comparison of Rights of KU Energy Shareholders.......................... 23
SELECTED HISTORICAL AND PRO FORMA DATA.................................... 23
Selected Historical Financial and Market Data........................... 23
Selected Unaudited Pro Forma Financial Data............................. 26
Comparative Market Prices and Dividends................................. 30
Cautionary Statement Concerning Forward-Looking Statements.............. 31
MEETINGS, VOTING AND PROXIES.............................................. 32
LG&E Energy Meeting..................................................... 32
KU Energy Meeting....................................................... 34
THE MERGER................................................................ 35
Background of the Merger................................................ 35
Reasons for the Merger; Recommendations of the Boards of Directors...... 42
Opinions of Financial Advisors.......................................... 46
Interests of Certain Persons in the Merger.............................. 56
Certain Arrangements Regarding the Directors and Management of LG&E
Energy Following the Merger............................................ 57
Employment Agreements................................................... 57
Employee Plans and Severance Arrangements............................... 59
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividend Reinvestment Plan.............................................. 61
Certain Federal Income Tax Consequences................................. 61
Accounting Treatment.................................................... 62
Stock Exchange Listing of LG&E Energy Common Stock...................... 62
Federal Securities Law Consequences..................................... 63
Dissenters' Rights...................................................... 63
REGULATORY MATTERS........................................................ 64
THE MERGER AGREEMENT...................................................... 66
The Merger.............................................................. 66
Direct Subsidiaries and Unrestricted Subsidiaries....................... 68
Representations and Warranties.......................................... 68
Certain Covenants....................................................... 69
No Solicitation of Transactions......................................... 70
LG&E Energy Board of Directors.......................................... 71
Indemnification......................................................... 71
Conditions to Each Party's Obligation to Effect the Merger.............. 72
Benefit Plans........................................................... 73
Termination............................................................. 73
Termination Fees........................................................ 75
Expenses................................................................ 76
Amendment and Waiver.................................................... 76
Standstill Provisions................................................... 76
THE STOCK OPTION AGREEMENTS............................................... 76
General................................................................. 76
Certain Repurchases..................................................... 77
Voting.................................................................. 78
Restrictions on Transfer................................................ 78
Registration Rights..................................................... 78
AMENDMENT TO LG&E ENERGY ARTICLES OF INCORPORATION........................ 78
DESCRIPTION OF LG&E ENERGY CAPITAL STOCK.................................. 79
General................................................................. 79
Preferred Stock......................................................... 80
Dividend Rights......................................................... 80
Voting Rights........................................................... 81
Liquidation Rights...................................................... 81
Other Provisions........................................................ 82
Rights to Purchase Series A Preferred Stock............................. 82
Miscellaneous........................................................... 85
Transfer Agents and Registrar........................................... 85
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 86
Comparison of LG&E Energy's Rights Agreement to KU Energy's Rights
Agreement.............................................................. 86
Comparison of LG&E Energy Articles and Bylaws to KU Energy Articles and
Bylaws................................................................. 86
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 89
SELECTED INFORMATION CONCERNING KU ENERGY AND LG&E ENERGY................. 98
Business of KU Energy................................................... 98
Business of LG&E Energy................................................. 98
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Certain Business Relationships Between Kentucky Utilities and LG&E...... 98
LG&E ENERGY FOLLOWING THE MERGER.......................................... 99
Management of LG&E Energy After the Merger.............................. 100
Operations.............................................................. 101
Dividends............................................................... 101
EXPERTS................................................................... 102
LEGAL MATTERS............................................................. 102
SHAREHOLDER PROPOSALS..................................................... 102
ANNEX A--Agreement and Plan of Merger.................................. A-1
ANNEX B--LG&E Energy Corp. Stock Option Agreement...................... B-1
ANNEX C--KU Energy Corporation Stock Option Agreement.................. C-1
ANNEX D--Employment Agreement of Roger W. Hale......................... D-1
ANNEX E--Employment Agreement of Michael R. Whitley.................... E-1
ANNEX F--Opinion of The Blackstone Group L.P. ......................... F-1
ANNEX G--Opinion of Goldman, Sachs & Co. .............................. G-1
ANNEX H--Form of Amended and Restated Articles of Incorporation of LG&E
Energy Corp........................................................... H-1
ANNEX I--Form of LG&E Energy Corp. Bylaws.............................. I-1
ANNEX J--Kentucky Dissenters' Right Statute............................ J-1
</TABLE>
7
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
--1--
<S> <C>
1935 Act................................................................... 21
1992 Act................................................................... 35
--A--
Acquiring Person........................................................... 82
Anticipated Synergies...................................................... 52
Antitrust Division......................................................... 66
--B--
Big Rivers................................................................. 98
Blackstone................................................................. 18
Blackstone Engagement Letter............................................... 51
Business Combination....................................................... 74
Business Combination Proposal.............................................. 71
--C--
Closing.................................................................... 67
Closing Date............................................................... 67
Code....................................................................... 21
Comparable Companies....................................................... 48
Comparable Transactions.................................................... 50
Confidentiality Agreement.................................................. 74
Continuation Period........................................................ 58
CSE........................................................................ 2
--D--
D&T Consulting Group....................................................... 39
Direct Subsidiaries........................................................ 68
Director Deferred Compensation Plans....................................... 60
Director Retirement Plans.................................................. 60
Dissenters' Notice......................................................... 63
Distribution Date.......................................................... 83
--E--
E.P.S...................................................................... 48
EBIT....................................................................... 48
EBITDA..................................................................... 48
EEI........................................................................ 12
Effective Time............................................................. 14
Employment Agreements...................................................... 18
Engagement Fee............................................................. 51
EPS........................................................................ 53
ERISA...................................................................... 69
EWGs....................................................................... 35
Exchange Act............................................................... 2
Exchange Agent............................................................. 68
Exchange Ratio............................................................. 1
Executive.................................................................. 57
Exempt Person.............................................................. 83
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
--F--
<S> <C>
Forecasts................................................................ 52
Fair Market Value........................................................ 77
FERC..................................................................... 22
FERC Application......................................................... 66
Free Cash Flow........................................................... 48
FTC...................................................................... 66
--G--
Goldman Sachs............................................................ 18
Goldman Sachs Engagement Letter.......................................... 56
Goldman Selected Transactions............................................ 54
--H--
HSR Act.................................................................. 22
--I--
IBES..................................................................... 48, 53
IBES Case................................................................ 50
Indemnified Parties...................................................... 71
Issuer................................................................... 77
--K--
KBCA..................................................................... 13
Kentucky Commission...................................................... 64
Kentucky Utilities....................................................... 12
KU Capital............................................................... 12
KU Director Deferred Compensation Plans.................................. 19
KU Director Retirement Program........................................... 19
KU Energy................................................................ 1
KU Energy Board.......................................................... 2
KU Energy Certificates................................................... 15
KU Energy Common Stock................................................... 1
KU Energy Dissenting Shares.............................................. 1
KU Energy Meeting........................................................ 2
KU Energy Option......................................................... 15
KU Energy Record Date.................................................... 13
KU Energy Reinvestment Plan.............................................. 34
KU Energy Rights......................................................... 14
KU Energy Stock Award.................................................... 73
KU Energy Stock Option Agreement......................................... 15
KU Energy Subsidiaries................................................... 68
KU ESOP.................................................................. 34
KU Preferred Stock....................................................... 23
KU Savings Plan.......................................................... 34
--L--
LG&E..................................................................... 12
LG&E Energy.............................................................. 1
LG&E Energy Articles..................................................... 2
LG&E Energy Articles Amendment........................................... 13
LG&E Energy Board........................................................ 1, 18
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
LG&E Energy Bylaws....................................................... 13, 80
LG&E Energy Common Stock................................................. 1
LG&E Energy Dissenting Shares............................................ 1
LG&E Energy DRIP......................................................... 33
LG&E Energy Meeting...................................................... 1
LG&E Energy Option....................................................... 15
LG&E Energy Record Date.................................................. 13
LG&E Energy Rights....................................................... 14
LG&E Energy Rights Agreement............................................. 82
LG&E Energy Stock Option Agreement....................................... 15
LG&E Energy Subsidiaries................................................. 68
LG&E ESOP................................................................ 33
LG&E Preferred Stock..................................................... 23
LTM...................................................................... 48
--M--
Management Case.......................................................... 50
Management Estimates..................................................... 54
Market Price............................................................. 77
Market/Offer Price....................................................... 77
Merger................................................................... 1
Merger Agreement......................................................... 1
Merger Approval Fee...................................................... 51
Merger Execution Fee..................................................... 51
Monthly Retainer Fee..................................................... 51
--N--
Notice Date.............................................................. 77
NYSE..................................................................... 2
--O--
Offer Price.............................................................. 77
Option................................................................... 76
Option Holder............................................................ 76
Option Shares............................................................ 76
Options.................................................................. 15
OVEC..................................................................... 99
--P--
P/E...................................................................... 53
payment demand........................................................... 64
Payor.................................................................... 75
PE....................................................................... 2
PP&E..................................................................... 48
Preferred Stock.......................................................... 80
Projection Period........................................................ 49
Purchase Price........................................................... 82
--R--
Redemption Price......................................................... 84
Registration Statement................................................... 3
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Repurchase Period........................................................ 77
Restricted Shares........................................................ 78
Right.................................................................... 86
Right Certificates....................................................... 83
--S--
SEC...................................................................... 2
Securities Act........................................................... 3
Selected KU Comparables.................................................. 53
Selected LG&E Comparables................................................ 53
September 13 Letter...................................................... 37
Stock Acquisition Date................................................... 83
Stock Option Agreements.................................................. 15
Street Estimates......................................................... 54
Success Fee.............................................................. 56
Synergies................................................................ 49
--T--
Tennessee Authority...................................................... 64
TEV...................................................................... 48
Trigger Event............................................................ 75, 77
--U--
Unrestricted Subsidiaries................................................ 68
--V--
Virginia Commission...................................................... 64
</TABLE>
11
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
The following is a summary of certain important terms and conditions of the
Merger and related information. This summary does not purport to be complete
and is qualified in its entirety by reference to the more detailed information
appearing in this Joint Proxy Statement/Prospectus, the Annexes and the
documents incorporated herein by reference. Shareholders are urged to read this
Joint Proxy Statement/Prospectus and the Annexes in their entirety.
THE PARTIES
LG&E Energy. LG&E Energy is a holding company engaged, through its
subsidiaries, in retail utility services, energy marketing and trading, power
generation and project development. LG&E Energy owns Louisville Gas and
Electric Company ("LG&E"), which is an operating public utility that supplies
natural gas to approximately 277,000 customers and electricity to approximately
351,000 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 800,000. 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 remove sulfur dioxide, produce most of the
LG&E electricity; the remainder is generated by a hydroelectric power plant and
combustion turbines. Through its non-utility subsidiaries, LG&E Energy has
interests in and operates electric power plants in several states, Argentina
and Spain and two gas distribution companies in Mendoza and Cordoba provinces
in Argentina. LG&E Energy also is actively involved through its non-utility
subsidiaries in energy marketing and trading and, for the year ended December
31, 1996, was the largest utility-affiliated power marketer in the United
States. The principal executive office of LG&E Energy is, and after the
Effective Time (as defined herein) will be, located at 220 W. Main Street,
Louisville, Kentucky 40202, phone 502-627-2000. See "Selected Information
Concerning LG&E Energy and KU Energy--Business of LG&E Energy" and "LG&E Energy
Following the Merger--Operations."
KU Energy. KU Energy is a holding company, with two-wholly owned
subsidiaries, Kentucky Utilities Company ("Kentucky Utilities") and KU Capital
Corporation ("KU Capital"). Kentucky Utilities is a public utility that
provides electricity to approximately 432,900 customers in over 600 communities
and adjacent suburban and rural areas in 77 counties in central, southeastern
and western Kentucky, and to about 28,800 customers in five counties in
southwestern Virginia. In Virginia, Kentucky Utilities operates under the name
Old Dominion Power Company. The territory served by Kentucky Utilities has an
aggregate population estimated at about 1,000,000, which includes Lexington,
Kentucky. The territory served includes most of the Bluegrass Region of central
Kentucky and parts of the coal mining areas in southeastern and western
Kentucky and southwestern Virginia. KU Capital is KU Energy's vehicle for
investments in various non-utility energy related ventures. Kentucky Utilities
owns 20% of the common stock of Electric Energy Inc. ("EEI"), which owns and
operates a 1,000 megawatt coal-fired electric generating station in Joppa,
Illinois. The remaining 80% is owned by three unaffiliated public utilities or
public utility holding companies.
The principal executive office of KU Energy and Kentucky Utilities is, and
the principal executive office of Kentucky Utilities after the Effective Time
will be, located at One Quality Street, Lexington, Kentucky 40507, phone (606)
255-2100. See "Selected Information Concerning KU Energy and LG&E Energy--
Business of KU Energy."
THE MEETINGS
LG&E Energy. At the LG&E Energy Meeting, the holders of LG&E Energy Common
Stock will be asked to consider and vote upon proposals (i) to adopt and
approve the Merger Agreement and the transactions contemplated thereby,
including, among other things, the issuance of LG&E Energy Common Stock
pursuant to the terms of the Merger Agreement and (ii) to approve the amendment
to the LG&E Energy Articles to increase the amount of authorized LG&E Energy
Common Stock from 125,000,000 shares to 300,000,000 shares, thereby
12
<PAGE>
increasing LG&E Energy's authorized capitalization from 130,000,000 shares to
305,000,000 shares (which includes the 5,000,000 shares of preferred stock
presently authorized) (the "LG&E Energy Articles Amendment"). Pursuant to the
Merger Agreement, consummation of the Merger is conditioned upon approval of
both proposals (i) and (ii) above.
The LG&E Energy Meeting is scheduled to be held at 10:00 a.m., local time, on
October 14, 1997 at The Medallion Ballroom in The Seelbach Hotel, Louisville,
Kentucky. The LG&E Energy Board has fixed the close of business on August 8,
1997 as the record date (the "LG&E Energy Record Date") for the determination
of holders of LG&E Energy Common Stock entitled to notice of and to vote at the
LG&E Energy Meeting.
THE LG&E ENERGY BOARD, BY A UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE LG&E ENERGY
ARTICLES AMENDMENT, AND RECOMMENDS THAT LG&E ENERGY'S SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE LG&E ENERGY ARTICLES
AMENDMENT.
KU Energy. At the KU Energy Meeting, the holders of KU Energy Common Stock
will be asked to consider and vote upon the proposal to adopt and approve the
Merger Agreement.
The KU Energy Meeting is scheduled to be held at 1:30 p.m., local time, on
Tuesday, October 14, 1997, in the Second Floor Assembly Room at the offices of
KU Energy, One Quality Street, Lexington, Kentucky. The KU Energy Board has
fixed the close of business on August 8, 1997 as the record date (the "KU
Energy Record Date") for the determination of holders of KU Energy Common Stock
entitled to notice of and to vote at the KU Energy Meeting.
THE KU ENERGY BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED AND APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT KU
ENERGY'S SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
REQUIRED VOTE
LG&E Energy. Under the Kentucky Business Corporation Act (the "KBCA"), the
LG&E Energy Articles, the bylaws of LG&E Energy (the "LG&E Energy Bylaws") and
the rules of the NYSE, as applicable: (i) the affirmative vote of a majority of
the votes entitled to be cast at the LG&E Energy meeting by the holders of the
outstanding shares of LG&E Energy Common Stock is required for approval of the
Merger Agreement (including the issuance of shares of LG&E Energy Common Stock
pursuant to the terms of the Merger Agreement); and (ii) the affirmative vote
of a majority of the votes cast by holders of LG&E Energy Common Stock entitled
to vote and present in person or by proxy at the LG&E Energy Meeting (provided
that the total vote cast represents over 50% of all outstanding shares of LG&E
Energy Common Stock) is required for the approval of the adoption of the LG&E
Energy Articles Amendment. On the LG&E Energy Record Date, there were
66,486,875 shares of LG&E Energy Common Stock outstanding and entitled to one
vote per share. As of the LG&E Energy Record Date, directors and officers of
LG&E Energy, together with their affiliates as a group, owned less than 1% of
the issued and outstanding shares of LG&E Energy Common Stock. See "Meetings,
Voting and Proxies--LG&E Energy Meeting."
KU Energy. As provided under the KBCA, the affirmative vote of a majority of
the votes entitled to be cast at the KU Energy Meeting by the holders of
outstanding shares of KU Energy Common Stock is required for approval of the
Merger Agreement. On the KU Energy Record Date, there were 37,817,517 shares of
KU Energy Common Stock outstanding and entitled to one vote per share. As of
the KU Energy Record Date, directors and executive officers of KU Energy,
together with their affiliates as a group, owned less than 1% of the issued and
outstanding shares of KU Energy Common Stock. See "Meetings, Voting and
Proxies--KU Energy Meeting."
THE MERGER
The Merger Agreement provides for the Merger in which KU Energy will be
merged with and into LG&E Energy with LG&E Energy to be the surviving
corporation. Pursuant to the Merger Agreement, except for KU
13
<PAGE>
Energy Dissenting Shares, each issued and outstanding share of KU Energy Common
Stock, together with the associated rights to purchase KU Energy Preferred
Stock, Series A (the "KU Energy Rights"), will be cancelled and converted into
the right to receive 1.67 shares of LG&E Energy Common Stock, together with the
associated rights to purchase LG&E Energy Series A Preferred Stock (the "LG&E
Energy Rights"). The value (calculated as discussed herein) of the 1.67 shares
of LG&E Energy Common Stock to be received in exchange for each share of KU
Energy Common Stock was $40.706 based upon the $24.375 closing price of a share
of LG&E Energy Common Stock on May 20, 1997, the trading day preceding the
public announcement of the Merger Agreement and $36.114 based upon the $21.625
closing price of a share of LG&E Energy common stock on August 19, 1997, the
most recent date for which it was practicable to obtain market price data prior
to printing and mailing this Joint Proxy Statement/Prospectus. For a discussion
of the KU Energy Rights and LG&E Energy Rights, see "Description of LG&E Energy
Capital Stock--Rights to Purchase Series A Preferred Stock" and "Comparison of
Shareholder Rights--Comparison of LG&E Energy's Rights Agreement to KU Energy's
Rights Agreement." Except for LG&E Energy Dissenting Shares, each issued and
outstanding share of LG&E Energy Common Stock will be unchanged as a result of
the Merger and will remain outstanding thereafter as a share of LG&E Energy
Common Stock, so that the common shareholders of KU Energy and LG&E Energy
immediately prior to the Merger (except for the holders of KU Energy Dissenting
Shares or LG&E Energy Dissenting Shares) will all be common shareholders of
LG&E Energy immediately upon the consummation of the Merger. The Merger will
become effective at the time specified in the Articles of Merger filed by LG&E
Energy with the office of the Secretary of State of the Commonwealth of
Kentucky. The "Effective Time" shall mean the time the Merger is made
effective.
The following chart shows the organizational structure of LG&E Energy and its
first-tier subsidiaries and KU Energy and its first-tier subsidiaries prior to
the Merger:
LG&E Energy
------------------------------------------------------
Louisville Gas LG&E Energy LG&E Gas LG&E Energy
and Foundation Inc. Systems Inc. Systems Inc.
Electric
Company
KU Energy
------------------
Kentucky KU Capital
Utilities Corporation
Company
As a result of the Merger, LG&E Energy will become the parent company of KU
Energy's principal operating subsidiary, 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. Present non-utility operations of LG&E
Energy will be unaffected. The non-utility subsidiaries of KU Energy will
become subsidiaries of LG&E Energy.
14
<PAGE>
The following chart depicts the organizational structure of LG&E Energy after
the Merger:
LG&E Energy
-----------------------------------------------------------------
Louisville LG&E LG&E
Kentucky Gas and Energy KU Capital LG&E Gas Energy
Utilities Electric Foundation Corporation Systems Systems
Company Company Inc. Inc.* Inc.*
See "The Merger Agreement--The Merger."
- --------
*As previously announced and for reasons unrelated to the Merger, LG&E
Energy plans in the near future to merge these two non-utility subsidiaries
into one company.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, the exchange agent will mail
to each holder of record of shares of KU Energy Common Stock at the Effective
Time, transmittal instructions advising such holder of the procedure for
surrendering such holder's certificates ("KU Energy Certificates") for
certificates representing shares of LG&E Energy Common Stock. At the Effective
Time, shares of KU Energy Common Stock will be cancelled and become the right
to receive LG&E Energy Common Stock as described in the preceding sentence.
Holders of KU Energy Certificates, which prior to the Effective Time
represented shares of KU Energy Common Stock, will have no voting or dividend
or other distribution rights on such KU Energy Common Stock, and will not
receive payment for any fractional shares of KU Energy Common Stock, until such
KU Energy Certificates have been surrendered for certificates representing
shares of LG&E Energy Common Stock. Cash will be paid to KU Energy shareholders
in lieu of fractional shares of LG&E Energy Common Stock based upon a formula
set forth in the Merger Agreement and described herein. Holders of shares of KU
Energy Common Stock should not submit their stock certificates for exchange
until a form of letter of transmittal and related instructions are received
after the Effective Time. See "The Merger Agreement--The Merger."
STOCK OPTION AGREEMENTS
Pursuant to (i) the LG&E Energy Stock Option Agreement dated as of May 20,
1997, by and between LG&E Energy and KU Energy (the "LG&E Energy Stock Option
Agreement") and (ii) the KU Energy Stock Option Agreement dated as of May 20,
1997, by and between KU Energy and LG&E Energy (the "KU Energy Stock Option
Agreement"; together with the LG&E Energy Stock Option Agreement, the "Stock
Option Agreements"), LG&E Energy has granted to KU Energy the right (the "KU
Energy Option"), and KU Energy has granted to LG&E Energy the right (the "LG&E
Energy Option", together with the KU Energy Option, the "Options"), to
purchase, under certain circumstances, up to a certain number of authorized but
unissued shares of the respective issuer's common stock (representing 19.9% of
the outstanding common stock of such issuer on May 20, 1997), at a price of
$24.45 per share, in the case of LG&E Energy Common Stock, and $40.8315 per
15
<PAGE>
share, in the case of KU Energy Common Stock. The exercise of the Options is
subject to certain conditions set forth in the Stock Option Agreements and the
Merger Agreement. See "The Stock Option Agreements-- General" and "The Merger
Agreement--Termination Fees." In addition, the Stock Option Agreements provide
that the holder of an Option has the right to require the issuer thereof to
repurchase from the holder of the Option (i) all or any portion of the Option
at any time the Option is exercisable at a price which is the difference
between the Market/Offer Price (as defined herein) and the exercise price of
the Option, and (ii) on or at any time prior to May 20, 1999 (which date may be
extended to November 20, 1999 under certain circumstances) all or any portion
of any shares purchased pursuant to the Option. See "The Stock Option
Agreements--Certain Repurchases." The Stock Option Agreements are intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. They also may have the effect of
discouraging competing offers. See "The Stock Option Agreements."
TREATMENT OF SHARES; EXCHANGE RATIO
Each share of KU Energy Common Stock, together with the associated KU Energy
Rights, outstanding immediately prior to the Effective Time (other than KU
Energy Dissenting Shares) will, pursuant to the Merger Agreement, be cancelled
and converted into the right to receive 1.67 shares of LG&E Energy Common
Stock, together with the associated LG&E Energy Rights. Each share of LG&E
Energy Common Stock, together with the associated LG&E Energy Rights,
outstanding immediately prior to the Effective Time (other than LG&E Energy
Dissenting Shares) will, upon consummation of the Merger, remain outstanding
and unchanged as one share of LG&E Energy Common Stock, together with the
associated LG&E Energy Rights. Holders of KU Energy Common Stock will receive
cash in lieu of fractional shares.
BACKGROUND
For a description of the background of the Merger, see "The Merger--
Background of the Merger."
REASONS FOR THE MERGER
LG&E Energy and KU Energy believe that the Merger offers significant
strategic and financial benefits to each company and to their respective
shareholders, as well as to their employees and customers and the communities
in which they do business. The expected benefits include, among others:
. Maintenance of Competitive Rates--Following the Merger, the combined
company expects to be able to meet the challenges of the increasingly
competitive environment in the utility industry more effectively than
either LG&E Energy or KU Energy standing alone. As competition increases
in the electric industry, the importance of the price at which electric
service can be provided will increase significantly. Each of LG&E and
Kentucky Utilities is today among the lowest cost producers of
electricity in the United States. The contiguous nature of the two
companies' service territories provides a unique opportunity to achieve
meaningful reductions in operating costs. The anticipated savings from
the proposed combination will enable LG&E and Kentucky Utilities to keep
their costs of electric service lower than either company could have
achieved on a stand-alone basis. Besides enabling LG&E and Kentucky
Utilities to compete more effectively in a competitive utility
environment, such low costs are also expected to enhance economic
development efforts in the areas that they currently serve, which should
benefit both customers and shareholders in the long term.
. Increased Size and Stability--As competition intensifies in the industry,
LG&E Energy and KU Energy believe that size and credit quality will be
two factors that will contribute to overall business success. In terms of
generating capacity, LG&E and Kentucky Utilities on a combined basis will
have over 6,000 megawatts of generating capacity. In addition, through
its non-utility subsidiaries, LG&E Energy had ownership interests in, or
contractual arrangements for, more than an additional 3,000 megawatts of
generating capacity as of January 31, 1997. If the Merger were to occur
today, the combination of LG&E
16
<PAGE>
Energy and KU Energy would create one of the largest low-cost energy
services providers in the United States, with consolidated utility and
non-utility assets in excess of $4.8 billion, with consolidated utility
and non-utility revenues in excess of $4.7 billion and with two public
utility subsidiaries having high credit ratings. In addition, the combined
size and stability of LG&E Energy and KU Energy are expected to better
enable LG&E Energy after the Merger to further diversify its assets and
businesses through acquisitions, the development of new businesses both in
the United States and internationally and the marketing and delivery of
new products and services. This capability for greater diversification is
expected to provide the combined company with a broader range of strategic
choices in response to deregulation and increased competition in the
electric utility industry.
. Significant Reduction in Operating Costs--The Merger, which, as stated
previously, will result in the common ownership of LG&E and Kentucky
Utilities, is expected to result in substantial non-fuel savings,
estimated at $680 million, net of costs to achieve, over a 10-year
period. These savings are expected to come primarily from reductions in
labor costs and corporate and administrative expenses and from purchasing
economies and should benefit ratepayers and shareholders.
. Expanded Management and Employee Resources--The combined company will be
able to draw on a larger and more diverse mid- and senior-level
management and employee pool to lead the combined company in an
increasingly competitive environment for the delivery of energy and
related services and should be better able to attract and retain the most
qualified employees. The employees of the two companies should also
benefit from new career opportunities in the expanded organization.
. Best Practices--The combination is expected to allow for the sharing and
implementation of best practices from each of the areas in LG&E Energy
and KU Energy.
. Coordination of Diversification Programs--The two companies, particularly
LG&E Energy, have significant non-utility subsidiaries. Following the
Merger, LG&E Energy should be able to manage and pursue such subsidiary
businesses more efficiently and effectively.
. Community Involvement--LG&E Energy and KU Energy will continue to play a
strong role in the economic development efforts of the communities LG&E
and Kentucky Utilities now serve. The philanthropic and volunteer
programs currently maintained by the two companies will be continued.
See "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
LG&E Energy. THE LG&E ENERGY BOARD, BY A UNANIMOUS VOTE, HAS APPROVED AND
ADOPTED THE MERGER AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, LG&E ENERGY'S SHAREHOLDERS, HAS APPROVED THE
LG&E ENERGY ARTICLES AMENDMENT, AND RECOMMENDS THAT THE SHAREHOLDERS OF LG&E
ENERGY VOTE (I) FOR APPROVAL OF THE MERGER AGREEMENT (INCLUDING THE ISSUANCE OF
SHARES OF LG&E ENERGY COMMON STOCK PURSUANT TO THE TERMS OF THE MERGER
AGREEMENT) AND (II) FOR APPROVAL OF THE LG&E ENERGY ARTICLES AMENDMENT.
The LG&E Energy Board approved and adopted the Merger Agreement after
consideration of a number of factors described under the heading "The Merger--
Reasons for the Merger; Recommendations of the Boards of Directors."
KU Energy. THE KU ENERGY BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED AND APPROVED
THE MERGER AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, KU ENERGY'S SHAREHOLDERS AND RECOMMENDS THAT THE
SHAREHOLDERS OF KU ENERGY VOTE FOR APPROVAL OF THE MERGER AGREEMENT. The KU
Energy Board adopted and approved the Merger Agreement after consideration of a
number of factors described under the heading "The Merger--Reasons for the
Merger; Recommendations of the Boards of Directors."
17
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
LG&E Energy. The Blackstone Group L.P. ("Blackstone") delivered to the LG&E
Energy Board its written opinions dated May 20, 1997 and the date of this Joint
Proxy Statement/Prospectus stating that, as of the dates of such opinions and
based upon the assumptions made, matters considered and limits of the review
undertaken, as set forth in such opinions, the Exchange Ratio is fair, from a
financial point of view, to the holders of LG&E Energy Common Stock. The
written opinion of Blackstone dated the date of this Joint Proxy
Statement/Prospectus is attached hereto as Annex F and is incorporated herein
by reference. HOLDERS OF SHARES OF LG&E ENERGY COMMON STOCK ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY. The May 20, 1997 written opinion is
substantially identical to the opinion attached hereto. See "The Merger--
Opinions of Financial Advisors" and Annex F.
KU Energy. On May 20, 1997, Goldman, Sachs & Co. ("Goldman Sachs") delivered
its oral opinion, which it subsequently confirmed in writing as of such date
and as of the date of this Joint Proxy Statement/Prospectus, to the KU Energy
Board that, as of such dates, the Exchange Ratio pursuant to the Merger
Agreement is fair to the holders of shares of KU Energy Common Stock. The full
text of the written opinion of Goldman Sachs, dated as of the date of this
Joint Proxy Statement/Prospectus, which sets forth assumptions made, matters
considered and limits of the review undertaken in connection with the opinion,
is attached hereto as Annex G and is incorporated herein by reference. HOLDERS
OF SHARES OF KU ENERGY COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY. The May 20, 1997 written opinion is substantially identical to
the opinion attached hereto. See "The Merger--Opinions of Financial Advisors"
and Annex G.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directorships. The Merger Agreement provides that the Board of Directors of
LG&E Energy (the "LG&E Energy Board") will, upon consummation of the Merger,
consist of 15 persons with eight persons designated by LG&E Energy, including
Roger W. Hale, Chairman of the Board, President and Chief Executive Officer of
LG&E Energy, and seven persons designated by KU Energy, including Michael R.
Whitley, Chairman of the Board and Chief Executive Officer of KU Energy. Upon
consummation of the Merger, the Board of Directors of each of LG&E and Kentucky
Utilities will be expanded to include those persons selected by the other party
to serve on the LG&E Energy Board. See "The Merger--Interests of Certain
Persons in the Merger--Board of Directors."
Employment Agreements. Each of Messrs. Hale and Whitley has entered into an
employment agreement to become effective at the Effective Time (the "Employment
Agreements"). Pursuant to the Employment Agreements, Mr. Hale will serve as
Chairman and Chief Executive Officer of LG&E Energy, LG&E and Kentucky
Utilities from and after the Effective Time and Mr. Whitley will serve as Vice
Chairman, President and Chief Operating Officer of LG&E Energy and as Vice
Chairman and Chief Operating Officer of LG&E and Kentucky Utilities, from and
after the Effective Time. See "The Merger--Interests of Certain Persons in the
Merger--Employment Agreements." In addition, while no employment agreements
exist regarding other executive officers of LG&E Energy or its subsidiaries
after the Effective Time, Mr. Hale and Mr. Whitley have orally agreed as to
certain members of the executive management of LG&E Energy, LG&E and Kentucky
Utilities after the Effective Time. See "LG&E Energy Following the Merger--
Management of LG&E Energy After the Merger."
Employee Plans. Employees including executive officers of KU Energy and
Kentucky Utilities are eligible to participate in Annual Performance Incentive
Plans, Performance Share Plans and Executive Deferred Compensation Plans of KU
Energy and Kentucky Utilities and a Long Term Incentive Plan of KU Energy. Each
of the execution of the Merger Agreement and the consummation of the Merger or,
in the case of the Annual Performance Incentive Plans, the consummation of the
Merger will constitute a change in control under those plans. Participants will
be entitled to payments in certain cases following the change in control as
described under "The Merger--Employee Plans and Severance Arrangements--KU
Energy."
18
<PAGE>
Severance Policies. Executive officers and certain other employees of KU
Energy and Kentucky Utilities are eligible to be members in Kentucky Utilities'
Supplemental Security Plan which provides retirement, disability and death
benefits as well as a change in control retirement benefit and a change in
control severance benefit. A change in control as defined in the Supplemental
Security Plan has occurred as a result of the execution of the Merger Agreement
and retired members have received a lump sum payment of the present value of
their remaining benefits. Other members in the plan will be entitled to
benefits in certain cases as described under "The Merger--Employee Plans and
Severance Arrangements--KU Energy."
All eligible directors of KU Energy and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs of KU Energy and
Kentucky Utilities ("KU Director Retirement Program"). Also, directors of KU
Energy and Kentucky Utilities may elect to have all or a specified portion of
their directors' fees deferred under the Director Deferred Compensation Plans
(the "KU Director Deferred Compensation Plans"). The consummation of the Merger
will constitute a change in control as defined in the KU Director Retirement
Program and the KU Director Deferred Compensation Plans and directors in office
immediately prior to the consummation of the Merger will be entitled to receive
in certain cases an accelerated retirement benefit under the KU Director
Retirement Program and directors and retired directors will be entitled to
receive in certain cases a lump sum distribution of deferred amounts under the
KU Director Deferred Compensation Plans, all as described under "The Merger--
Employee Plans and Severance Arrangements--KU Energy."
While the Merger will not constitute a change in control under any employee
or incentive plans of LG&E Energy or LG&E, certain officers of LG&E Energy and
LG&E have entered into change in control agreements with LG&E Energy and LG&E
that may provide benefits to such officers under certain circumstances if they
are terminated or their responsibilities altered following a change in control,
such as the Merger. See "The Merger--Employee Plans and Severance
Arrangements--LG&E Energy."
Indemnification. The parties have agreed in the Merger Agreement that LG&E
Energy will indemnify, to the fullest extent permitted by applicable law, the
present and former officers, directors and employees of each of the parties to
the Merger Agreement or any of their subsidiaries against certain liabilities
arising out of actions or omissions occurring at or prior to the Effective Time
(i) that arise from or are based on such service as an officer, director or
employee or (ii) that are based on or arise out of or pertain to the
transactions contemplated by the Merger Agreement, and to maintain policies of
directors' and officers' liability insurance for a period of not less than six
years after the Effective Time. To the fullest extent permitted by law, from
and after the Effective Time, all rights to indemnification existing in favor
of the employees, agents, directors or officers of LG&E Energy, KU Energy and
their respective subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in their respective articles of incorporation
and bylaws, in effect on May 20, 1997, or otherwise in effect on May 20, 1997,
shall survive the Merger and shall continue in full force and effect for a
period of not less than six years from the Effective Time. See "The Merger--
Interests of Certain Persons in the Merger--Indemnification" and "The Merger
Agreement--Indemnification."
MANAGEMENT OF LG&E ENERGY
As provided in the Merger Agreement, at the Effective Time, the LG&E Energy
Board will consist of 15 directors, eight designated by LG&E Energy and seven
designated by KU Energy. The Board of Directors will have the following four
committees: (i) an Audit Committee, (ii) a Compensation Committee, (iii) a
Nominating and Governance Committee and (iv) a Long Range Planning Committee.
The Audit Committee will have ten members, with five designated by LG&E Energy
(one of whom would be the chairman) and five designated by KU Energy. The
Compensation Committee will have seven members, with four designated by LG&E
Energy (one of whom would be the chairman) and three designated by KU Energy.
The Nominating and Governance Committee will have eight members, with four
designated by LG&E Energy and four designated by KU Energy (one of whom would
be the chairman). The Long Range Planning Committee will have nine members,
with five
19
<PAGE>
designated by LG&E Energy and four designated by KU Energy (one of whom would
be the chairman). At the Effective Time, Mr. Hale will become Chairman and
Chief Executive Officer of LG&E Energy, LG&E and Kentucky Utilities and Mr.
Whitley will become Vice Chairman, President and Chief Operating Officer of
LG&E Energy and Vice Chairman and Chief Operating Officer of LG&E and Kentucky
Utilities. Upon consummation of the Merger, the Board of Directors of LG&E will
consist of those persons serving as directors of LG&E immediately prior to the
Merger plus those persons designated by KU Energy to serve on the LG&E Energy
Board. Similarly, following the Merger, the Board of Directors of Kentucky
Utilities will consist of those persons serving as directors of Kentucky
Utilities immediately prior to the Merger plus those persons designated by LG&E
Energy to serve on the LG&E Energy Board. In addition, while no employment
agreements exist regarding other executive officers of LG&E Energy or its
subsidiaries after the Effective Time, Mr. Hale and Mr. Whitley have orally
agreed as to certain members of the executive management of LG&E Energy, LG&E
and Kentucky Utilities after the Effective Time. See "The Merger--Employment
Agreements" and "LG&E Energy Following the Merger--Management of LG&E Energy
After the Merger."
CONDITIONS TO THE MERGER
The obligations of LG&E Energy, on the one hand, and KU Energy, on the other
hand, to consummate the Merger are subject to the satisfaction of certain
conditions, including the approval of the Merger Agreement by the shareholders
of each of LG&E Energy and KU Energy, the receipt of all material governmental
approvals, the absence of any injunction that prevents the consummation of the
Merger, the listing on the NYSE of the shares of LG&E Energy Common Stock to be
issued pursuant to the terms of the Merger Agreement, the qualification of the
Merger as a pooling of interests transaction for accounting purposes, the
receipt of a tax opinion from their respective tax counsel that the Merger will
be treated as a tax-free reorganization, the accuracy of the representations
and warranties of the other party set forth in the Merger Agreement as of the
Closing Date (as defined herein) (except for inaccuracies which would not have
a material adverse effect on such other party), the performance by the other
party in all material respects, or waiver, of all obligations required to be
performed under the Merger Agreement and the Stock Option Agreements (see "The
Stock Option Agreements"), the receipt of an officer's certificate from the
other party stating that certain conditions set forth in the Merger Agreement
have been satisfied, there having been no material adverse change in the other
party, the effectiveness of the Registration Statement and the number of shares
of LG&E Energy Common Stock and KU Energy Common Stock that are LG&E Energy
Dissenting Shares or KU Energy Dissenting Shares not constituting more than 10%
of the number of issued and outstanding shares of LG&E Energy Common Stock or
KU Energy Common Stock, as the case may be. See "The Merger Agreement--
Conditions to Each Party's Obligation to Effect the Merger."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of KU Energy and LG&E Energy; by any party
if the Merger is not consummated by May 20, 1999 (which date may be extended to
November 20, 1999 under certain circumstances); by any party if the requisite
shareholder approvals are not obtained or if any state or federal law or court
order prohibits consummation of the Merger; by a non-breaching party if there
occurs a material breach by the other party of the Merger Agreement which is
not cured within 20 days; or by either party, under certain circumstances, as a
result of a more favorable third-party tender offer or business combination
proposal with respect to such party. The Merger Agreement requires that
termination fees be paid under certain circumstances, including if there is a
material, willful breach of the Merger Agreement or if, under certain
circumstances, a business combination with a third party is consummated within
two and one-half years of the termination of the Merger Agreement. See "The
Merger Agreement--Termination." The aggregate termination fees under these
provisions together with the amounts payable under certain provisions of the
Stock Option Agreements may not exceed $70 million. See "The Merger Agreement--
Termination Fees" and "The Stock Option Agreements--Certain Repurchases."
20
<PAGE>
The Merger Agreement may be amended by the Boards of Directors of the parties
at any time before or after its approval by the shareholders of LG&E Energy and
KU Energy, but after any such approval, no amendment may be made which alters
or changes (i) the amount or kind of shares, rights or the manner of conversion
of such shares or (ii) the terms or conditions of the Merger Agreement, if such
alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the LG&E Energy shareholders or KU Energy shareholders
except for alterations or changes that could otherwise be adopted by the Board
of Directors of LG&E Energy without the further approval of such shareholders.
See "The Merger Agreement--Amendment and Waiver."
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to LG&E Energy's or KU Energy's obligations to
consummate the Merger may be waived by the other party. Any determination to
waive a condition would depend upon the facts and circumstances existing at the
time of such waiver and would be made by the waiving party's Board of
Directors, exercising its fiduciary duties to such party and its shareholders.
See "The Merger Agreement--Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As more fully described under "The Merger--Certain Federal Income Tax
Consequences," and based on the assumptions and qualifications set forth in
that section, including the assumption that there are no changes subsequent to
the date of this Joint Proxy Statement/Prospectus in relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), regulations or
interpretations thereof, in the opinion of Simpson Thacher & Bartlett (a
partnership which includes professional corporations), tax counsel to LG&E
Energy, and in the opinion of Jones, Day, Reavis & Pogue, tax counsel to KU
Energy, if the Merger is consummated in accordance with the Merger Agreement
and as described in this Joint Proxy Statement/Prospectus, the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a) of
the Code. In the opinion of such firms, under current law, material federal
income tax consequences of the Merger, as such a tax-free reorganization, in
general will be as follows: (i) no gain or loss will be recognized by LG&E
Energy or KU Energy pursuant to the Merger; (ii) no gain or loss will be
recognized by holders of KU Energy Common Stock upon the cancellation of their
KU Energy Common Stock, together with the associated KU Energy Rights, and
conversion thereof into LG&E Energy Common Stock, together with the associated
LG&E Energy Rights, pursuant to the Merger (except by reason of receipt of cash
in lieu of fractional share interests or the exercise of dissenters' rights)
and (iii) no gain or loss will be recognized by holders of LG&E Energy Common
Stock as a result of the Merger (except by reason of the exercise of
dissenters' rights).
LG&E Energy's obligation to effect the Merger is conditioned on the delivery
of an opinion to LG&E Energy from Simpson Thacher & Bartlett and KU Energy's
obligation to effect the Merger is conditioned on the delivery of an opinion to
KU Energy from Jones, Day, Reavis & Pogue, each dated as of the Closing Date,
substantially to the effect that, for federal income tax purposes, the Merger
constitutes such a tax-free reorganization. LG&E Energy and KU Energy may each
waive these conditions. However, in the event of such waiver by either party,
approval of the holders of the common stock of the party waiving such condition
would be resolicited.
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER UNDER FEDERAL, STATE, LOCAL OR
ANY OTHER APPLICABLE LAW.
OPERATIONS AFTER THE MERGER
Following the Merger, LG&E Energy will be a public utility holding company
under the Public Utility Holding Company Act of 1935 (the "1935 Act"), and LG&E
and Kentucky Utilities will operate as its principal utility subsidiaries. The
headquarters of LG&E Energy will be in Louisville, Kentucky. The headquarters
of the two utility subsidiaries will remain in their current locations; LG&E in
Louisville and Kentucky Utilities in Lexington, Kentucky. The business of LG&E
Energy will be to operate as a holding company for its utility subsidiaries and
for its various non-utility subsidiaries. See "Regulatory Matters" and "LG&E
Energy Following the Merger--Operations."
21
<PAGE>
REGULATORY MATTERS
The approval of the SEC under the 1935 Act, the Federal Energy Regulatory
Commission (the "FERC") under the Federal Power Act, as well as the approval of
the Kentucky and Virginia utility commissions under applicable state laws and
the expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
are required in order to consummate the Merger. A notice filing will be made
with the Tennessee Regulatory Authority.
LG&E Energy is currently a holding company under the 1935 Act that is exempt
from the registration requirements of the 1935 Act and expects to continue as
an exempt holding company under the 1935 Act after the Merger.
Under the Merger Agreement, LG&E Energy and KU Energy have agreed to use all
reasonable efforts to obtain all governmental authorizations necessary or
advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek intervention in these proceedings to oppose
the Merger or to have conditions imposed upon the receipt of necessary
approvals. While LG&E Energy and KU Energy believe that they will receive the
requisite regulatory approvals for the Merger, there can be no assurance as to
the timing of such approvals or their ability to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Merger that final orders approving the Merger be obtained from the various
federal and state commissions described above on terms and conditions which
would not have, or would not be reasonably likely to have, a material adverse
effect on the business, assets, financial condition or results of operations of
LG&E or of Kentucky Utilities or of LG&E Energy and its prospective
subsidiaries taken as a whole, or which would be materially inconsistent with
the agreements of the parties contained in the Merger Agreement. There can be
no assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such condition to the consummation of
the Merger. See "Regulatory Matters."
ACCOUNTING TREATMENT
LG&E Energy and KU Energy believe that the Merger will be treated as a
pooling of interests for accounting purposes. See "The Merger--Accounting
Treatment." The receipt by each of LG&E Energy and KU Energy of a letter from
their respective independent public accountants, stating that the transaction
will qualify as a pooling of interests, is a condition precedent to
consummation of the Merger. See "The Merger Agreement--Conditions to Each
Party's Obligation to Effect the Merger."
DISSENTERS' RIGHTS
Under Kentucky law, holders of record of KU Energy Common Stock as of the KU
Energy Record Date who do not wish to accept shares of LG&E Energy Common Stock
in the Merger have the right to have the fair value of their KU Energy shares
appraised by judicial determination and paid to them in cash. Similarly, under
Kentucky law, holders of record of LG&E Energy Common Stock as of the LG&E
Energy Record Date who object to the Merger have the right to have the fair
value of their LG&E Energy shares appraised and paid to them in cash. In order
to perfect such dissenters' rights, a holder of LG&E Energy Common Stock or KU
Energy Common Stock must comply with the procedural requirements of the KBCA,
including, without limitation: (i) delivering written notice to LG&E Energy
prior to the LG&E Energy Meeting (or, in the case of a holder of KU Energy
Common Stock, delivering written notice to KU Energy prior to the KU Energy
Meeting) of such shareholder's intention to demand payment of his or her shares
if the Merger is consummated, (ii) not voting in favor of the Merger Agreement
and (iii) if the Merger is approved by shareholders, making a written demand
for payment and depositing the certificates representing such shares within the
time period (at least 30 days and not more than 60 days) specified by LG&E
Energy (or, in the case of a holder of KU Energy Common Stock, by KU Energy) in
a written notice sent to such holder within 10 days after the Merger is
approved by its shareholders. See "The Merger--Dissenters' Rights" and Annex J.
22
<PAGE>
DIVIDENDS
Pursuant to the Merger Agreement, each of KU Energy and LG&E Energy shall
not, and shall not permit any of its Direct Subsidiaries (as defined herein)
to, declare or pay any dividends on, or make other distributions in respect of,
any of its capital stock, other than to such party or its wholly-owned
subsidiaries and other than dividends required to be paid on any series of
preferred stock of LG&E ("LG&E Preferred Stock") in accordance with the terms
thereof, dividends required to be paid on any shares of preferred stock of
Kentucky Utilities ("KU Preferred Stock") in accordance with the terms thereof,
and regular quarterly dividends to be paid on LG&E Energy Common Stock not to
exceed 104% of the dividends for the prior fiscal year and regular quarterly
dividends to be paid on KU Energy Common Stock not to exceed 102.5% of the
dividends for the prior fiscal year.
AMENDMENT TO LG&E ENERGY ARTICLES
Pursuant to the Merger Agreement, subject to the approval of the LG&E Energy
Articles Amendment by LG&E Energy shareholders at the LG&E Energy Meeting, the
LG&E Energy Articles will be amended no later than the Effective Time in the
form set forth in Annex H. The LG&E Energy Articles Amendment would increase
the amount of authorized LG&E Common Stock from 125,000,000 shares to
300,000,000 shares, thereby increasing LG&E Energy's authorized capitalization
from 130,000,000 shares to 305,000,000 shares (which includes 5,000,000 shares
of LG&E Energy preferred stock currently authorized). Absent approval of the
LG&E Energy Articles Amendment, LG&E Energy would not have a sufficient number
of shares to complete the Merger. See "Amendment to Articles of Incorporation."
COMPARISON OF RIGHTS OF KU ENERGY SHAREHOLDERS
As a result of the Merger, holders of KU Energy Common Stock (other than KU
Energy Dissenting Shares) will become shareholders of LG&E Energy. Such
shareholders will have certain different rights as LG&E Energy shareholders
than they had as shareholders of KU Energy, because of the differences between
the KU Energy Articles, Bylaws and Rights Agreement and the LG&E Energy
Articles, Bylaws and Rights Agreement. For a comparison of the articles and
bylaw provisions of KU Energy and LG&E Energy, as well as a comparison of their
respective Rights Agreements, see "Comparison of Shareholder Rights."
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. The financial data should be
read in conjunction with the historical financial statements and related notes
thereto of LG&E Energy and KU Energy, incorporated herein by reference, and in
conjunction with the unaudited pro forma combined condensed financial
statements and related notes thereto of LG&E Energy included elsewhere in this
Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined Condensed
Financial Information."
SELECTED HISTORICAL FINANCIAL AND MARKET DATA
The selected historical financial data of each of LG&E Energy and KU Energy
as of December 31, 1996, 1995, 1994, 1993 and 1992 and for the five years ended
December 31, 1996, set forth below, have been derived from audited financial
statements. The selected historical financial data of LG&E Energy and KU Energy
as of and for the 12-month period ended June 30, 1997, set forth below, have
been derived from unaudited financial statements and, in the opinion of
management of the respective companies, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation for such
periods. The selected historical market data of each of LG&E Energy and KU
Energy for the dates indicated below are based on the closing sale prices of
LG&E Energy Common Stock and KU Energy Common Stock as reported on the NYSE
Composite Tape for such dates. The Aggregate Market Capitalization represents
the product of the closing sale prices on such dates multiplied by the number
of outstanding shares on such dates.
23
<PAGE>
LG&E ENERGY CORP.
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------------
JUNE 30, 1996
1997(a)(b)(c) (a)(c) 1995 (d) 1994 (e) 1993 (f) 1992 (f)
------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.... $4,003,627 $3,589,465 $1,374,680 $ 829,663 $ 900,027 $ 834,739
Operating Income
(before nonrecurring
items)(a)(b)(d)(e)... 225,290 237,771 205,357 189,087 189,122 174,504
Operating Income...... 199,552 211,441 175,557 140,344 189,122 174,504
Income from Continuing
Operations........... 95,942 104,003 82,830 56,829 80,825 71,437
Net Income............ 95,942 104,003 82,830 105,265 88,260 75,614
Average Common Shares
Outstanding (g)...... 66,378 66,294 66,105 65,982 65,377 64,615
Earnings per Common
Share from Continuing
Operations (g)....... $ 1.45 $ 1.57 $ 1.25 $ 0.86 $ 1.24 $ 1.11
Total Earnings per
Common Share (g)..... 1.45 1.57 1.25 1.60 1.35 1.17
Cash Dividends
Declared per Common
Share (g)............ 1.1500 1.1300 1.0925 1.0575 1.0230 0.9910
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.......... $3,109,254 $3,011,892 $2,628,920 $2,217,464 $2,186,468 $2,148,398
Long-Term Debt........ 664,284 646,835 646,845 662,862 662,879 686,119
Short-Term Debt (h)... 318,000 158,000 189,000 32,000 20,000 58,400
Preferred Stock....... 95,328 95,328 95,328 116,716 116,716 116,740
Common Stock Equity... 818,494 811,218 779,134 762,515 729,647 685,221
Book Value per Common
Share (g)............ 12.31 12.23 11.77 11.55 11.07 10.60
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA--COMMON
STOCK
Aggregate Market
Capitalization....... $1,466,823 $1,625,365 $1,398,364 $1,217,496 $1,334,724 $1,131,466
Closing Market Price
per Share (g)........ 22.0625 24.500 21.125 18.438 20.250 17.500
Ratio of Market Value
to Book Value........ 1.79x 2.00x 1.79x 1.60x 1.83x 1.65x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data.
24
<PAGE>
KU ENERGY CORPORATION
<TABLE>
<CAPTION>
12 MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1997 1996 1995 1994 (I) 1993 (I) 1992
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues
(j).................. $ 699,994 $ 716,208 $ 690,428 $ 639,232 $ 606,608 $ 576,260
Operating Income (k).. 156,893 164,845 154,055 146,214 152,237 146,326
Net Income............ 76,469 81,949 76,053 75,876 79,983 74,182
Average Common Shares
Outstanding.......... 37,818 37,818 37,818 37,818 37,818 37,818
Earnings per Common
Share................ $ 2.02 $ 2.17 $ 2.01 $ 2.01 $ 2.11 $ 1.96
Cash Dividends
Declared per Common
Share................ 1.74 1.72 1.68 1.64 1.60 1.56
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.......... $1,726,741 $1,726,948 $1,714,974 $1,669,294 $1,573,194 $1,457,100
Long-Term Debt........ 546,351 546,373 545,894 495,916 441,937 443,458
Short-Term Debt (h)... 51,821 54,221 55,621 76,321 20,021 21
Preferred Stock....... 40,000 40,000 40,000 40,000 40,000 40,000
Common Stock Equity... 649,135 645,513 628,611 616,092 602,503 583,319
Book Value per Common
Share................ $ 17.16 $ 17.07 $ 16.62 $ 16.29 $ 15.93 $ 15.42
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA--COMMON
STOCK
Aggregate Market
Capitalization....... $1,290,539 $1,134,540 $1,134,540 $1,021,086 $1,096,722 $1,063,631
Closing Market Price
per Share............ $ 34.125 $ 30.000 $ 30.000 $ 27.000 $ 29.000 $ 28.125
Ratio of Market Value
to Book Value........ 1.99x 1.76x 1.80x 1.66x 1.82x 1.82x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data.
25
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected 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 data at June
30, 1997 and December 31, 1996, 1995 and 1994 give effect to the Merger as if
it had occurred at the respective balance sheet dates. The unaudited pro forma
combined condensed statements of income for each of the years in the three-year
period ended December 31, 1996, and the 12-month period ended June 30, 1997,
give effect to the Merger as if it had occurred at January 1, 1994. 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 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. See "Unaudited Pro Forma
Combined Condensed Financial Information."
26
<PAGE>
LG&E ENERGY CORP.
COMBINED
PRO FORMA FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
12 MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997 ---------------------------------
(a)(b)(c) 1996(a)(c) 1995(d) 1994(e)(i)
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues (l)........ $4,703,192 $4,304,913 $2,061,280 $1,468,567
Operating Income
(before nonrecurring items)
(m).......................... 386,195 408,109 359,412 335,301
Operating Income.............. 356,445 376,286 329,612 286,558
Income from Continuing
Operations................... 172,411 185,952 158,883 132,705
Net Income.................... 172,411 185,952 158,883 181,141
Average Common Shares
Outstanding (g).............. 129,534 129,450 129,261 129,138
Earnings per Common Share from
Continuing Operations (n).... $ 1.33 $ 1.44 $ 1.23 $ 1.03
Earnings per Common Share (n). 1.33 1.44 1.23 1.40
Cash Dividends Declared per
Common Share (n), (o)........ 1.10 1.08 1.05 1.02
EQUIVALENT KU ENERGY PRO FORMA
PER SHARE DATA (p)
Earnings per Common Share..... $ 2.22 $ 2.40 $ 2.05 $ 2.34
Cash Dividends Declared per
Common Share (o)............. 1.83 1.80 1.75 1.70
DIVIDEND PAYOUT RATIO (q)....... 85% 78% -- --
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.................. $4,844,224 $4,738,840 $4,343,894 $3,886,758
Long-Term Debt................ 1,210,635 1,193,208 1,192,739 1,158,778
Short-Term Debt (h)........... 369,821 212,221 244,621 108,321
Preferred Stock............... 135,328 135,328 135,328 156,716
Common Stock Equity........... 1,462,709 1,456,731 1,407,745 1,378,607
Book Value per Common Share
(n).......................... 11.28 11.25 10.88 10.67
EQUIVALENT KU ENERGY PRO FORMA
PER SHARE DATA (p)
Book Value per Common Share... $ 18.84 $ 18.79 $ 18.17 $ 17.82
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data. The pro forma
financial data does not give effect to expected synergies of the transaction.
See "The Merger."
27
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA DATA
(a) LG&E Energy's net income for the year ended December 31, 1996 and twelve
months ended June 30, 1997 includes a pre-tax non-recurring charge of $26.3
million for losses in its natural gas marketing business resulting from
unauthorized transactions entered into by a marketer in its Calgary,
Alberta, office.
(b) LG&E Energy's net income for the twelve months ended June 30, 1997,
includes the effect of an $8.5 million insurance settlement and related
legal costs associated with the Calgary trading loss discussed in Note (a)
above, partially offset by a one-time restructuring charge of $7 million
for the consolidation of LG&E Energy's energy marketing group.
(c) 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 Operating Revenues and Operating Income of $26.2 million for
1996 and $16.6 million for the twelve months ended June 30, 1997. The
impact on prior period financial results was immaterial.
(d) LG&E Energy's 1995 net income includes a $29.8 million pretax charge for
the settlement of ratemaking proceedings related to the disallowance of 25%
of the cost of LG&E's Trimble County generating unit.
(e) LG&E Energy's 1994 net income includes the recognition of a gain on the
sale of its 36.5% partnership interest in Natural Gas Clearinghouse for
$170 million. The transaction resulted in an after-tax gain of
approximately $52 million.
LG&E Energy's 1994 net income includes non-recurring pre-tax charges of
$48.7 million. As part of a study of its business strategy and realignment
during 1994, LG&E re-evaluated its regulatory strategy which previously had
been to seek full recovery of certain costs deferred in accordance with
prior precedents established by the Kentucky Public Service Commission. As a
result of this re-evaluation, LG&E wrote off certain expenses that had
previously been deferred amounting to approximately $38.6 million before
taxes. While LG&E continues to believe that it could have reasonably
expected to recover these costs in future Kentucky rate proceedings, LG&E
decided to deduct these expenses currently and not seek recovery for such
expenses in future rates due to increasing competitive pressures and the
existing and anticipated future economic conditions. In addition, in 1994 a
nonutility subsidiary of LG&E Energy recorded a reserve of $10.1 million
before taxes for the costs related to vacating leased office space. LG&E
Energy's 1994 net income includes a pre-tax charge of $15 million. This
represented an irrevocable payment made to a tax-exempt charitable
foundation formed by LG&E Energy in 1994.
(f) LG&E Energy's 1993 and 1992 financial results include the operations of
Natural Gas Clearinghouse as discontinued operations.
(g) Per share amounts for LG&E Energy for 1995, 1994, 1993 and 1992 have been
adjusted to reflect a 2 for 1 stock split consummated on April 15, 1996.
(h) Includes bank and other notes payable, and current maturity of long-term
debt.
(i) Operating Revenues for KU Energy for 1994 and 1993 were reduced by $19.4
million and $3.3 million, respectively, resulting from refunds made
pursuant to regulatory orders related to the resolution of a coal contract
dispute.
(j) KU Energy's nonutility revenues historically included in other income and
deductions are reflected in Operating Revenues to conform to this reporting
presentation.
(k) Operating income excludes the deduction for KU Energy income taxes to
conform reporting presentations. Historically, KU Energy's operating income
taxes were shown as an operating expense and non-operating income taxes
were shown as other income and deductions. KU Energy's operating income
taxes for the twelve months ended June 30, 1997 and for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 were $46.2 million, $50.2
million, $43.4 million, $43.9 million, $47.8 million and $41.0 million,
respectively.
(l) 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.
28
<PAGE>
(m) The Operating Income (before nonrecurring items) for LG&E Energy includes
Operating Income adjusted to remove the nonrecurring charges and the
Trimble County settlement discussed above and amounts relating to KU
Energy's non-utility investment write-offs of $4.0 million and $5.5 million
for the twelve months ended June 30, 1997 and the year ended December 31,
1996, respectively.
(n) Pro forma per common share amounts give effect to the conversion of each
share of KU Energy Common Stock into 1.67 shares of LG&E Energy Common
Stock.
(o) Pursuant to SEC requirements, calculated based on historical dividends paid
by LG&E Energy and KU Energy combined.
(p) Represents the pro forma equivalent of one share of KU Energy Common Stock
calculated by multiplying the pro forma information by the Exchange Ratio
of 1.67 shares of LG&E Energy Common Stock for each share of KU Energy
Common stock.
(q) The pro forma dividend payout ratio is computed by dividing the total
dividends that would have been paid to all LG&E Energy shareholders
(including former KU Energy shareholders had the Merger occurred at the
beginning of the respective period) at the approved dividend rate for LG&E
Energy by the pro forma net income for the respective period. The pro forma
dividend payout ratio is not necessarily indicative of expected future
dividend payout ratios for LG&E Energy after the Merger.
29
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
The LG&E Energy Common Stock and the KU Energy Common Stock are traded on the
NYSE. The LG&E Energy Common Stock is also traded on the CSE and the KU Energy
Common Stock is also traded on the PE. The following table sets forth, for the
periods indicated, the high and low sales prices of LG&E Energy Common Stock
and KU Energy Common Stock as reported on the NYSE Composite Tape and dividends
declared.
<TABLE>
<CAPTION>
LG&E ENERGY(1)(2) KU ENERGY
--------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter.......... $20.5000 $17.1875 $0.26000 $29.250 $26.000 $0.41
Second Quarter......... 19.3125 16.8125 0.26000 27.375 24.500 0.41
Third Quarter.......... 19.5625 18.0000 0.26875 27.125 25.125 0.41
Fourth Quarter......... 19.5000 18.1250 0.26875 28.750 25.750 0.41
1995
First Quarter.......... $20.0000 $18.4375 $0.26875 $28.875 $26.625 $0.42
Second Quarter......... 20.1875 18.6875 0.26875 28.375 26.250 0.42
Third Quarter.......... 20.0625 19.0000 0.27750 29.375 26.000 0.42
Fourth Quarter......... 21.5625 20.0000 0.27750 30.625 28.750 0.42
1996
First Quarter.......... $22.000 $20.750 $0.27750 $30.625 $28.625 $0.43
Second Quarter......... 22.875 20.875 0.27750 30.000 28.375 0.43
Third Quarter.......... 23.625 21.625 0.28750 30.000 27.000 0.43
Fourth Quarter......... 24.625 22.375 0.28750 30.500 28.125 0.43
1997
First Quarter.......... $25.875 $23.50 $0.2875 $31.125 $29.375 $0.44
Second Quarter......... 25.000 21.8125 0.2875 35.625 29.750 0.44
Third Quarter (through
August 19)............ 22.563 21.438 N/A 35.500 33.375 0.44
</TABLE>
- --------
(1) Prior data restated to reflect a 2-for-1 stock split effective April 15,
1996.
(2) It is expected that LG&E Energy's regular quarterly dividend for the third
quarter will be declared by the LG&E Energy Board in September 1997.
On May 20, 1997, the last full trading day before the public announcement of
the execution and delivery of the Merger Agreement, the high, low and closing
sales prices per share of (a) LG&E Energy Common Stock on the NYSE Composite
Tape were $24.625, $24.375 and $24.375, respectively, and (b) KU Energy Common
Stock on the NYSE Composite Tape were $30.50, $30.375, and $30.375,
respectively. If the Merger had been consummated on May 20, 1997, each share of
KU Energy Common Stock would have been converted into the right to receive 1.67
shares of LG&E Energy Common Stock having a market value of $40.706 based upon
the closing price per share of LG&E Energy Common Stock on such date.
On August 19, 1997, the most recent date for which it was practicable to
obtain market price data prior to printing this Joint Proxy
Statement/Prospectus, the high, low and closing sales prices per share of LG&E
Energy Common Stock on the NYSE Composite Tape were $21.625, $21.500 and
$21.625, respectively, and the high, low and closing sales prices per share of
KU Energy Common Stock on the NYSE Composite Tape were $34.4375, $34.0000 and
$34.1250, respectively. Accordingly, if the Merger had been consummated at the
close of business on that date, each share of KU Energy Common Stock would have
been converted into the right to receive 1.67 shares of LG&E Common Stock
having a market value of $36.114 based upon the closing price per share of LG&E
Energy Common Stock on such date.
The market prices of LG&E Energy Common Stock and KU Energy Common Stock are
subject to fluctuation. LG&E Energy shareholders and KU Energy shareholders are
urged to obtain current market quotations for LG&E Energy Common Stock and KU
Energy Common Stock.
30
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Joint Proxy Statement/Prospectus constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The forward-looking statements relate to
anticipated financial performance, management's plans and objectives for future
operations, business prospects, outcome of regulatory proceedings, market
conditions and other matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements in certain
circumstances. The following discussion is intended to identify the forward-
looking statements and certain factors that could cause future outcomes to
differ materially from those set forth in the forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of operations of LG&E Energy, as the combined company,
set forth under "Summary of Joint Proxy Statement/Prospectus--Reasons for the
Merger," "The Merger--Opinions of Financial Advisors" and "The Merger--Reasons
for the Merger; Recommendations of the Boards of Directors" and other
statements in this Joint Proxy Statement/Prospectus identified by words such as
"anticipate," "estimate," "expect," "believe," and "objective," and include, in
particular, the statements as to (i) the ability of the combined company to
meet the challenges of increased competition, (ii) anticipated levels and
sources of Merger synergies and cost savings (in particular the non-fuel net
savings of $680 million) resulting from the combination, (iii) the anticipated
manner in which identified cost savings and synergies will be achieved, (iv)
the ability to maintain low rates or reduce customers bills as a result of the
combination, (v) anticipated enhancements of economic development resulting
from lower rates, (vi) the ability of the combined entity to further diversify
through acquisitions or development of new business and the marketing and
delivery of new products and services and thus have a broader range of
strategic choices, (vii) the ability to attract and retain qualified employees
and anticipated benefits to employees, (viii) the ability to achieve
implementation of best practices, (ix) the ability to more efficiently and
effectively manage non-utility subsidiaries, (x) the beliefs of the LG&E Energy
Board and the KU Energy Board and the basis for those beliefs set forth under
"The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors--LG&E Energy" and "--KU Energy," and (xi) the estimates, projections
and forecasts analyzed by LG&E Energy's and KU Energy's financial advisors in
connection with their opinions as set forth under "The Merger--Opinions of
Financial Advisors." Readers are cautioned that such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of LG&E Energy to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors may affect LG&E
Energy's operations, markets, products, services and prices. In addition to any
assumptions and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause LG&E Energy's actual
results to differ materially from those contemplated in any forward-looking
statement include, among others, the following: general economic and business
conditions; industry capacity; changes in technology; changes in political,
social and economic conditions; regulatory matters; integration of the
operations of LG&E Energy and KU Energy; regulatory delays or conditions
imposed by regulatory bodies in approving the Merger; adverse regulatory
treatment, including requirements for rate reductions or allocation to
customers of Merger cost savings in excess of what management has anticipated;
the ability of LG&E Energy and KU Energy to implement and to obtain anticipated
Merger cost savings and realize anticipated cost savings; the actual costs
required to effect the Merger and to realize Merger synergies and cost savings;
the loss of any significant customers; changes in business strategy or
development plans; the speed and degree to which competition enters the
electric utility industry; state and federal legislative and regulatory
initiatives that increase competition, affect cost and investment recovery and
have an impact on rate structures; industrial, commercial and residential
growth in the service territories of LG&E and Kentucky Utilities; the weather
and other natural phenomena; the timing and extent of changes in commodity
prices and interest rates; the development of opportunities for growth by the
subsidiaries of LG&E Energy and KU Energy and the other factors listed in
Exhibit 99.02 to LG&E Energy's Current Report on Form 8-K filed May 22, 1997.
31
<PAGE>
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of LG&E Energy Common Stock in connection with the solicitation of proxies by
the LG&E Energy Board from the holders of LG&E Energy Common Stock for use at
the LG&E Energy Meeting, and (ii) the holders of KU Energy Common Stock in
connection with the solicitation of proxies by the KU Energy Board from the
holders of KU Energy Common Stock for use at the KU Energy Meeting.
LG&E ENERGY MEETING
Purpose of LG&E Energy Meeting. The purpose of the LG&E Energy Meeting is to
consider and vote upon: (i) a proposal to approve the Merger Agreement and the
transactions contemplated thereby (including, among other things, the issuance
of shares of LG&E Energy Common Stock pursuant to the terms of the Merger
Agreement) and (ii) a proposal to approve the LG&E Energy Articles Amendment.
Pursuant to the Merger Agreement, consummation of the Merger is conditioned
upon approval by the shareholders of LG&E Energy of both proposals (i) and
(ii) above.
The LG&E Energy Board, by a unanimous vote, has approved the Merger
Agreement and authorized the execution and delivery of the Merger Agreement,
has approved the LG&E Energy Articles Amendment and recommends that LG&E
Energy shareholders vote FOR approval and adoption of the Merger Agreement and
FOR approval of the LG&E Energy Articles Amendment.
Certain of the members of the LG&E Energy Board will remain directors and/or
employees of LG&E Energy following consummation of the Merger and/or may
become entitled to severance benefits as a result of the Merger. Therefore,
such directors have interests in the Merger Agreement that are in addition to
the interests of shareholders of LG&E Energy generally and that could
potentially represent conflicts of interest. The LG&E Energy Board was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement.
Date, Place and Time, Record Date. The LG&E Energy Meeting is scheduled to
be held on October 14, 1997, at 10:00 a.m., local time, at The Medallion
Ballroom in The Seelbach Hotel, Louisville, Kentucky. Holders of record of
shares of LG&E Energy Common Stock at the close of business on the LG&E Energy
Record Date, will be entitled to notice of and to vote at the LG&E Energy
Meeting. At the close of business on the LG&E Energy Record Date, 66,486,875
shares of LG&E Energy Common Stock were issued and outstanding and entitled to
vote.
Voting Rights. Each outstanding share of LG&E Energy Common Stock is
entitled to one vote upon each matter presented at the LG&E Energy Meeting.
A majority of the votes entitled to be cast by holders of shares of LG&E
Energy Common Stock, present in person or by proxy, shall constitute a quorum
for the transaction of business at the LG&E Energy Meeting. Abstentions and
broker non-votes (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a matter with respect to which brokers
or nominees do not have discretionary power to vote) will be considered
present for the purpose of establishing a quorum. The affirmative vote of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of LG&E Energy Common Stock is required to approve the Merger
Agreement. The affirmative vote of a majority of the votes cast by the holders
of outstanding shares of LG&E Energy Common Stock present in person or by
proxy at the LG&E Energy Meeting is required for approval of the adoption of
the LG&E Energy Articles Amendment (provided the total votes cast represent
over 50% of the outstanding shares of LG&E Energy Common Stock entitled to
vote thereon). Approval of the Merger Agreement and the LG&E Energy Articles
Amendment is a condition to consummation of the Merger. Under applicable
Kentucky law, in determining whether the Merger Agreement or the LG&E Energy
Articles Amendment has received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as votes cast
against
32
<PAGE>
approval of the Merger Agreement, but will not be counted as votes for or
against the LG&E Energy Articles Amendment.
The directors and executive officers of LG&E Energy, together with their
affiliates as a group, own beneficially less than 1% of the issued and
outstanding shares of LG&E Energy Common Stock. No person holds of record or,
to the knowledge of LG&E Energy management, owns beneficially more than 5% of
any class of the outstanding voting securities of LG&E Energy.
If an LG&E Energy shareholder is a participant in the LG&E Employees' Stock
Ownership Plan (the "LG&E ESOP"), the participant will receive an LG&E ESOP
voting directive for shares allocated to the participant's account under the
LG&E ESOP. The trustee for the LG&E ESOP will vote such shares as instructed
by the participant in his or her LG&E ESOP voting directive. If a participant
in the LG&E ESOP does not return an LG&E ESOP voting directive, the trustee
for the LG&E ESOP will not vote such participant's allocated LG&E ESOP shares.
If an LG&E Energy shareholder is a participant in the LG&E Energy Automatic
Dividend Reinvestment and Stock Purchase Plan (the "LG&E Energy DRIP"), the
LG&E Energy proxy will represent the shares held on behalf of the participant
under the LG&E Energy DRIP and such shares will be voted in accordance with
the instructions on the LG&E Energy proxy. If a participant in the LG&E Energy
DRIP does not return an LG&E Energy proxy, the participant's shares will not
be voted.
Proxies. Holders of LG&E Energy Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the
LG&E Energy shareholder authorizes the persons named therein to vote all the
LG&E Energy shareholder's shares on his or her behalf. Issued and outstanding
shares of LG&E Energy Common Stock, the holders of which are entitled to vote
at the LG&E Energy Meeting, which are represented by properly executed
proxies, will, unless such proxies have been revoked, be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such shares will be voted FOR approval of the Merger Agreement and
FOR approval of the LG&E Energy Articles Amendment. An LG&E Energy shareholder
may revoke a proxy at any time prior to the LG&E Energy Meeting by delivering
to the Secretary of LG&E Energy a notice of revocation or a duly executed
proxy bearing a later date or by attending the LG&E Energy Meeting and voting
in person. Attendance at the LG&E Energy Meeting will not in itself constitute
revocation of a proxy.
LG&E Energy will bear the cost of soliciting proxies for the LG&E Energy
Meeting, except that LG&E Energy and KU Energy shall share equally expenses
incurred in connection with printing and filing this Joint Proxy Statement/
Prospectus. See "The Merger Agreement--Expenses." In addition to soliciting
proxies by mail, officers and employees of LG&E Energy, without receiving
additional compensation therefor, may solicit proxies by telephone, by
telecopy, by telegram or in person. LG&E Energy has retained D.F. King & Co.,
Inc. to aid in the solicitation of proxies from the LG&E Energy shareholders.
The fee for such services of such firm shall be $7,500.00 plus an additional
$3.00 per shareholder contact and reimbursement for reasonable out-of-pocket
expenses.
The LG&E Energy Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
Other. As indicated previously, the Merger Agreement requires that,
following consummation of the Merger, the Board of Directors of LG&E will
consist of those persons serving as directors of LG&E immediately prior to the
Merger plus those persons designated by KU Energy to serve as directors of
LG&E Energy following the Merger. As a result, the size of the Board of
Directors of LG&E is expected to be increased from its current size of 11 to
18. Because LG&E's Bylaws currently limit the number of directors to 15
persons, the LG&E Bylaws will be amended prior to the Effective Time to
accommodate the increased size of the Board. Such amendment of the LG&E Bylaws
requires the approval of 80% of LG&E's shareholders entitled to vote
generally. As the owner of approximately 96% of LG&E shares entitled to vote,
LG&E Energy will vote its shares in favor of such amendment thereby ensuring
adoption of such amendment to LG&E's Bylaws.
33
<PAGE>
KU ENERGY MEETING
Purpose of KU Energy Meeting. The purpose of the KU Energy Meeting is to
consider and vote upon a proposal to approve the Merger Agreement.
The KU Energy Board, by unanimous vote, has adopted and approved the Merger
Agreement, and recommends that KU Energy shareholders vote FOR approval of the
Merger Agreement.
Certain of the members of the KU Energy Board will become directors and/or
employees of LG&E Energy following consummation of the Merger and/or may
become entitled to severance benefits or vesting or acceleration of payment of
other benefits as a result of execution of the Merger Agreement or
consummation of the Merger. Therefore, such directors have interests in the
Merger Agreement that are in addition to the interests of shareholders of KU
Energy generally and that could potentially represent conflicts of interest.
The KU Energy Board was aware of these interests and considered them, among
other matters, in approving the Merger Agreement.
Date, Place and Time, Record Date. The KU Energy Meeting is scheduled to be
held on October 14, 1997, at 1:30 p.m., local time, at the offices of KU
Energy, Second Floor Assembly Room, One Quality Street, Lexington, Kentucky.
Holders of record of shares of KU Energy Common Stock at the close of business
on August 8, 1997, the KU Energy Record Date, will be entitled to notice of
and to vote at the KU Energy Meeting. As of the KU Energy Record Date,
37,817,517 shares of KU Energy Common Stock were issued and outstanding and
entitled to vote.
Voting Rights. Each outstanding share of KU Energy Common Stock is entitled
to one vote upon each matter presented at the KU Energy Meeting. A majority of
the votes entitled to be cast by holders of shares of KU Energy Common Stock,
represented in person or by proxy, shall constitute a quorum for each matter
presented at the KU Energy Meeting. Abstentions and broker non-votes (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not
have discretionary power to vote) will be considered present for the purpose
of establishing a quorum.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of KU Energy Common Stock is required for approval of
the Merger Agreement. Abstentions and broker non-votes will have the same
effect as votes cast against approval of the Merger Agreement. The directors
and executive officers of KU Energy, together with their affiliates as a
group, own beneficially less than 1% of the issued and outstanding shares of
KU Energy Common Stock. No person holds of record or, to the knowledge of KU
Energy management, owns beneficially more than 5% of the outstanding KU Energy
Common Stock.
Proxies. Holders of KU Energy Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, a KU
Energy shareholder authorizes the persons named therein to vote all the KU
Energy shareholder's shares on his or her behalf. All completed KU Energy
proxies returned will be voted in accordance with the instructions indicated
on such proxies. If no instructions are given, the KU Energy proxies will be
voted FOR approval of the Merger Agreement. A KU Energy proxy may be revoked
by voting in person at the KU Energy Meeting, by written notice to the
Secretary of KU Energy, or by delivery of a later-dated proxy to KU Energy's
Corporate Secretary, in each case prior to the voting at the KU Energy
Meeting. Attendance at the KU Energy Meeting will not in itself constitute
revocation of a proxy.
Each participant in KU Energy's Automatic Dividend Reinvestment and Stock
Purchase Plan (the "KU Energy Reinvestment Plan"), Kentucky Utilities'
Employee Stock Ownership Plan (the "KU ESOP") or the Kentucky Utilities
Employee Savings Plan (the "KU Savings Plan") will receive a form of proxy by
which such participant may direct the agent or trustee under such Plans as to
the manner of voting shares credited to the participant's accounts under such
Plans. KU Energy shareholders of record who are participants in the
Reinvestment Plan will receive only one form of proxy for their certificated
shares and those shares which they may have acquired through reinvested
dividends. A participant of any of such Plans wishing to vote in person at
34
<PAGE>
the KU Energy Meeting may obtain a proxy for shares credited to his or her
account under such Plans by making a written request therefor by October 7,
1997, as follows: for the KU Energy Reinvestment Plan, to George S. Brooks II,
Secretary of the Company, at the address stated on page 3; for the KU ESOP, to
Banc One Kentucky, P.O. Box 32500, Louisville, Kentucky 40232, Attention:
Barbara J. Steele, Trust Investment Division; and for the KU Savings Plan, to
CG Trust Company, c/o Cigna Retirement and Investment Services, Mail Zone H20-
A, 280 Trumbull Street, Hartford, Connecticut 06103, Attention: Bruce
Beckmann.
KU Energy will bear the cost of the solicitation of proxies for the KU
Energy Meeting, except that LG&E Energy and KU Energy shall share equally
expenses incurred in connection with printing and filing this Joint Proxy
Statement/Prospectus. See "The Merger Agreement--Expenses." Proxies may be
solicited by certain officers and employees of KU Energy or its subsidiaries
by mail, by telephone, personally or by other communications, without
compensation apart from their normal salaries. KU Energy has retained D.F.
King & Co., Inc. to assist in the solicitation of proxies from KU Energy
shareholders, including brokers' accounts, at a fee for such services of
$8,500.00 plus an additional $3.00 per shareholder contact and reasonable out-
of-pocket expenses.
The KU Energy Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
THE MERGER
BACKGROUND OF THE MERGER
LG&E Energy and KU Energy are neighboring holding companies which have had a
variety of working relationships at the utility level on a wide range of
issues over many years. LG&E and Kentucky Utilities are both parties to the
East Central Area Reliability Coordination Agreement, which is designed to
augment the reliability of the members' bulk power supply through coordination
of planning and operation of generation and transmission facilities. In
addition, the two utilities are parties to interconnection agreements and from
time to time have entered into short-term power sales agreements with each
other and have assisted one another in restoring service following major
storms. Both companies also have ownership interests in Ohio Valley Electric
Corporation. Representatives of LG&E and Kentucky Utilities also have served
together on various electric utility industry task forces and have pursued
joint state legislative initiatives.
In connection with the working relationship between LG&E and Kentucky
Utilities, Roger W. Hale, Chairman and Chief Executive Officer of LG&E Energy,
has periodically met to discuss industry and joint business issues with
Michael R. Whitley, Chairman and Chief Executive Officer of KU Energy, and
with Mr. Whitley's predecessor, John T. Newton. During such meetings, Mr.
Hale, Mr. Whitley and Mr. Newton also discussed their views regarding the
future of the utility industry generally and of LG&E Energy and KU Energy in
particular. From time to time, Mr. Hale, Mr. Whitley and Mr. Newton also
informally discussed the potential benefits that could result from a
combination of LG&E Energy and KU Energy. Mr. Hale, Mr. Whitley and Mr. Newton
periodically informed their respective Boards of Directors of such informal
discussions.
In recent years both companies turned their strategic attention to
developments in federal regulatory policy which are designed to increase
competition in the wholesale market for bulk power and expand competition in
the market for generation. Many of these developments were prompted by the
Energy Policy Act of 1992 (the "1992 Act"), which granted the FERC the
authority to order electric utilities to provide transmission service to other
utilities and to other buyers and sellers of electricity in the wholesale
market. The 1992 Act also created a new class of power producers, exempt
wholesale generators ("EWGs"), which are exempt from regulation under the 1935
Act. The exemption from regulation under the 1935 Act of EWGs has increased
the number of entrants into the wholesale electric generation market, thus
increasing competition in the wholesale segment of the electric utility
industry.
Commencing in December 1993, pursuant to its authority under the 1992 Act,
FERC issued a number of orders in specific cases directing utilities to
provide transmission services. On April 7, 1995, FERC issued a
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notice of proposed rulemaking under which it proposed to implement, on a
comprehensive basis, the comparable transmission service policies it has set
forth in specific cases. In April 1996, FERC issued Orders 888 and 889,
implementing in large part the proposals in its proposed rulemaking. Under
FERC's current transmission policies, electric utilities are required to offer
transmission services to third parties on a basis comparable to services that
the electric utilities provide themselves. In addition, pursuant to Order 889,
electric utilities have been required to separate their merchant and
transmission functions. FERC's actions to date and its transmission rulemaking
proceedings have increased the availability of transmission services, which
also has created greater competition in the wholesale power market.
In addition, legislative and regulatory bodies in numerous states have
initiated reviews of the basic structure of the electric utility industry and
are considering or have adopted various proposals to require more competition
in the retail portion of the industry. The Kentucky Public Service Commission
has held a series of meetings with electric utilities under its jurisdiction to
discuss the potential impact of industry restructuring. The theme of the
meetings has been how the Kentucky Commission and the electric utilities can
best work together to ensure that any restructuring benefits Kentucky
consumers.
The changes to the electric industry that have occurred and that are
occurring are bringing increased competition to various sectors of the business
and are putting pressure on utilities to lower their costs. Both LG&E Energy
and KU Energy have advocated nationwide customer choice and competition in the
energy market and believe that, as low cost producers of electricity, they will
be able to compete effectively in a more competitive environment. Each of LG&E
Energy and KU Energy independently concluded that key factors contributing to
success in a more competitive environment will include maintaining low-cost
production and achieving a size that will enable it to continue to provide high
quality customer service, enhance its competitive position and maintain its
financial strength.
Since the adoption of the 1992 Act, the management of LG&E Energy and the
LG&E Energy Board have continually analyzed various potential strategic options
and opportunities that might be available to LG&E Energy. Such analysis has
resulted in LG&E Energy developing a significant energy marketing business. For
1996, LG&E Energy was the largest utility-affiliated power marketer in the
United States and had revenues from energy marketing and trading in excess of
$2.7 billion. LG&E Energy has also sought to take advantage of the new
competitive environment by acquiring interests in and operating independent
power plants in several states, Argentina and Spain and two gas distribution
companies in Argentina.
LG&E Energy management's review of potential strategic options and
opportunities has also included analysis of possible business combinations with
other utilities. LG&E Energy's management periodically briefed the LG&E Energy
Board on the results of management's analysis. Management's analysis indicated
that KU Energy was the most attractive merger candidate due to its comparable
size, its low cost production, its financial strength, the existence of
contiguous service territories and the potential synergies and cost savings
that could result from combining LG&E Energy and KU Energy.
KU Energy management recognized the changes in the regulatory environment and
resulting changes in the electric utility industry brought about by the 1992
Act and other legislative and regulatory changes. KU Energy management and the
KU Energy Board continually reviewed current trends in the electric utility
industry noting in particular the increased level of competition in recent
years. In April 1994, the KU Energy Board created a Long-Range Planning
Committee. That committee has been charged to review KU Energy's strategic
options and opportunities and report to the KU Energy Board from time to time.
The committee's review has included consideration of retail marketing, bulk
power marketing and energy services initiatives and has recognized KU Energy's
strong competitive position resulting from its low cost production of
electricity, high quality service and competitive prices. The committee also
has considered possible business combinations with other utilities in light of
KU Energy's strategic position and direction. The committee and the KU Energy
Board heard numerous presentations from management as well as outside financial
and legal advisors regarding these issues. Management analyzed the potential
benefits of a merger with several neighboring utilities including LG&E Energy
and concluded that a business combination with LG&E Energy would likely produce
numerous benefits
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because of the contiguous service territories of the two utility companies, the
similar size, financial strength, strategic initiatives and management styles
of the companies, the potential cost savings that would result from a
combination with LG&E Energy and LG&E Energy's strengths in energy marketing
and trading.
At a June 5, 1996 meeting of the LG&E Energy Board, Mr. Hale again described
the merger options that could be pursued by LG&E Energy and discussed KU Energy
as an attractive prospect. Following the Board meeting, senior management of
LG&E Energy further analyzed a possible business combination with KU Energy by
updating and supplementing previously-prepared internal financial and synergy
analyses. At a regular meeting of the LG&E Energy Board on September 4, 1996,
senior management of LG&E Energy reviewed the results of its analysis of KU
Energy, and the LG&E Energy Board authorized Mr. Hale to pursue discussions
with KU Energy regarding a possible business combination between LG&E Energy
and KU Energy. Mr. Hale also reviewed with the LG&E Energy Board the terms of a
letter that he proposed to deliver to Mr. Whitley. After reviewing management's
analysis of the terms of the proposed letter, the Board expressed support for
the delivery of the letter.
Following the meeting of the LG&E Energy Board on September 4, 1996, legal
counsel and LG&E Energy's financial advisors assisted LG&E Energy management in
the preparation of the letter to Mr. Whitley. At a meeting in Louisville on
September 13, 1996, between Mr. Hale and Mr. Whitley, Mr. Hale delivered the
letter to Mr. Whitley (the "September 13 Letter") expressing LG&E Energy's
desire for serious and prompt discussions regarding a possible business
combination between LG&E Energy and KU Energy. The September 13 Letter
indicated that, based on the information possessed by LG&E Energy, LG&E Energy
could make an offer of $38.00 for each share of KU Energy Common Stock payable
in shares of LG&E Energy Common Stock, which had a then current market price of
$23.125 per share. At their meeting, Mr. Hale presented additional terms that
Mr. Hale believed could form the basis for commencing discussions between LG&E
Energy and KU Energy. Such additional terms were that, following completion of
any business combination, Kentucky Utilities would maintain its separate
existence and corporate headquarters location, the initial board of directors
of the surviving corporation in any merger would consist of individuals
designated by LG&E Energy (comprising approximately 60% of the total number of
directors) and individuals designated by KU Energy (comprising approximately
40% of the total number of directors), and the surviving corporation in any
merger would adopt a new name to reflect its national presence and would be
headquartered in Louisville, Kentucky. The respective roles of Messrs. Hale and
Whitley following any merger were outlined in the September 13 Letter. Mr.
Whitley advised Mr. Hale that he would review the September 13 Letter and such
terms with his senior management and the KU Energy Board.
Promptly following his meeting with Mr. Hale, Mr. Whitley advised KU Energy's
outside legal counsel and Goldman Sachs, KU Energy's financial advisor, as well
as certain senior executive officers of KU Energy and certain members of the KU
Energy Board, of the September 13 Letter. Mr. Whitley asked outside counsel and
KU Energy's financial advisors to review the terms proposed in the September 13
Letter and advise him as to what KU Energy's response, if any, should be.
At a meeting on September 16, 1996 of the Long-Range Planning Committee of
the KU Energy Board, Mr. Whitley discussed the September 13 Letter and
recommended a process for addressing the LG&E proposal set forth therein. At a
meeting of the KU Energy Board later that day, the September 13 Letter was
further discussed and a recommended process for considering LG&E's proposal was
agreed upon.
Mr. Hale and other members of LG&E Energy's senior management discussed with
LG&E Energy's financial advisors and outside counsel Mr. Hale's meeting on
September 13, 1996 and the September 13 Letter. Following such discussion, LG&E
Energy's financial advisors and outside counsel assisted LG&E Energy's senior
management in their review of the financial, legal and regulatory issues
relating to a business combination of LG&E Energy and KU Energy.
In a telephone conversation on September 25, 1996, Mr. Whitley informed Mr.
Hale that the KU Energy Board would further review with KU Energy's financial
and legal advisors the matters raised in the September 13 Letter and that Mr.
Hale could expect a response in several weeks.
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From September 25, 1996 through mid-October, Mr. Whitley and other senior
officers of KU Energy had several discussions with KU Energy's legal and
financial advisors regarding the terms of the September 13 Letter. Goldman
Sachs prepared preliminary valuation analysis based on the terms of the
September 13 Letter.
On October 17, 1996, LG&E Energy formally entered into an engagement letter
with Blackstone, whereby Blackstone agreed to act as financial advisor to LG&E
Energy in connection with the possible combination with KU Energy.
At a special meeting of the LG&E Energy Board held on October 17, 1996, Mr.
Hale reviewed his discussions with Mr. Whitley. Counsel for LG&E Energy then
reviewed the fiduciary obligations of the LG&E Energy Board in connection with
the pursuit of a possible business combination of LG&E Energy and KU Energy.
Blackstone then made a presentation that included a description of the
financial terms of other comparable transactions and the results of their
preliminary valuation analysis that had been made on the basis of publicly-
available information regarding KU Energy. Walter Z. Berger, Chief Financial
Officer of LG&E Energy at the time, gave a presentation on potential cost
savings and synergies that could be realized from a combination of LG&E Energy
and KU Energy based on a preliminary review. Mr. Berger also reviewed a
preliminary analysis of the financial impact of such a transaction. Victor A.
Staffieri, then President--Distribution Services Division of LG&E Energy, and
John R. McCall, General Counsel of LG&E Energy, then reviewed the regulatory
and related issues in any potential business combination. The LG&E Energy Board
authorized management to continue to pursue negotiations with KU Energy.
On October 22, 1996, KU Energy entered into a formal engagement letter with
Goldman Sachs whereby Goldman Sachs agreed to act as financial advisor to KU
Energy in connection with possible business combination transactions.
At an October 22, 1996 special meeting of the KU Energy Board, Mr. Whitley
further discussed the September 13 Letter and the meeting between him and Mr.
Hale at which the September 13 Letter was delivered. Mr. Whitley described in
detail the terms of the September 13 Letter including the proposed price and
other elements of the proposal such as board composition, headquarters location
and post-merger operations and structure. The KU Energy Board heard a
presentation from outside legal counsel as to their fiduciary duties in the
context of a possible business combination transaction. Mr. Whitley presented
management's business plan and preliminary forecasts. Goldman Sachs discussed
with the KU Energy Board the financial status of KU Energy and presented an
explanation of various elements of the proposal and a preliminary view of the
valuation of the terms referred to in the September 13 Letter, of comparable
transactions and of LG&E Energy based on publicly-available information. At the
conclusion of the meeting, the KU Energy Board authorized Mr. Whitley to
respond to LG&E Energy and specified certain questions and concerns that they
wished Mr. Whitley to address with regard to the exchange ratio, the
composition of the board of directors and the name of the post-merger company.
Following the KU Energy Board meeting on October 22, 1996, Mr. Whitley called
Mr. Hale to arrange a meeting for October 28, 1996 in Lexington. At this
October 28 meeting, Mr. Whitley stated that, in the KU Energy Board's opinion,
the LG&E Energy proposal assumed a valuation of KU Energy that was too low and
that such valuation should be presented in terms of an adequate exchange ratio
rather than a price. Mr. Whitley further stated that the KU Energy Board was
interested only in discussions involving a strategic business combination of
LG&E Energy and KU Energy on a "merger of equals" basis. In this latter regard,
Mr. Whitley noted that the LG&E Energy proposal did not provide KU Energy with
sufficient impact on the strategic direction of the surviving entity, that KU
Energy would require 50% board participation and additional participation by KU
Energy in critical senior management positions. Mr. Hale responded that KU
Energy could be afforded more than 40% of the surviving company board seats but
probably not as much as 50% and that more flexibility was probably available in
the management positions.
After the October 28 meeting, Mr. Whitley conferred with KU Energy's
financial and legal advisors, who recommended that negotiations not proceed
further without the parties executing a confidentiality agreement. Such an
agreement was negotiated with LG&E Energy on October 29 and 30 and executed on
October 30, 1996.
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Also, following the October 28 meeting with Mr. Whitley, Mr. Hale discussed
the issues raised by Mr. Whitley with members of LG&E Energy's senior
management and LG&E Energy's financial and legal advisors and members of the
LG&E Energy Board. Following these discussions, Mr. Hale met with Mr. Whitley
in Louisville and proposed that the board of directors of the combined company
initially consist of eight persons designated by LG&E Energy and seven persons
designated by KU Energy. Mr. Hale and Mr. Whitley discussed the other issues
that Mr. Whitley had raised and agreed that, if LG&E Energy and KU Energy
determined to further investigate the possibility of a business combination,
the valuation of KU Energy's common stock would be further discussed after the
parties and their legal and financial advisors had conducted reciprocal due
diligence investigations and the parties completed a joint analysis of the
potential cost savings that could result from a business combination. Mr. Hale
and Mr. Whitley also agreed that the composition and duties of senior
management of the combined companies would be further discussed and that both
companies were in agreement that decisions regarding such matters would be
made based on what the parties mutually agreed would be in the best interest
of the combined company. Mr. Hale and Mr. Whitley then agreed that, following
the execution of a confidentiality agreement, a limited number of senior
executives from LG&E Energy and KU Energy, together with the companies'
respective financial and legal advisors, would meet to commence discussions
and exchange information in order to investigate a potential strategic
business combination between LG&E Energy and KU Energy and to consider what
operational synergies could be anticipated to result from such a combination.
Mr. Hale discussed these developments along with various aspects of the
proposed transaction with the LG&E Energy Board at a meeting on October 30,
1996. Shortly thereafter, LG&E Energy's financial advisor, Blackstone, and KU
Energy's financial advisor, Goldman Sachs, began exchanging financial
information and analysis in order to help facilitate agreement on a mutually
acceptable exchange ratio in the event that LG&E Energy and KU Energy
determined to enter into a strategic business combination. In addition,
between October 31, and November 10, 1996, LG&E Energy and KU Energy exchanged
requests for information in connection with their respective operational,
financial, regulatory, legal and other analyses and due diligence reviews, and
representatives of LG&E Energy and KU Energy discussed the procedures that
would be followed in order to facilitate such analyses and reviews.
During the first week of November 1996, Mr. Hale and Mr. Whitley discussed
on several occasions key financial issues (including the exchange ratio and
the initial dividend level for the combined company), governance issues (Board
oversight committees, Board and Committee representation, management structure
and composition, headquarters location, location of operations, corporate name
and names of the utility companies), legal structure of the combined company
and employment terms for Mr. Hale and Mr. Whitley.
Working groups composed of representatives of both companies were formed to
examine various issues including structure, financial modeling, regulatory
considerations, employee and employee benefit matters, communications and an
analysis of cost savings. Meetings were held on November 11 and 12, 1996 among
representatives of LG&E Energy and KU Energy and their respective counsel and
financial advisors. At those meetings, senior management of each company made
presentations regarding such company's operations, financial results and
condition and other matters to the other company and its advisors. In
addition, LG&E Energy and KU Energy commenced the exchange and review of due
diligence and other information previously requested. At the conclusion of
such meetings, it was agreed that the parties would commence the preparation
and negotiation of a merger agreement and other documents that would be
required if the parties determined to enter into a strategic business
combination.
On November 18, 1996, counsel for LG&E Energy and KU Energy jointly engaged
Deloitte & Touche Consulting Group ("D&T Consulting Group") to assist the
managements of LG&E Energy and KU Energy in their identifying and quantifying
potential cost savings that could result from a business combination between
the two companies.
The KU Energy Board held a special meeting on November 18, 1996 to discuss
the status of negotiations with LG&E Energy. Mr. Whitley and legal counsel
made extensive presentations on the progress of due diligence and
negotiations. Mr. Whitley informed the KU Energy Board that while several open
issues had yet to be addressed, negotiations were proceeding. Mr. Whitley also
updated the KU Energy Board on the status of the
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cost savings analysis and described the schedule for further due diligence
investigations. Legal counsel and Goldman Sachs responded to various questions
from the KU Energy Board.
On November 19, 1996, KU Energy engaged Arthur Andersen LLP to assist KU
Energy in its due diligence investigation of LG&E Energy's energy marketing and
trading operations.
The LG&E Energy Board received extensive updates on the status of all
developments and negotiations at meetings on November 6, 1996 and November 22,
1996.
During the next several weeks, the various parties continued their work with
respect to the cost savings analysis, business plans, legal structure,
regulatory plans, due diligence and employee benefits. In addition, discussions
continued between LG&E Energy management and Blackstone, on the one hand, and
KU Energy and Goldman Sachs, on the other hand, with respect to financial
models and analysis to help facilitate the establishment of a mutually
agreeable exchange ratio. LG&E Energy and KU Energy and their respective legal
advisors also engaged in negotiations with respect to the terms of a draft
merger agreement, reciprocal stock option agreements and other documents that
would be required to effect a merger of the two companies. While these matters
were occurring, Mr. Hale and Mr. Whitley also continued to discuss key
financial and governance issues, the legal structure of a combined company and
employment terms for Mr. Hale and Mr. Whitley.
By the first week of December, 1996, the companies had substantially
completed their preliminary analysis of potential cost savings and their
respective due diligence reviews. Each of LG&E Energy and KU Energy called
special meetings of their Boards of Directors for December 6, 1996 to consider
a proposed merger of KU Energy into LG&E Energy. Several terms of the proposed
transaction remained unresolved, with the most significant one being the
exchange ratio. Also unresolved were issues related to termination, including
circumstances permitting termination and amounts of termination fees, and
issues relating to reciprocal stock options.
The KU Energy Board received detailed and extensive updates on the status of
all significant developments and negotiations at its meeting on December 2,
1996. Mr. Wayne Lucas, Senior Vice President of Kentucky Utilities, made a
presentation regarding the power marketing and gas marketing operations of LG&E
Energy, noting that a careful review of these operations had been conducted.
Mr. O.M. Goodlett, Senior Vice President of KU Energy, made a presentation
regarding the cost savings analyses and regulatory issues. Finally, KU Energy's
legal counsel made a further presentation on fiduciary duties, described the
status of negotiations regarding the proposed merger agreement and summarized
the principal provisions of the proposed agreement and related stock options.
Goldman Sachs made a lengthy presentation on the financial aspects of the
proposed transaction and described for the KU Energy Board the status of
discussions regarding the exchange ratio. Mr. Whitley noted that the parties
had not agreed on several important issues. At the conclusion of the meeting,
the KU Energy Board asked Mr. Whitley to inform LG&E Energy of the KU Energy
Board's dissatisfaction with various aspects of the proposal, including
exchange ratio level, board composition, management issues, headquarters
location, continuing corporate presence and transition matters.
On December 2, 1996, Mr. Whitley advised Mr. Hale of the KU Energy Board's
position. On December 3, and 4, 1996, Mr. Hale and Mr. Whitley discussed the
most significant unresolved issues. During a series of discussions, Mr. Hale
and Mr. Whitley and their respective financial advisors were unable to reach
agreement on an exchange ratio. In addition, the parties were unable to agree
on the responsibilities and reporting relationship for Mr. Whitley and Mr. Hale
and other corporate governance issues.
On December 5, 1996, Mr. Whitley informed Mr. Hale by telephone that the KU
Energy Board was not prepared to consider a proposed merger between KU Energy
and LG&E Energy on the terms discussed to date. Mr. Whitley and Mr. Hale agreed
to discuss the matter further in January 1997. Following Mr. Whitley's
discussion with Mr. Hale, Mr. Hale described these developments to the LG&E
Energy Board.
The LG&E Energy Board met on December 13, 1996 and was briefed by management
on the suspension of the discussions with KU Energy. The LG&E Energy Board
discussed the material issues that had not been
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resolved with KU Energy and the potential benefits to customers (in the form
of maintenance of competitive rates) and shareholders (in the form of enhanced
opportunities for earnings and dividend growth) of LG&E Energy that could
result from the combination. The LG&E Energy Board concluded that, in light of
the potential benefits to shareholders and customers of LG&E Energy of a
business combination between LG&E Energy and KU Energy, the LG&E Energy Board
would be interested in further exploration of a possible business combination
between LG&E Energy and KU Energy if the open issues could be resolved on an
acceptable basis and requested Mr. Hale to continue to explore a possible
transaction with KU Energy.
At the December 16, 1996 regular meeting of the KU Energy Board, Mr. Whitley
informed the KU Energy Board of his discussions with Mr. Hale following the KU
Energy Board meeting on December 2, and that he and Mr. Hale had agreed to
have further discussions in January 1997.
At a January 17, 1997 meeting in Louisville, Mr. Hale presented a letter to
Mr. Whitley requesting that KU Energy resume negotiations. In the letter, LG&E
Energy proposed an exchange ratio of 1.67 shares of LG&E Energy Common Stock
for each outstanding share of KU Energy Common Stock. In addition, the letter
proposed that Mr. Hale become Chairman and Chief Executive Officer of the
combined company and that Mr. Whitley become Vice-Chairman, President and
Chief Operating Officer of the combined company. Mr. Whitley informed Mr. Hale
that the KU Energy Board of Directors would carefully consider LG&E Energy's
latest proposal and that Mr. Whitley would contact Mr. Hale with any response.
At the January 28, 1997 regular meeting of the KU Energy Board, Mr. Whitley
described the letter received from Mr. Hale on January 17, 1997 including the
improved exchange ratio of 1.67 as well as proposals concerning senior
management of the combined companies and operating utilities. The KU Energy
Board received updated and revised reports from legal counsel and Goldman
Sachs regarding the revised terms of the proposal from LG&E Energy. At a
February 25, 1997 special meeting, the KU Energy Board received further
reports on the results of the cost savings analyses and also received from
Goldman Sachs an updated financial evaluation. At the February 25, 1997
meeting the KU Energy Board concluded that it would be appropriate to continue
negotiations with LG&E Energy.
At a meeting between Mr. Hale and Mr. Whitley on February 26, 1997, Mr.
Whitley informed Mr. Hale that KU Energy was prepared to resume discussions
with LG&E Energy. Following several discussions between representatives of
LG&E Energy and KU Energy and their respective legal and financial advisors,
on March 13, 1997, representatives of the companies and their respective
financial and legal advisors met to discuss the process by which the
unresolved issues would be addressed, the preliminary cost savings analysis
and the process for updating and finalizing the parties' respective due
diligence reviews and the other actions that would be required if the parties
were to agree to a business combination. In particular, the parties also
discussed expanding the board oversight committees to four with the addition
of a long-range planning committee, balancing the membership on the Nominating
and Corporate Governance Committee, and providing for two committee
chairpersons to be appointed from each company.
At a meeting in Louisville on March 24, 1997, Mr. Hale and Mr. Whitley
discussed future executive management positions of a combined company and
future organization of the respective utility operations. They also discussed
LG&E Energy's proposal with regard to Big Rivers Electric Corporation. See
"Selected Information Concerning KU Energy and LG&E Energy--Business of LG&E
Energy."
At a March 27, 1997 meeting in Louisville, Mr. Hale and Mr. Whitley
tentatively agreed upon the executive management positions, and the names,
locations and conduct of the utility operations.
At an April 17, 1997 meeting in Louisville to discuss the proposed Merger
Agreement, Mr. Hale and Mr. Whitley tentatively agreed on those covenants in
the proposed Merger Agreement regarding the operations of each company pending
consummation of the Merger involving stock issuances, other business
acquisitions and any interim changes in employee benefits of the two
companies. Tentative employment contracts for Mr. Hale and Mr. Whitley were
also discussed.
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Throughout March, April and early May of 1997, the parties updated their
work with respect to the cost savings analysis, business plans, regulatory
plans and due diligence. In addition, the parties and their respective counsel
negotiated the remaining terms of the merger agreement, the stock option
agreements and the other agreements required to effect the proposed business
combination.
Mr. Hale discussed further with the LG&E Energy Board the issues relating to
the proposed merger and the status of negotiations at a Board meeting in March
and a meeting on May 8, 1997. At the meeting on May 8, 1997, Mr. Whitley met
with the LG&E Energy Board and reviewed with them his views on the energy
industry generally, the business of KU Energy and its subsidiaries and the
proposed transaction. The KU Energy Board was updated on the status of
negotiations at meetings on April 22, 1997, and May 12, 1997. At the meeting
on May 12, 1997, Mr. Hale met with the KU Energy Board and reviewed with them
his views on the energy industry generally, the business of LG&E Energy and
its subsidiaries and the proposed transaction.
During the period from May 12, 1997 through May 20, 1997, the parties
finalized their work with respect to the cost savings analysis, business
plans, regulatory plans and due diligence and reached final agreement on the
terms of the merger agreement, the stock option agreements and the other
agreements required to effect the proposed business combination.
At the LG&E Energy Board meeting on May 20, 1997, management of LG&E Energy
summarized the business and strategic rationale for the proposed merger.
Counsel to LG&E Energy again described the LG&E Energy Board's fiduciary
duties and outlined in detail the terms and conditions of the Merger
Agreement, the Stock Option Agreements and the Employment Agreements.
Blackstone gave a presentation that included its valuation analysis and
rendered its opinion that the Exchange Ratio was fair from a financial point
of view to the holders of LG&E Energy Common Stock. See "Opinions of Financial
Advisors--LG&E Energy's Financial Advisor." The LG&E Energy Board of Directors
also received reports on management's analysis of the potential synergies and
cost savings, the regulatory plan relating to the transaction and the results
of LG&E Energy's due diligence investigation of KU Energy. The LG&E Energy
Board of Directors discussed the presentations they had received and, upon
conclusion, unanimously approved the Merger Agreement, the Stock Option
Agreements and the Employment Agreement with Mr. Hale and authorized their
execution.
At the May 20, 1997 meeting of the KU Energy Board, legal counsel again
reviewed the elements of Kentucky law applicable to the Directors'
consideration of the merger proposal including a discussion of their fiduciary
duties. Legal counsel reviewed the process of due diligence, negotiation and
other steps that had been taken in review of the merger proposal. Mr. Whitley
reported that management had satisfactorily completed its due diligence
review. Mr. O.M. Goodlett provided an updated review of the cost savings
analysis describing the changes in the analysis and conclusions during the
period following December 1996 and described for the KU Energy Board the
proposed regulatory strategy. Legal counsel summarized the provisions of the
Merger Agreement, the Stock Option Agreements and the Employment Agreements.
Goldman Sachs gave a presentation that included its valuation analysis and
delivered its oral opinion, which it confirmed in writing as of such date,
that the Exchange Ratio was fair to the holders of KU Energy Common Stock. See
"Opinions of Financial Advisors--KU Energy's Financial Advisor." After
considerable discussion, the KU Energy board unanimously approved the Merger
Agreement, the Stock Option Agreements and the Employment Agreement with Mr.
Whitley and authorized their execution.
Following the meetings of the LG&E Energy Board and the KU Energy Board, the
Merger Agreement, the Stock Option Agreements and the Employment Agreements
were executed.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
LG&E Energy and KU Energy believe that the Merger offers significant
strategic and financial benefits to each company and to their respective
shareholders, as well as to their employees and customers and the communities
in which they do business. The expected benefits include, among others:
. Maintenance of Competitive Rates--Following the Merger, LG&E Energy as
the combined company expects to be able to meet the challenges of the
increasingly competitive environment in the utility
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industry more effectively than either LG&E Energy or KU Energy standing
alone. As competition increases in the electric industry, the importance
of the price at which electric service can be provided will increase
significantly. Each of LG&E and Kentucky Utilities is today among the
lowest cost producers of electricity in the United States. The contiguous
nature of the two companies' service territories provides a unique
opportunity to achieve meaningful reductions in operating costs. The
anticipated cost savings described below from the proposed combination
will enable LG&E and Kentucky Utilities to keep their costs of electric
service lower than either company could have achieved on a stand-alone
basis. Besides enabling LG&E and Kentucky Utilities to compete more
effectively in a competitive utility environment, such low costs are also
expected to enhance economic development efforts in the areas that they
currently serve, which should benefit both customers and shareholders in
the long term.
. Increased Size and Stability--As competition intensifies in the industry,
LG&E Energy and KU Energy believe that size and credit quality will be
two factors that will contribute to overall business success. In terms of
generating capacity, LG&E and Kentucky Utilities on a combined basis will
have over 6,000 megawatts of generating capacity. In addition, through
its non-utility subsidiaries, LG&E Energy had ownership interests in, or
contractual arrangements for, more than an additional 3,000 megawatts of
generating capacity as of January 31, 1997. If the Merger were to occur
today, the combination of LG&E Energy and KU Energy would create one of
the largest low-cost energy services providers in the United States, with
consolidated utility and non-utility assets in excess of $4.8 billion,
with consolidated utility and non-utility revenues in excess of $4.7
billion and with two public utility subsidiaries having high credit
ratings. In addition, the combined size and stability of LG&E Energy and
KU Energy are expected to better enable LG&E Energy after the Merger to
further diversify its assets and businesses through acquisitions, the
development of new businesses both in the United States and
internationally, and the marketing and delivery of new products and
services. This capability for greater diversification is expected to
provide the combined company with a broader range of strategic choices in
response to deregulation and increased competition in the electric
utility industry.
. Significant Reduction in Operating Costs--The Merger, which, as stated
previously, will result in the common ownership of LG&E and Kentucky
Utilities, is expected to result in substantial non-fuel savings,
estimated at $680 million, net of costs to achieve, over a 10-year
period. These savings are expected to come from these areas:
Labor: LG&E Energy and KU Energy anticipate that they will be able
through voluntary means to downsize their combined workforce by
approximately 9%. A joint transition task force is examining the
manner in which to best organize and manage the businesses of LG&E
Energy after the Merger and identify duplicative positions in
corporate, administrative and other areas. It is anticipated that,
as a result of combining staff and other functions, LG&E Energy will
have fewer employees within several years after the Effective Date
than LG&E Energy and KU Energy currently have in the aggregate. LG&E
Energy and KU Energy believe they will achieve cost savings in the
area of personnel reductions through attrition, strictly controlled
hiring, reassignment and retraining, targeted early retirement
programs and, only if required, involuntary separation.
Integration of Corporate and Administrative Functions: Following the
Merger, LG&E Energy expects to be able to consolidate certain
corporate and administrative functions of LG&E Energy and KU Energy,
thereby eliminating duplicative programs or services, reducing other
non-labor corporate and administrative expenses and limiting or
avoiding capital expenditures for administrative facilities and
information systems. In addition, some savings in areas such as
insurance and regulatory costs and legal, audit and consulting fees
should be realized.
Purchasing Economies and Streamlining of Inventories: The common
ownership of the two utility companies should result in greater
purchasing power for items such as materials and supplies and
contractor services and the reduction of inventories for
standardized materials and supplies for construction, operations,
and maintenance within the combined generation, transmission and
distribution systems of LG&E and Kentucky Utilities.
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. Expanded Management and Employee Resources--The combined company will be
able to draw on a larger and more diverse mid- and senior-level
management and employee pool to lead LG&E Energy in an increasingly
competitive environment for the delivery of energy and related services
and should be better able to attract and retain the most qualified
employees. The employees of the two companies should also benefit from
new career opportunities in the expanded organization.
. Coordination of Diversification Programs--The two companies, particularly
LG&E Energy, have significant non-utility subsidiaries. Following the
Merger, LG&E Energy, as a stronger financial entity, should be able to
manage and pursue such subsidiary businesses more efficiently and
effectively.
. Best Practices--The combination is expected to allow for the sharing and
implementation of best practices from each of the areas in LG&E Energy
and KU Energy. Examples of such practices include customer satisfaction
programs and maintenance programs.
. Community Involvement--LG&E and Kentucky Utilities will continue to play
a strong role in the economic development efforts of the communities LG&E
and Kentucky Utilities now serve. The philanthropic and volunteer
programs currently maintained by the two companies will be continued.
Subject to the qualifications expressed below, LG&E Energy and KU Energy
believe that the Merger will generate substantial cost savings to the combined
company following the Effective Time, which would not be available absent the
Merger. Preliminary estimates by the management of LG&E Energy and KU Energy
indicate that the Merger could result in potential net non-fuel cost savings
(that is, after taking into account the costs incurred to achieve such savings)
of approximately $680 million during the ten-year period following the Merger.
Potentially significant cost savings include personnel reductions, reduced
corporate and administrative programs, reduced fuel costs, and other avoided or
reduced operation and maintenance costs, such as labor and materials. Achieved
savings in costs are expected to inure to the benefit of both shareholders and
customers. The treatment of the benefits and cost savings will depend on the
results of actions by the various regulatory bodies to which LG&E and Kentucky
Utilities are subject. See "Regulatory Matters."
The analyses employed by the management of LG&E Energy and KU Energy in order
to develop estimates of potential savings as a result of the Merger were
necessarily based upon various assumptions that involve judgments with respect
to, among other things, future national and regional economic and competitive
conditions, inflation rates, regulatory treatment, weather conditions,
financial market conditions, future business decisions, and other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of LG&E Energy and KU Energy. Accordingly, while LG&E Energy
and KU Energy believe that such assumptions are reasonable for purposes of the
development of estimates of potential savings, there can be no assurance that
such assumptions will approximate actual experience or that such savings will
be realized. See "Summary of the Joint Proxy Statement/Prospectus--Cautionary
Statement Concerning Forward-Looking Statements."
LG&E Energy. The LG&E Energy Board believes that the terms of the Merger are
fair to, and in the best interests of, LG&E Energy and its shareholders.
Accordingly, the LG&E Energy Board, by a unanimous vote, has approved the
Merger Agreement and recommends its approval and adoption by LG&E Energy's
shareholders. In addition to the factors discussed above, the LG&E Energy Board
believes: that the Merger presents a unique opportunity for LG&E Energy and KU
Energy to combine; that LG&E Energy's shareholders will benefit by
participation in the economic growth of the LG&E and Kentucky Utilities service
territories, and from the increase in scale economies and the resulting
increased financial stability and strength; that the Merger will result in cost
savings from decreased fuel costs, a reduction in operational and maintenance
expense and other factors discussed above; that the combination of the low-cost
generation assets of LG&E and Kentucky Utilities with the expertise of LG&E
Energy's energy marketing subsidiary will provide an opportunity for increased
sales of electricity; and that the combined enterprise can participate more
effectively in the increasingly competitive market for the generation of power
and energy services. All of these factors offer a potential increase in
earnings and dividend growth and the creation of a larger, financially stronger
company. In reaching its conclusions, the LG&E Energy Board considered (i) the
financial performance, condition, business operations and prospects of each of
LG&E Energy and KU Energy and that, on a combined basis, the companies will
likely
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have greater financial stability and strength due to participation in the
combined economic climate and growth of both the Kentucky Utilities and LG&E
service territories, the increase in scale economies and the impact of the
potential operating efficiencies and other synergies which are expected to
reduce operational and maintenance expenses, and the potential revenue increase
from energy marketing as more fully discussed above; (ii) current industry,
economic, market and regulatory conditions which encourage consolidation to
reduce risk and create new avenues for earnings growth as discussed under "The
Merger--Background of the Merger" above; (iii) the anticipated positive effect
of the Merger on shareholders and customers; (iv) the proposed structure of the
transaction and the terms of the Merger Agreement, the Stock Option Agreements,
the Employment Agreements and other documents executed and to be executed in
connection with the Merger which provide for reciprocal representations and
warranties, conditions to closing and rights to termination, balanced rights
and obligations and protection for employees of LG&E Energy and the communities
it serves; (v) the results of the due diligence review of KU Energy and its
subsidiaries; (vi) the change in control provisions of various severance and
other employee plans of KU Energy and Kentucky Utilities and the change in
control agreements of LG&E Energy and LG&E; (vii) the Employment Agreements of
Messrs. Hale and Whitley (as described under "--Employment Agreements" and
"LG&E Energy Following the Merger--Management of LG&E Energy After the Merger")
which provides a prudent plan for managing the combined operations after the
Merger; (viii) the impact of regulation under various state and federal laws
and the regulatory treatment to be requested in the Merger (as described under
"Regulatory Matters" and "--Background of the Merger"); (ix) that the Merger is
expected to be treated as a tax-free reorganization to shareholders and to be
accounted for as a pooling-of-interests transaction (which avoids the reduction
in earnings which would result from the creation and amortization of goodwill
under purchase accounting); and (x) the opinion of Blackstone (see "Opinions of
Financial Advisors--LG&E Energy Financial Advisor"). In determining that the
Merger is fair to and in the best interests of its shareholders, the LG&E
Energy Board considered the above factors as a whole and did not assign
specific or relative weights to them.
THE LG&E ENERGY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, LG&E ENERGY'S SHAREHOLDERS. THE LG&E ENERGY BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
KU Energy. The KU Energy Board has determined that the terms of the proposed
Merger are fair to, and in the best interests of, KU Energy's shareholders. At
the meeting held on May 20, 1997, the KU Energy Board unanimously adopted and
approved the Merger Agreement and the transactions contemplated thereby.
The KU Energy Board believes that the Merger represents a significant
strategic opportunity for KU Energy and should offer KU Energy and its
shareholders better prospects for the future than would be available to KU
Energy as a stand-alone entity. In addition to the joint benefits described
above, the KU Energy Board took into account the fact that the Exchange Ratio
represented a 34 percent premium per share of KU Energy Common Stock, based on
the respective closing market prices of KU Energy Common Stock and LG&E Energy
Common Stock on the trading day preceding the announcement of the Merger
Agreement. It also is anticipated that, following the Effective Time, LG&E
Energy will maintain its common share dividend payment level as of the
Effective Time adjusted for the Exchange Ratio. LG&E Energy currently pays
$1.15 per share annually and, based on the Exchange Ratio, the pro forma
dividend rate for KU Energy would be $1.92 per share. KU Energy's current
annual dividend rate is $1.76 per share. Thus the LG&E Energy dividend would
represent a 9% increase in the dividend per share for current KU Energy
shareholders. While the dividend policy actually adopted by LG&E Energy after
the Merger is subject to evaluation from time to time by the LG&E Energy Board
based on LG&E Energy's results of operations, financial condition, capital
requirements and other relevant considerations, the KU Energy Board considered
this possible dividend increase a distinct benefit to its shareholders.
The KU Energy Board also believes that the potential for growth in the non-
utility businesses currently conducted by LG&E Energy's non-utility
subsidiaries provides an opportunity for KU Energy shareholders to realize the
benefits of these diversification activities.
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In reaching its decision to approve the Merger Agreement, and in addition to
the factors described above, the KU Energy Board considered the following
factors: (i) the current and historical market prices and dividends on the KU
Energy Common Stock and the LG&E Energy Common Stock (as disclosed under
"Selected Historical and Pro Forma Data--Comparative Market Prices and
Dividends"); (ii) information concerning the financial performance, condition,
business operations and prospects of each of KU Energy and LG&E Energy, which
indicate the compatibility of the two companies and the potential cost savings
which could be realized as a result of their combination; (iii) the effects of
the Merger on KU Energy's existing shareholders, including the opportunity to
share in the anticipated benefits of ownership of the combined enterprise;
(iv) the composition of the LG&E Energy Board and Kentucky Utilities board at
the Effective Time as provided in the Merger Agreement; (v) the employment
agreements of Messrs. Whitley and Hale; (vi) the change in control provisions
of various severance and other employee plans of KU Energy and Kentucky
Utilities; (vii) the expected accounting treatment of the Merger as a pooling
of interests (as discussed under "Accounting Treatment"), which avoids the
reduction in earnings which would result from the creation and amortization of
goodwill under the purchase method of accounting; (viii) the expected federal
income tax treatment of the Merger as a tax-free reorganization to
shareholders (as described under "Certain Federal Income Tax Consequences");
(ix) the proposed structure of the transaction as a "merger-of-equals," which
provides for balanced treatment of KU Energy and LG&E Energy and their
respective shareholders and employees; (x) the regulatory treatment to be
requested in connection with the Merger (as discussed under "Regulatory
Matters"); (xi) the favorable results of the due diligence review of LG&E
Energy and its subsidiaries conducted by KU Energy management with the
assistance of Goldman Sachs and, with respect to LG&E Energy's energy
marketing and trading operations, the assistance of Arthur Andersen LLP; (xii)
the opinion of Goldman Sachs (see "Opinions of Financial Advisors--KU Energy's
Financial Advisor"); (xiii) the projected pro forma ownership of LG&E Energy
by the shareholders of KU Energy implied by the Exchange Ratio; and (xiv) the
terms of the Merger Agreement (as described under "The Merger Agreement") and
the Stock Option Agreements (as described under "The Stock Option
Agreements"). The KU Energy Board considered the above factors as a whole, and
did not assign specific or relative weights to such factors.
THE KU ENERGY BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, KU ENERGY'S SHAREHOLDERS. THE KU ENERGY BOARD RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
LG&E Energy's Financial Advisor. LG&E Energy retained Blackstone to act as
its financial advisor in connection with the Merger. Blackstone was selected
by the LG&E Energy Board to act as LG&E Energy's financial advisor based on
Blackstone's qualifications, expertise and reputation as well as Blackstone's
investment banking relationship and familiarity with LG&E Energy.
On May 20, 1997, Blackstone delivered its oral opinion to the LG&E Energy
Board, that as of the date of such opinion and subject to the various
considerations set forth in the opinion, the Exchange Ratio was fair from a
financial point of view to the holders of LG&E Energy Common Stock. Blackstone
delivered a written opinion dated as of May 20, 1997 confirming its oral
opinion. Blackstone also delivered to the LG&E Energy Board a written opinion
dated as of the date of this Joint Proxy Statement/Prospectus, which is
substantially identical to the May 20, 1997 written and oral opinions.
The full text of the written opinion of Blackstone dated as of the date of
this Joint Proxy Statement/Prospectus is attached hereto as Annex F and is
incorporated herein by reference. The May 20, 1997 opinion is substantially
identical to the opinion attached hereto. Holders of shares of LG&E Energy
Common Stock are urged to, and should, read such opinion in its entirety. The
opinion of Blackstone is directed only to the fairness of the Exchange Ratio,
and does not constitute a recommendation to any holder of LG&E Energy Common
Stock as to how to vote at the LG&E Energy Meeting. The summary of the written
opinion of Blackstone as set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
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In connection with its opinion, Blackstone reviewed, among other things, the
Merger Agreement and the Stock Option Agreements; the Registration Statement,
including this Joint Proxy Statement/Prospectus; Annual Reports to
Shareholders and Annual Reports on Form 10-K of LG&E Energy and KU Energy for
the three fiscal years ended December 31, 1994, 1995 and 1996; interim reports
to shareholders and Quarterly Reports on Form 10-Q of LG&E Energy and KU
Energy; certain other filings with the SEC made by LG&E Energy and KU Energy,
including proxy statements and Form 8-Ks during the last three years; certain
internal financial analyses and forecasts for LG&E Energy and KU Energy
prepared by their respective managements; estimates of certain operating
efficiencies and cost savings expected to be achieved as a result of the
Merger which were prepared jointly by the managements of LG&E Energy and KU
Energy, with the assistance of D&T Consulting Group, a third party consultant,
with respect to an estimate of potential cost savings; and forecasts of
certain revenue enhancements and margin improvements expected to be achieved
as a result of the Merger which were prepared by the management of LG&E
Energy. Blackstone also held discussions with members of the senior management
of LG&E Energy regarding the historical financial performance of LG&E Energy,
prospects for the electric utility, power marketing and natural gas marketing
industries, strategic goals and competitive positioning, financial
projections, and the strategic merits of the Merger and held discussions with
members of the senior management of KU Energy regarding the historical
financial performance of KU Energy, its strategic goals and competitive
positioning, and financial projections. In addition, Blackstone reviewed the
historical market prices and trading activity for LG&E Energy Common Stock and
KU Energy Common Stock, analyzed the respective contributions of certain
income statement, balance sheet and cash flow items by LG&E Energy and KU
Energy to the combined company, compared certain financial and stock market
information for LG&E Energy and KU Energy with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the electric
utility industry, reviewed the pro forma effect of the Merger on LG&E Energy's
earnings per share, and balance sheet and performed such other studies and
analyses which were believed by Blackstone to be relevant.
Blackstone relied without independent verification upon the accuracy and
completeness of all of the financial and other information it reviewed for
purposes of its opinion. In that regard, Blackstone assumed that the financial
forecasts and the estimates prepared by LG&E Energy and KU Energy and provided
to Blackstone, including without limitation, the estimates of any cost
synergies, revenue enhancements or margin improvements that would result from
the combination of LG&E Energy and KU Energy, have been reasonably determined
on a basis reflecting the best currently available judgments and estimates of
LG&E Energy and KU Energy, and that such forecasts and such estimates will be
realized in the amounts and at the times contemplated thereby. In addition,
Blackstone has not conducted a physical inspection of the properties and
facilities of LG&E Energy or KU Energy, nor has Blackstone made an independent
evaluation or appraisal of the assets and liabilities of LG&E Energy or KU
Energy. Blackstone has assumed that the consummation of the Merger will be
accounted for as a pooling-of-interests under generally accepted accounting
principles and will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. Blackstone's
opinion was necessarily based upon economic, market, monetary and other
conditions as they existed and could be evaluated, and the information made
available to it, as of the date thereof. Blackstone is not expressing any
opinion as to the prices at which LG&E Energy Common Stock may trade at any
time.
The opinion of Blackstone does not consider the relative merits of the
Merger as compared to any other business plan or opportunity that might be
available to LG&E Energy or the effect of any other arrangement in which LG&E
Energy might engage.
The following is a brief summary of the analyses and examinations performed
by Blackstone which were shared with the LG&E Energy Board on May 20, 1997 and
were utilized by Blackstone in preparation of its opinion letter dated May 20,
1997. Blackstone performed substantially the same types of analyses and
examinations in arriving at the written opinion attached hereto as Annex F.
Historical Relative Trading Analysis. Blackstone reviewed the ratio of the
daily trading prices of KU Energy Common Stock to the daily trading prices of
LG&E Energy Common Stock for the historical period from May 16, 1992 through
May 16, 1997. This ratio ranged from approximately 1.18 to 1.73 for the 5 year
historical
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period with an average of approximately 1.44; from approximately 1.18 to 1.49
for the 3 year historical period from May 16, 1994 through May 16, 1997; and
from approximately 1.18 to 1.39 for the 1 year historical period from May 16,
1996 through May 16, 1997. The ratio of the closing market price of KU Energy
Common Stock ($30.38) to the closing market price of LG&E Energy Common Stock
($24.75) on May 16, 1997 was approximately 1.23.
Relative Contribution Analysis. Blackstone calculated and analyzed the
relative contribution of LG&E Energy and KU Energy to the combined company with
respect to 1996 actual and 1997 and 1998 forecasted: (i) revenue, (ii) earnings
before interest, taxes, depreciation and amortization ("EBITDA"), (iii)
earnings before interest and taxes ("EBIT"), (iv) net income, (v) total assets,
(vi) common book equity (vii) net property, plant and equipment ("PP&E") and
(viii) net income plus depreciation and amortization less capital spending less
working capital requirements ("Free Cash Flow"). All estimates for this
analysis were provided by the respective managements of LG&E Energy and KU
Energy and the analysis did not take into account any potential cost savings,
revenue enhancements or margin improvements realizable as a result of, or any
other effects from, the Merger. Although Blackstone considered each of the
above contribution measures, it attributed relatively greater weight to 1997
projected net income, 1997 projected Free Cash Flow, 1997 projected common book
equity, and 1997 projected PP&E because of its judgment that they are more
appropriate indicators of relative contribution of shareholder value. This
analysis indicated that KU Energy would contribute to the combined company
approximately: (i) 43.4% of 1997 projected net income, (ii) 51.1% of 1997
projected Free Cash Flow, (iii) 43.8% of 1997 projected common book equity and
(iv) 46.5% of 1997 projected PP&E. Blackstone calculated the implied exchange
ratios which would be necessary to give LG&E Energy and KU Energy percentage
ownership positions in the combined company which matched their respective
percentage contributions for each performance measure. The implied exchange
ratios were: 1.36 based on 1997 projected net income, 1.85 based on 1997
projected Free Cash Flow, 1.38 based on 1997 projected common book equity and
1.54 based on 1997 projected PP&E.
Analysis of Selected Comparable Publicly Traded Companies. Blackstone
reviewed and compared certain actual and estimated financial and stock market
information of KU Energy with that of a group of comparable public utility
companies comprised of Allegheny Power System, Inc., CINergy Corp., DPL Inc.,
IPALCO Enterprises, Inc., NIPSCO Industries, Inc. and OGE Energy Corp. (the
"Comparable Companies") as well as LG&E Energy. The Comparable Companies were
selected based on size characteristics, cost position/profitability, growth
prospects, supplier and customer mix and regulated/non-regulated business mix.
This analysis indicated that: (i) price to earnings multiples based on latest
twelve months ("LTM") earnings per share ("E.P.S.") were 14.2 and 14.3 for KU
Energy and LG&E Energy, respectively, as compared to an average for the
Comparable Companies of 14.1 (with a range of 12.6 to 16.3), (ii) price to
earnings multiples, based on Institutional Brokers Estimate System ("IBES")
mean estimates of 1997 E.P.S. were 13.4 and 14.8 for KU Energy and LG&E Energy,
respectively, as compared to an average for the Comparable Companies of
approximately 13.2 (with a range of 11.6 to 14.0), (iii) price to earnings
multiples based on IBES mean estimates of 1998 E.P.S. were 13.1 and 13.9 for KU
Energy and LG&E Energy, respectively, as compared to an average for the
Comparable Companies of 12.5 (with a range of 11.1 to 13.0), (iv) price to
latest quarter ended common book value per share was 1.8 and 2.0 for KU Energy
and LG&E Energy, respectively, as compared to an average for the Comparable
Companies of 1.9 (with a range of 1.5 to 2.1), (v) current run rate dividend
yield was approximately 5.8% and 4.6% for KU Energy and LG&E Energy,
respectively, as compared to an average for the Comparable Companies of
approximately 5.2% (with a range of 3.2% to 6.4%), (vi) the ratio of Total
Enterprise Value ("TEV") (defined as the market value of common equity plus the
liquidation value of preferred equity, the principal amount of debt and
minority interest less cash and cash equivalents) to LTM EBITDA was
approximately 6.9 and 8.2 for KU Energy and LG&E Energy, respectively, as
compared to an average of approximately 7.3 times for the Comparable Companies
(with a range of 6.4 to 8.7), and (vii) the ratio of TEV to LTM EBIT was
approximately 10.2 and 12.0 for KU Energy and LG&E Energy, respectively as
compared to an average for the Comparable Companies of 10.7 (with a range of
9.6 to 12.1).
Blackstone noted that the 5-year projected IBES earnings growth rates of 2.9%
and 3.6% for KU Energy and LG&E Energy, respectively, were within the range of
5-year projected IBES growth rates for the
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Comparable Companies of 2.0% to 5.0% and that the trading statistics of KU
Energy and LG&E Energy were generally within the range of the Comparable
Companies based on the above financial ratios. Blackstone calculated the
implied stock prices of KU Energy based on the appropriate KU Energy financial
results and the range of multiples for the Comparable Companies. Blackstone
utilized these implied KU Energy stock prices to calculate implied exchange
ratios based on LG&E Energy's closing stock price of $24.75 on May 16, 1997.
The implied exchange ratios were: 1.09 to 1.42 based on price to LTM E.P.S.
multiples; 1.06 to 1.28 based on price to 1997 estimated E.P.S. multiples, 1.04
to 1.21 times based on price to 1998 estimated E.P.S. multiples, 1.04 to 1.48
based on price to common book value per share multiples, 1.11 to 2.21 times
based on run rate dividend yields, 1.10 to 1.71 based on TEV to LTM EBITDA
multiples and 1.12 to 1.58 based on TEV to LTM EBIT multiples.
Discounted Cash Flow Analysis. Based on projections prepared by KU Energy's
management for the 9 month period ended December 31, 1997 and the fiscal years
ended December 31, 1998, 1999, 2000 and 2001 (the "Projection Period"),
Blackstone estimated the net present value of KU Energy's future cash flows
(tax-effected EBIT plus depreciation and amortization and other non-cash
charges less capital expenditures less investment in working capital) utilizing
a range of unlevered discount rates of 7.5% to 8.5%, representing the estimated
weighted average cost of capital of KU Energy. The sum of the present value of
such free cash flows was then added to the present value of KU Energy's
terminal value computed using a multiple of 9 to 11 times 2001 projected EBIT
and discounted at the aforementioned range of discount rates. This analysis
indicated a value range of approximately $26.61 to $35.45 for each share of KU
Energy Common Stock.
Blackstone also performed a discounted cash flow analysis which included the
valuation of cost savings, revenue enhancements and margin improvements
expected to result from the Merger (collectively, the "Synergies"). The cost
savings analysis was provided by LG&E Energy management and KU Energy
management, which analysis was prepared by such managements with the assistance
of D&T Consulting Group, a third party consultant, while the information
relating to revenue enhancements and pre-tax margin improvements was supplied
by LG&E Energy management. This analysis indicated a value range of
approximately $34.64 to $46.11 for each share of KU Energy Common Stock (which
includes a value for Synergies of $8.03 to $10.66 per share based on retention
by shareholders of 50% of annual after-tax non-fuel cost savings as well as all
of the annual after-tax revenue enhancements and margin improvements), and
implied an exchange ratio range of 1.40 to 1.86 shares of LG&E Energy Common
Stock per share of KU Energy Common Stock.
Discounted Dividend Analysis. Based on dividend projections prepared by KU
Energy's management for the Projection Period, Blackstone estimated the net
present value of KU Energy's future dividends utilizing a range of discount
rates of 9.5% to 10.5%, representing an estimated cost of equity capital for KU
Energy. The sum of the present values of such dividends was then added to the
present value of a terminal equity value calculated using a perpetuity growth
rate range on KU Energy's 2001 projected dividend per share of 2.0% to 4.0%
(representing a range of potential long term dividend growth rates for KU
Energy) and discounted to present value using the aforementioned equity
discount rates. This analysis indicated a range of approximately $20.96 to
$30.38 for each share of KU Energy Common Stock.
Blackstone also performed a discounted dividend analysis which took account
of the Synergies. The cost savings analysis was provided by LG&E Energy
management and KU Energy management, which analysis was prepared by such
managements with the assistance of D&T Consulting Group, a third party
consultant, while the information relating to revenue enhancements and pre-tax
margin improvements was supplied by LG&E Energy management. This analysis
indicated a value range of approximately $28.35 to $40.50 for each share of KU
Energy Common Stock (which includes a value for Synergies of $7.39 to $10.12
per share based on retention by shareholders of 50% of annual after-tax non-
fuel cost savings as well as all of the annual after-tax revenue enhancements
and margin improvements at a 75% estimated dividend payout ratio), and implied
an exchange ratio range of 1.15 to 1.64 shares of LG&E Energy Common Stock per
share of KU Energy Common Stock.
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Analysis of Selected Precedent Transactions. Blackstone reviewed and analyzed
selected financial, operating and stock market information relating to pending
or completed merger transactions since 1991 involving electric utilities which
were deemed comparable and relevant. Blackstone only analyzed transactions
where a control premium to pre-offering trading levels was offered by the
acquiror. The transactions analyzed by Blackstone include the pending
combinations of: Portland General Corp./Enron Corp., DQE Inc./Allegheny Power
System, Inc., Long Island Lighting Co./Brooklyn Union Gas Co., Centerior Energy
Corp./Ohio Edison Co., IES Industries Inc./WPL Holdings Inc., Kansas City Power
& Light Co./Western Resources Inc., Interstate Power Co./WPL Holdings Inc.,
Potomac Electric Power Co./Baltimore Gas & Electric Co. and CIPSCO Inc./Union
Electric Co.; and the completed combinations of Magma Power Co./California
Energy Co., PSI Resources Inc./Cincinnati Gas & Electric Co., Gulf States
Utilities Co./Entergy Corp., Kansas Gas & Electric Co./Kansas Power & Light Co.
and Iowa Southern Inc./IE Industries Inc. (collectively, the "Comparable
Transactions"). Blackstone compared certain financial and market statistics for
the Comparable Transactions with those for the Merger. The analysis showed that
the Merger has: (i) an offer price premium (based on closing market prices of
the target company two weeks prior to the announcement date) of 34% as compared
to a mean of 35% for the Comparable Transactions (with a range of 18% to 57%),
(ii) an offer price to LTM E.P.S. multiple of 19.3 as compared to a mean of
14.9 for the Comparable Transactions (with a range of 9.9 to 17.0), (iii) an
offer price to 1997 (current fiscal year) IBES E.P.S. multiple of 18.3 as
compared to a mean of 15.0 (with a range of 11.2 to 17.2), (vi) an offer price
to 1998 (next fiscal year) IBES E.P.S. multiple of 17.8 as compared to a mean
of 14.4 (with a range of 10.5 to 16.2), (v) an offer price to latest quarter
ended common book value per share multiple of 2.4 as compared to a mean of 1.8
for the Comparable Transactions (with a range of 0.8 to 2.5), (iv) a TEV to LTM
EBITDA multiple of 8.5 as compared to a mean for the Comparable Transactions of
7.8 (with a range of 6.5 to 10.2) and (vii) a TEV to LTM EBIT multiple of 12.6
as compared to a mean for the Comparable Transactions of 11.6 (with a range of
8.7 to 15.0).
Blackstone also calculated the implied stock prices of KU Energy based on the
appropriate KU Energy financial results and the range of multiples for the
Comparable Transactions. Blackstone utilized these implied KU Energy stock
prices and calculated implied exchange ratios based on LG&E Energy's closing
stock price of $24.75 on May 16, 1997. The implied exchange ratios were: 1.46
to 1.95 based on transaction premium data, 0.86 to 1.47 based on offer price to
LTM E.P.S. multiples, 1.02 to 1.57 based on offer price to current fiscal year
IBES E.P.S. multiples, 0.98 to 1.52 based on offer price to next fiscal year
IBES EPS multiples, 0.56 to 1.75 based on offer price to common book value per
share multiples, 1.13 to 2.12 based on TEV to LTM EBITDA multiples, and 0.96 to
2.10 based on TEV to LTM EBIT multiples.
Pro Forma Merger Analysis. Blackstone analyzed the pro forma impact of the
Merger on the earnings per share of common stock of LG&E Energy for the fiscal
years 1999, 2000 and 2001. The first year of the analysis period is based on
the assumption that 1999 constitutes the first full fiscal year after the
consummation of the Merger. Blackstone utilized two sets of earnings forecasts
in analyzing the Merger: (i) IBES forecasts for both companies (the "IBES
Case") and (ii) respective management forecasts for both companies (the
"Management Case"). Under both earnings forecast scenarios, Blackstone has
included the after-tax income statement contribution of the Synergies as
previously described. Under both the IBES Case and the Management Case,
Blackstone has assumed the Merger would be accounted for as a pooling-of-
interests and would be effected at the Exchange Ratio. Under the IBES Case, the
Merger is minimally dilutive in 1999, break-even in 2000 and accretive in 2001
with respect to LG&E Energy's earnings per share. Under the Management Case,
the Merger would result in minimal dilution to LG&E Energy's shareholders over
the same period.
The summary set forth above does not purport to be a complete description of
the presentation by Blackstone to the LG&E Energy Board or the analyses
performed by Blackstone in arriving at its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
suited to summary description. The preparation of a fairness opinion does not
involve a mathematical evaluation or weighing of the results of the individual
analyses performed, but requires Blackstone to exercise its professional
judgment--based on its experience and expertise--in considering a wide variety
of
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analyses taken as a whole. Each of the analyses conducted by Blackstone was
carried out in order to provide a different perspective on the transaction and
add to the total mix of information available. Blackstone did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness. Rather, in reaching
its conclusion, Blackstone considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole.
The analyses were prepared solely for the purpose of Blackstone providing its
opinion to the LG&E Energy Board as to the fairness of the Exchange Ratio from
a financial point of view to holders of LG&E Energy Common Stock and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold, which are inherently subject to
uncertainty. Any estimates incorporated in the analyses performed by Blackstone
are not necessarily indicative of actual past or future values or results,
which may be significantly more or less favorable than any such estimates. No
public company utilized as a comparison is identical to LG&E Energy or KU
Energy and none of the comparable acquisition transactions or other business
combinations utilized as a comparison is identical to the Merger. Accordingly,
an analysis of comparable companies and comparable precedent transactions is
not mathematical; rather it involves complex considerations and judgments
concerning companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Similarly, analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of LG&E Energy and KU Energy or their respective advisors, none of LG&E
Energy, KU Energy, Blackstone or any other person assumes responsibility if
future results or actual values are materially different from those forecasts
or assumptions. Shareholders are urged to read in its entirety the written
opinion of Blackstone set forth in Annex F to this Joint Proxy
Statement/Prospectus.
As described above, the opinion and presentation of Blackstone to the LG&E
Energy Board was only one of many factors taken into consideration by the LG&E
Energy Board in making its determination to approve the Merger Agreement. In
addition, the terms of the Merger Agreement were determined through
negotiations between LG&E Energy and KU Energy and were approved by the LG&E
Energy Board. Although Blackstone provided advice to LG&E Energy during the
course of these negotiations, the decision to enter into the Merger Agreement
and to accept the Exchange Ratio was solely that of the LG&E Energy Board.
LG&E Energy retained Blackstone because of its experience and expertise.
Blackstone has an internationally recognized merger and acquisition advisory
business. Blackstone, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. Blackstone is familiar with LG&E
Energy, having provided certain investment banking services to LG&E Energy from
time to time, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Merger.
Pursuant to a letter agreement dated October 17, 1996, (the "Blackstone
Engagement Letter"), LG&E Energy engaged Blackstone to act as its financial
advisor with respect to a possible transaction with KU Energy. Pursuant to the
terms of the Blackstone Engagement Letter, LG&E Energy has agreed to pay
Blackstone: (i) an engagement fee of $175,000 (the "Engagement Fee"), (ii)
monthly fees of $50,000 over a period commencing October 17, 1996 through the
execution of a merger agreement with KU Energy but not to exceed six months
(the "Monthly Retainer Fee"), (iii) $1,000,000 upon execution of the Merger
Agreement (the "Merger Execution Fee"), (iv) $1,000,000 upon approval of the
Merger Agreement by holders of LG&E Energy Common Stock (the "Merger Approval
Fee"), and (v) a success fee of $5,175,000 upon consummation of the Merger
(against which the Engagement Fee, the Monthly Retainer Fee, the Merger
Execution Fee and the Merger Approval Fee are to be credited). In addition,
LG&E Energy has agreed to reimburse Blackstone for its reasonable out-of-pocket
expenses, including the fees and disbursements of their attorneys, and to
indemnify Blackstone and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, arising out of
its engagement.
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KU Energy's Financial Advisor. On May 20, 1997, Goldman Sachs delivered its
oral opinion, which it subsequently confirmed in writing on that date and on
the date hereof, to the KU Energy Board that as of such dates, and based upon
the factors and assumptions described in such opinions, the Exchange Ratio was
fair to the holders of KU Energy Common Stock.
The full text of the written opinion of Goldman Sachs dated as of the date
of this Joint Proxy Statement/Prospectus, which sets forth assumptions made,
matters considered and limits of the review undertaken in connection with the
opinion, is attached hereto as Annex G and is incorporated herein by
reference. The May 20, 1997 opinion is substantially identical to the opinion
attached hereto. Holders of shares of KU Energy Common Stock are urged to, and
should, read such opinion in its entirety. Goldman Sachs' written opinion was
provided for the information and assistance of the KU Energy Board in
connection with its consideration of the Merger and does not constitute a
recommendation to any KU Energy shareholder as to how such shareholder should
vote at the KU Energy Meeting, and should not be relied upon by any
shareholder as such. The summary of the written opinion of Goldman Sachs set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In connection with its opinion, Goldman Sachs reviewed, among other things,
the Merger Agreement; Annual Reports to Shareholders and Annual Reports on
Form 10-K of KU Energy and LG&E Energy for the five years ended December 31,
1996; certain interim reports to shareholders and Quarterly Reports on Form
10-Q of KU Energy and LG&E Energy; certain FERC Forms 1 of Kentucky Utilities
and LG&E; certain other communications from KU Energy and LG&E Energy to their
respective shareholders; certain estimated cost savings prepared jointly by
the managements of KU Energy and LG&E Energy with the assistance of a third
party consultant (the "Cost Savings"); and certain internal financial analyses
and forecasts (the "Forecasts") for KU Energy and LG&E Energy prepared by
their respective managements, including analyses and forecasts of certain
operating efficiencies and financial synergies (the "Anticipated Synergies")
expected to be achieved as a result of the Merger that were prepared jointly
by the managements of KU Energy and LG&E Energy. Goldman Sachs also held
discussions with members of the senior managements of KU Energy and LG&E
Energy regarding the past and current business operations, financial condition
and future prospects of their respective companies and their analyses of the
strategic benefits of the Merger, including, without limitation, the amount
and timing of realization of the Anticipated Synergies and the Cost Savings.
In addition, Goldman Sachs reviewed the reported price and trading activity
for the KU Energy Common Stock and for the LG&E Energy Common Stock, compared
certain financial and stock market information for KU Energy with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
in the electric utility industry specifically and in other industries
generally, and performed such other studies and analyses as Goldman Sachs
considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
the purposes of its opinion, as well as upon assessments by each of KU Energy
and LG&E Energy of their respective contingent obligations. In that regard,
Goldman Sachs assumed, with the consent of the KU Energy Board, that the Cost
Savings and the Forecasts, including, without limitation, the Anticipated
Synergies, were reasonably prepared on bases reflecting the best available
judgments and estimates of the respective managements of KU Energy and LG&E
Energy and that the Anticipated Synergies and the Cost Savings will be
realized in the amounts and at the times contemplated thereby. Goldman Sachs
further assumed, with the consent of the KU Energy Board, that obtaining any
necessary regulatory or third-party approvals for the transactions
contemplated by the Merger Agreement will not have an adverse effect on KU
Energy or LG&E Energy, as applicable. Goldman Sachs also assumed, with the
consent of the KU Energy Board, that the consummation of the transactions
contemplated by the Merger Agreement will be recorded as a pooling of
interests under generally accepted accounting principles. Goldman Sachs has
not made an independent evaluation or appraisal of the assets and liabilities
of KU Energy or LG&E Energy or any of their respective subsidiaries and
Goldman Sachs has not been furnished with any such evaluations or appraisal.
The following is a summary of certain analyses presented by Goldman Sachs to
the KU Energy Board on May 20, 1997 in connection with the delivery of its
opinion to the KU Energy Board on such date.
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(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain actual and estimated financial information relating to KU Energy to
corresponding financial information, ratios and public market multiples for
ten publicly-traded utility companies: Central Louisiana Electric Company,
CILCORP, Inc., DPL Inc., Idaho Power Company, IPALCO Enterprises Inc., OGE
Energy Corp., Orange and Rockland Utilities, Inc., SIGCORP, Inc.,
Washington Water Power Company and WPS Resources Corporation (collectively,
the "Selected KU Comparables"). The Selected KU Comparables were chosen
because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to KU Energy. Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples and ratios of KU Energy and the Selected KU Comparables were
calculated using a price of $30.375 per share of KU Energy Common Stock,
the closing price on the NYSE on May 16, 1997, and on closing market prices
on May 16, 1997 for each of the Selected KU Comparables, publicly reported
financial results and publicly available information from a number of
public sources as well as Goldman Sachs Investment Research Estimates. All
earnings estimates including those for KU Energy were based on
International Brokers Estimate System ("IBES") estimates. Goldman Sachs
considered for the Selected KU Comparables estimated 1997 price/earnings
("P/E") ratios, which ranged from 9.8x to 14.1x, compared to 13.5x for KU
Energy; estimated 1998 P/E ratios, which ranged from 9.7x to 13.0x,
compared to 13.0x for KU Energy; dividend yield, which ranged from 3.2% to
8.2%, compared to 5.8% for KU Energy; 1997 estimated payout ratios, which
ranged from 45.2% to 81.8%, compared to 78.2% for KU Energy; five-year
projected earnings per share ("EPS") and dividend per share growth rates,
which ranged from 1.5% to 6.0% and from 0.5% to 6.0%, respectively,
compared to 2.5% and 2.0%, respectively, for KU Energy, and return on
average total common equity for such period, which ranged from 7.2% to
14.4%, compared to 12.1% for KU Energy. Goldman Sachs also considered
market values as a multiple of book value and latest twelve months cash
flow (which was computed by adding net income available for common stock,
depreciation, depletion and amortization, deferred taxes and other non-cash
changes as of March 31, 1997). Goldman Sachs' analyses of the Selected KU
Comparables indicated multiples of book value ranging from 1.1x to 2.0x,
compared to a KU Energy multiple of 1.8x, and multiples of cash flows
ranging from 3.3x to 8.9x compared to a multiple of 6.4x for KU Energy.
Goldman Sachs also reviewed and compared certain actual and estimated
financial information relating to LG&E Energy to corresponding financial
information, ratios and public market multiples for seven publicly-traded
electric companies: CINergy Corporation, CMS Energy Corporation, Dominion
Resources, Inc., DPL Inc., NIPSCO Industries, Inc., PacifiCorp and TECO
Energy, Inc. (collectively, the "Selected LG&E Comparables"). The Selected
LG&E Comparables were chosen because they are publicly-traded companies
with operations that for purposes of analysis may be considered similar to
LG&E Energy. Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples and ratios of LG&E Energy and the
Selected LG&E Comparables were calculated using a price of $24.75 per share
of LG&E Energy Common Stock, the closing price on the NYSE on May 16, 1997,
and on closing market prices on May 16, 1997 for each of the Selected LG&E
Comparables, publicly reported financial results and publicly available
information from a number of public sources as well as Goldman Sachs
Investment Research Estimates. Unless otherwise indicated, earnings
estimates including those for LG&E Energy were based on IBES estimates.
Goldman Sachs considered for the Selected LG&E Comparables estimated 1997
P/E ratios, which ranged from 11.2x to 14.4x, compared to 14.8x for LG&E
Energy, estimated 1998 P/E ratios for the Selected LG&E Comparables, which
ranged from 11.1x to 13.6x, compared to 13.8x for LG&E Energy; dividend
yield, which ranged from 3.2% to 7.3%, compared to 4.6% for LG&E Energy;
1997 estimated payout ratios, which ranged from 40.8% to 81.9%, compared to
68.9% for LG&E Energy; five-year projected EPS and dividend per share
growth rates, which ranged from 3.0% to 10.0% and from 1.5% to 10.0%,
respectively, compared to 3.5% and 2.0%, respectively, for LG&E Energy
based on Goldman Sachs Investment Research estimates; and return on average
total common equity for such period, which ranged from 9.1% to 16.2%,
compared to 12.2% for LG&E Energy. Goldman Sachs also considered market
values as a multiple of book value and latest twelve months cash flow
(which was computed by adding net income available for common stock,
depreciation, depletion and amortization, deferred taxes and other non-cash
charges as of March 31, 1997). Goldman Sachs' analyses of the Selected LG&E
Comparables indicated multiples of book value ranging from 1.3x to 2.2x,
compared to a LG&E Energy multiple of 2.0x and multiples of cash flows
ranging from 3.8x to 9.9x compared to a multiple of 8.0x for LG&E Energy.
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(ii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the electric and gas
utility industry since 1987 (the "Goldman Selected Transactions"). Such
analysis indicated, among other things, that for the Goldman Selected
Transactions the premium over market value ranged from 0.0% to 65.0%,
compared to a 36.1% premium over the market value of the KU Energy Common
Stock in the Merger (based on the May 16, 1997 closing prices and the
Exchange Ratio); the premium over five year high market value ranged from
(61.9)% to 41.8% compared to a 26.2% premium over the five year high market
value of the KU Energy Common Stock in the Merger (based on a five-year
high price per share for KU Energy Common Stock and the Exchange Ratio);
the multiple of price (based on the May 16, 1997 closing prices) to next
year estimated earnings per share based on 1998 IBES estimates ranged from
7.3x to 22.0x, compared to 17.7x for the KU Energy Common Stock (based on
the Exchange Ratio) and the multiple of price (based on the May 16, 1997
closing prices) to book value per share ranged from 0.6x to 3.2x, compared
to 2.39x for the KU Energy Common Stock in the Merger (based on the
Exchange Ratio).
(iii) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger on the holders of shares of
KU Energy Common Stock using the following two sets of EPS estimates for
the years 1997, 1998, 1999 and 2000: (i) EPS estimates for KU Energy and
LG&E Energy contained in the Forecasts and the Anticipated Synergies
prepared by their respective managements (the "Management Estimates") and
(ii) EPS estimates for KU Energy based on IBES estimates and for LG&E
Energy based on IBES estimates (the "Street Estimates"). Using such
estimates, Goldman Sachs, among other things, compared the estimated EPS,
for each such year, of KU Energy Common Stock, on a stand-alone basis, to
the estimated EPS of the combined company's common stock on a pro forma
basis. Based on such analysis and a closing LG&E Energy Common Stock price
of $24.75 on May 16, 1997, the proposed Merger could be accretive to KU
Energy's shareholders on an EPS basis, as applicable, in the years 1997,
1998, 1999, and 2000 based on both the Management Estimates and Street
Estimates.
(iv) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among
other things, market capitalization, net income, cash-flow and book value)
for KU Energy, LG&E Energy and the combined company resulting from the
Merger based on the Forecasts and the Anticipated Synergies. Based on May
16, 1997 market values and March 31, 1997 financial information, the
analysis indicated that on a pro forma basis KU Energy would contribute
41.1% of the market capitalization, 44.5% of the book value and 35.4% of
the assets of the consolidated entity. Goldman Sachs also analyzed the
relative income statement contributions of KU Energy and LG&E Energy to the
consolidated entity and on a pro forma basis based on estimated years 1997,
1998, and 1999 financial data based on median IBES estimates for KU Energy
and LG&E Energy. This analysis indicated that on a pro forma basis in 1997,
1998 and 1999 KU Energy would contribute 43.4%, 42.4% and 42.2%,
respectively, of the net income of the consolidated entity. This analysis
also indicated that on a pro forma basis KU Energy would have contributed
14.8% of the latest twelve month revenues of the consolidated entity.
Goldman Sachs noted in this context that KU Energy shareholders would own
approximately 48.7% of the stock of the combined company.
(v) Historical Exchange Ratio. Goldman Sachs reviewed certain historical
trading prices for the shares of KU Energy Common Stock and the shares of
LG&E Energy Common Stock over various periods within the latest five years.
Such analysis demonstrated a range of exchange ratios (calculated by
dividing the price per share of KU Energy Common Stock by the price per
share of LG&E Energy Common Stock) from 1.18x to 1.70x and an exchange
ratio of 1.23x as of May 16, 1997 based on the closing per share prices of
$30.375 per share of KU Energy Common Stock and $24.75 per share of LG&E
Energy Common Stock on May 16, 1997. During the period from February 16,
1997 to May 16, 1997 the average exchange ratio was 1.24x. During the
period from November 16, 1996 to May 16, 1997 the average exchange ratio
was 1.23x. During the period from May 16, 1995 to May 16, 1997 the average
exchange ratio was 1.27x. During the period from May 16, 1994 to May 16,
1997 the average exchange ratio was 1.36x. During the period from May 16,
1992 to May 16, 1997 the average exchange ratio was 1.44x.
(vi) Discounted Cash Flow Analysis. Goldman Sachs performed discounted
cash flow analyses to value the KU Energy Common Stock and LG&E Energy
Common Stock using the Forecasts. Goldman Sachs
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calculated a net present value of free cash flows for KU Energy for the
years 1997 through 2001 using discount rates ranging from 6.0% to 9.0%.
Goldman Sachs calculated KU Energy's and LG&E Energy's terminal values in
the year 2001 based on a terminal multiple of the year 2001 earnings. The
terminal values were based on a multiple of 12.0x to 17.0x estimated
earnings in 2001 and discounted to present value using discount rates
ranging from 6.0% to 9.0%. This valuation resulted in implied per share
values ranging from $22.94 to $41.09 for the KU Energy Common Stock and
from $24.12 to $41.93 for the LG&E Energy Common Stock.
(vii) Dividend Discount Valuation Analysis. Goldman Sachs performed a
dividend discount valuation analysis for KU Energy and LG&E Energy. Using
the indicated annual 1997 dividend of $1.76 per share for KU Energy and
$1.15 for LG&E Energy, estimated dividend growth rates ranging from 1.5% to
3.0% and discount rates ranging from 6.0% to 9.0%, Goldman Sachs calculated
that the implied per share value ranged from $23.47 to $58.67 for KU Energy
Common Stock and from $15.33 to $38.33 for LG&E Energy Common Stock.
(viii) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the KU Energy Common Stock and
the relationship between movements of the KU Energy Common Stock price and
movements in a composite index of the Selected KU Comparables for the
period from May 22, 1992 to May 16, 1997. Goldman Sachs also reviewed the
historical trading prices and volumes for the LG&E Energy Common Stock and
the relationship between movements of the LG&E Energy Common Stock price
and movements in a composite index of the Selected LG&E Comparables for the
period between May 15, 1992 and May 16, 1997.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses, taken as a whole.
Furthermore, in arriving at its fairness opinion, Goldman Sachs did not
attribute any particular weight to any analysis or factor considered by it;
rather, Goldman Sachs made its determination as to fairness on the basis of
qualitative judgments as to the significance and relevance of the financial and
comparative analyses and factors described above, taken as a whole. The
analyses performed by Goldman Sachs are not necessarily indicative of actual
values, trading values or actual future results that might be achieved, all of
which may be significantly more or less favorable than suggested by such
analyses. No company or transaction used in the above analyses as a comparison
is identical to KU Energy or LG&E Energy or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs in providing
advisory services for the information and assistance of the KU Energy Board in
connection with its consideration of the transaction contemplated by the Merger
Agreement and do not constitute a recommendation to any shareholder of KU
Energy as to how to vote on matters relating to the transactions contemplated
by the Merger Agreement or purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of KU Energy, LG&E Energy,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the KU Energy Board was one of
many factors taken into consideration by the KU Energy Board in making its
determination to adopt the Merger Agreement. Although Goldman Sachs evaluated
the fairness of the Exchange Ratio to the holders of shares of KU Energy Common
Stock, the specific Exchange Ratio was determined by LG&E Energy and KU Energy
through arm's-length negotiations. The foregoing summary does not purport to be
a complete description of the analyses performed by Goldman Sachs and is
qualified in its entirety by reference to the full text of the written opinion
of Goldman Sachs set forth in Annex G hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings,
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competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. KU Energy selected Goldman Sachs as its financial advisor because it
is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger. Goldman Sachs is familiar
with KU Energy having provided certain investment banking services to KU Energy
and certain of its subsidiaries from time to time, including having acted as
managing underwriter of various public offerings for KU Energy's wholly-owned
subsidiary, Kentucky Utilities, over the past five years, of securities
aggregating $315.5 million principal amount and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement. Goldman Sachs also has provided
certain investment banking services to LG&E Energy and certain of its
subsidiaries from time to time. Goldman Sachs may provide investment banking
services to LG&E Energy, the combined company or their respective subsidiaries
in the future.
In the ordinary course of the trading activities of Goldman Sachs, Goldman
Sachs actively trades the equity securities of KU Energy and LG&E Energy and
the debt securities of Kentucky Utilities and LG&E for its own account and for
the accounts of customers of Goldman Sachs and may, therefore, at any time,
hold a long or short position in such securities.
Pursuant to a letter agreement dated October 22, 1996 (the "Goldman Sachs
Engagement Letter"), KU Energy engaged Goldman Sachs to act as its financial
advisor in connection with a potential merger, business combination or other
strategic combination. Pursuant to the terms of the Goldman Sachs Engagement
Letter, KU Energy has paid Goldman Sachs retainer fees of $150,000, which
amount will be credited against the Success Fee (as defined below). In
addition, in connection with the Merger, KU Energy has agreed to pay Goldman
Sachs a success fee of 0.475% of the aggregate consideration paid for the KU
Energy Common Stock (including amounts paid to holders of options, warrants and
convertible securities) of approximately $7.4 million (the "Success Fee"). The
Success Fee is payable in three installments, 33.3% upon execution of the
Merger Agreement, 33.3% upon the approval of the Merger Agreement by KU Energy
shareholders and 33.3% upon the consummation of the Merger. The first
installment was calculated based on the LG&E Common Stock closing price on May
20, 1997, the business day prior to the announcement of the execution of the
Merger Agreement. The remaining installments will consist of the actual Success
Fee less the actual installments previously paid. The retainer fees were
credited against the first installment of the Success Fee. KU Energy has also
agreed to reimburse Goldman Sachs quarterly for its reasonable out-of-pocket
expenses, including attorneys' fees and disbursements of up to $100,000 (which
amount may be increased with the consent of KU Energy, which consent may not be
unreasonably withheld), and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of LG&E Energy
and KU Energy with respect to the Merger, shareholders should be aware that
certain members of KU Energy's and LG&E Energy's management and Boards of
Directors have certain interests in the Merger that are in addition to the
interests of shareholders of LG&E Energy and KU Energy generally. The Board of
Directors of each of LG&E Energy and KU Energy was aware of such interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Employment Agreements. The Employment Agreements with each of Messrs. Hale
and Whitley will become effective only at the Effective Time. The Employment
Agreement of Mr. Hale will replace his existing employment agreement that
became effective January 1, 1997. The Employment Agreements are described in
greater detail under "--Employment Agreements" below. In addition, while no
employment agreements exist regarding other executive officers of LG&E Energy
or its subsidiaries after the Effective Time, Mr. Hale and Mr. Whitley have
orally agreed as to certain members of the executive management of LG&E Energy,
LG&E and Kentucky Utilities after the Effective Time. See "LG&E Energy
Following The Merger--Management of LG&E Energy After the Merger."
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Employee Plans and Severance Arrangements. Under certain benefit plans,
severance arrangements and other employee agreements maintained, or entered
into, by KU Energy, Kentucky Utilities, LG&E Energy and LG&E, certain benefits
may become vested, and certain payments may become payable, in connection with
the Merger. See "--Employee Plans and Severance Arrangements" below.
Board of Directors. As provided in the Merger Agreement, at the Effective
Time, the LG&E Energy Board will be reconstituted to consist of 15 directors,
comprised of eight persons designated by LG&E Energy, including Roger W. Hale,
and seven persons designated by KU Energy, including Michael R. Whitley. See
"LG&E Energy Following the Merger--Management of LG&E Energy After the Merger."
Indemnification. Pursuant to the Merger Agreement, to the extent, if any, not
provided by an existing right of indemnification or other agreement or policy,
from and after the Effective Time, LG&E Energy will, to the fullest extent
permitted by applicable law, indemnify, defend and hold harmless each person
who, prior to the Effective Time, was an officer, director or employee of KU
Energy or LG&E Energy or any of their subsidiaries against all losses, expenses
(including reasonable attorneys' fees), claims, damages or liabilities or,
subject to certain restrictions, amounts paid in settlement, (i) arising out of
actions or omissions occurring at or prior to the Effective Time that are in
whole or in part based on, or arising out of, the fact that such person is or
was a director, officer or employee of such party, or (ii) based on, arising
out of or pertaining to the transactions contemplated by the Merger Agreement.
See "The Merger Agreement--Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF LG&E ENERGY
FOLLOWING THE MERGER
In connection with the Merger, the LG&E Energy Board, at the Effective Time,
will be reconstituted to consist of 15 persons, eight of whom will be
designated by LG&E Energy and seven of whom will be designated by KU Energy.
See "LG&E Energy Following the Merger--Management of LG&E Energy After the
Merger" for a description of the composition of the LG&E Energy Board following
the Merger. To date, LG&E Energy and KU Energy have not determined which
individuals, in addition to Messrs. Hale and Whitley, will be designated to
serve as directors of LG&E Energy as of the Effective Time. Upon consummation
of the Merger, the Board of Directors of LG&E will consist of those persons
serving as directors of LG&E immediately prior to the Merger plus those persons
designated by KU Energy to serve on the LG&E Energy Board. Similarly, following
the Merger, the Board of Directors of Kentucky Utilities will consist of those
persons serving as directors of Kentucky Utilities immediately prior to the
Merger plus those persons designated by LG&E Energy to serve on the LG&E Energy
Board. In addition, the Merger Agreement provides that during the three year
period commencing at the Effective Time, certain provisions thereof (including
provisions relating to existing employee agreements, workforce matters, benefit
plans, stock option and other plans and certain officer positions) may be
enforced on behalf of the officers, directors and employees of KU Energy and
LG&E Energy, as the case may be, by the directors of LG&E Energy designated by
LG&E Energy and KU Energy, respectively (or their successors).
EMPLOYMENT AGREEMENTS
Forms of the Employment Agreements of Messrs. Hale and Whitley are attached
hereto as Annexes D and E, respectively. Messrs. Hale and Whitley are sometimes
hereinafter individually referred to as the "Executive." The Employment
Agreements will become effective only at the Effective Time and will have an
initial term of five years commencing at the Effective Time with automatic
renewal for additional one-year terms at the end of the initial term or any
renewal term unless the Executive or LG&E Energy gives at least 3 months prior
notice of an intention not to renew. The provisions of the Employment
Agreements which relate to the Executive serving as a director on the LG&E
Energy Board assume that the Executive is elected to the LG&E Energy Board by
the LG&E Energy shareholders after the Effective Time.
Pursuant to the Employment Agreements, from the Effective Time, Mr. Hale will
serve as Chairman and Chief Executive Officer of LG&E Energy, LG&E and Kentucky
Utilities and Mr. Whitley will serve as Vice
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Chairman, President and Chief Operating Officer of LG&E Energy and Vice
Chairman and Chief Operating Officer of LG&E and Kentucky Utilities.
Mr. Hale's Employment Agreement provides that he will receive an annual base
salary of not less than $675,000, subject to annual review by the Compensation
Committee, and will participate in LG&E Energy's annual bonus plan and its
long-term incentive plan. Mr. Hale's Employment Agreement provides for an
annual bonus target award of not less than 60% of base salary and long-term
incentive grants with a present value of not less than 110% of base salary to
be delivered two-thirds in the form of performance units/shares and one-third
in the form of non-qualified stock options. Mr. Whitley's Employment Agreement
provides that he will receive an annual base salary of not less than $575,000,
and will participate in the annual bonus plan and long-term incentive plan.
Mr. Whitley's Employment Agreement provides for an annual bonus target award
of not less than 55% of his base salary and long-term incentive grants with a
present value of not less than 70% of his base salary to be delivered 60% in
the form of performance units/shares and 40% in the form of non-qualified
stock options. Each Executive also is entitled to term life insurance coverage
in the amount of not less than $2,000,000. The Executives also are entitled to
welfare benefits on the same basis as other senior executives of LG&E Energy,
and certain fringe benefits, and will receive retirement benefits no less
favorable than they would have received under the retirement plans in which
they were covered prior to the Effective Time, computed, in the case of Mr.
Whitley, using improved early retirement reduction factors.
Certain Obligations of LG&E Energy upon Termination of Employment Agreement.
If LG&E Energy terminates the employment of the Executive without cause (as
defined in the respective Employment Agreements) or the Executive terminates
his employment for good reason (as defined in the respective Employment
Agreements which with respect to Mr. Whitley includes termination by the
Executive for any reason during the 30-day period commencing on the first
anniversary of the Effective Time), the Executive will receive, in addition to
all compensation earned through the date of termination and coverage and
benefits under all benefit and incentive compensation plans to which he is
entitled pursuant to the terms thereof, a severance payment equal to the
discounted present value of his base salary and target bonus for the greater
of (i) two years, or (ii) the remainder of the employment term then in effect
(the greater of (i) or (ii) being the "Continuation Period"). In addition, the
Executive will receive his outstanding target bonus award, pro-rated through
the date of his termination. Executive will continue to receive welfare
benefits (i.e., medical insurance, etc.) on the same terms and conditions as
prior to his termination for the Continuation Period. All of the Executive's
stock options shall become exercisable and all restricted stock and other
equity awards will vest. In addition, any long term incentive awards (other
than stock options) will be cashed out at the discounted present value of the
target payout pro-rated for the Executive's actual period of service and the
Continuation Period. LG&E Energy also is required to provide perquisites for
the Continuation Period, additional service credit for the Continuation Period
under the LG&E Energy pension plans (or a payment therefor if such credit is
precluded by law) and the term life insurance coverage described above for the
periods provided for in the Employment Agreements.
The Executive has no duty to mitigate and the severance benefits listed
above will be offset by any benefits payable to Executive under any change in
control agreement or benefit plans. However, the Executive will be grossed-up
for any golden parachute excise taxes. If the Executive dies during the term
of the Employment Agreement, LG&E Energy will pay to the Executive's
beneficiaries or estate all compensation earned through the date of death and
benefits payable under applicable benefit and incentive compensation plans
(including previously deferred compensation, incentive compensation not less
than pro rata based upon the target awards and the term life insurance
coverage described above). In addition, all of the Executive's stock options
will become exercisable and all restrictions pertaining to restricted stock or
other equity awards will lapse. In the event Mr. Hale is terminated due to
being permanently disabled, he will receive a benefit equal to 60% of base
salary less: (i) 100% of the social security disability benefit, and (ii) the
benefits provided under any LG&E Energy disability plan. If Mr. Whitley is
terminated due to being permanently disabled, he will receive after exhaustion
of his sick leave benefits the benefits provided under LG&E Energy's
disability plan. In addition to all compensation earned through the date of
termination and coverage and benefits under all benefit and incentive
compensation plans pursuant to the terms thereof (a) both Executives will
receive additional service credit for
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the Continuation Period (as defined above) under the LG&E Energy pension plans
(or a payment therefor if such credit is precluded by law); (b) both Executives
shall receive the discounted present value of the target bonuses that would be
paid during the Continuation Period and a pro-rated target bonus through their
date of termination; (c) all of the disabled Executive's stock options will
become exercisable and all restrictions pertaining to restricted stock or other
equity awards will lapse; and (d) both Executives will receive the term life
insurance coverage described above for the periods provided in the Employment
Agreements.
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS
KU Energy. Executive officers and certain other employees of KU Energy and
Kentucky Utilities are eligible to be members in Kentucky Utilities'
Supplemental Security Plan which provides retirement, disability and death
benefits as well as a change in control retirement benefit and a change in
control severance benefit. Members are entitled to change in control severance
benefits in the following circumstances: (i) involuntary termination of the
individual's employment within two years following a change in control (or, if
later, prior to the consummation of the change in control transaction or its
earlier abandonment) for reasons other than cause (as defined in the plan),
death or permanent disability; (ii) resignation within two years of a change in
control (or, if later, prior to the consummation of the change in control
transaction or its earlier abandonment) for good reason (as defined in the
plan); and (iii) in respect of the Chairman of the Board, the President, the
Chief Financial Officer (or, if such positions are filled by less than three
persons, the Executive Vice President), the Senior Vice Presidents and the
Corporate Secretary, in each case of Kentucky Utilities, termination of
employment for any reason during the 30-day period commencing on the first
anniversary of the consummation of a change in control. In such circumstances,
the employee will be entitled to a change in control severance payment equal to
a certain percentage (300% in the case of executive officers of KU Energy or
Kentucky Utilities) of the sum of (i) the employee's basic compensation and
(ii) the employee's target annual performance incentive compensation. In
addition, the employee will be entitled to continuation of certain employee
welfare benefits for up to three years following termination of employment,
subject to an offset for comparable benefits. Under the Supplemental Security
Plan, the employee is entitled to receive additional payments, if necessary, to
reimburse the employee for certain excise tax liabilities payable under
federal, state or local law as a result of the payment and any other
compensation being contingent on a change in control. The Supplemental Security
Plan's change in control retirement benefit provides that, upon termination of
employment, other than for cause (as defined in the Supplemental Security Plan)
following a change in control, an eligible member will receive a lump-sum
amount equal to the present value of the retirement benefit provided under the
Supplemental Security Plan (assuming the member is then 65 but prorated if the
member then has less than 15 years of service, including an assumed three
additional years of service in the case of executive officers); provided that,
if the termination is more than two years from the change in control, the
calculation of years of service will not include the assumed additional three
years and the compensation upon which the benefit is calculated will be the
actual compensation in effect at termination (rather than the compensation in
effect at the change in control which, if higher, would be used if termination
occurred within two years of the change in control). The change in control
severance benefits and change in control retirement benefits are effective for
a minimum of five years, which is automatically extended from year to year
unless Kentucky Utilities gives notice that it does not wish to extend the
period of effectiveness. The execution of the Merger Agreement constituted a
change in control under the Supplemental Security Plan. Accordingly, members in
the Supplemental Security Plan receiving a retirement benefit at the date of
the Merger Agreement received a lump sum payment of the present value of their
remaining benefit.
The Annual Performance Incentive Plans, Performance Share Plans and Executive
Deferred Compensation Plans of KU Energy and Kentucky Utilities and the Long
Term Incentive Plan of KU Energy contain provisions relating to a change in
control. Under the Performance Share Plans and Long Term Incentive Plan, or the
awards granted thereunder, if a participant's employment is terminated
voluntarily or involuntarily after a change in control, such participant will
have the right to an immediate payment in shares of KU Energy Common Stock for
all performance cycles in which the participant is currently participating. The
amount payable to a participant in the event of termination following a change
in control will be determined in accordance with the formula specified in those
plans. In addition, after a change in control, whether or not the participant
is terminated, under the Executive Deferred Compensation Plans, all amounts
held under such plans will be paid to the participant. Under the Annual
Performance Incentive Plans, after a change in control, whether or not a
participant is
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terminated, a participant, including a participant who had terminated prior to
the change in control by reason of retirement, disability or death, will have a
right to an immediate cash payment based on actual base salary earned prior to
the change in control and on the assumption that established targets for the
year had been met.
The execution of the Merger Agreement constituted, and the consummation of
the Merger will also constitute, a "change in control" as defined under all the
plans, or awards granted thereunder, described above other than the Annual
Performance Incentive Plans under which only the consummation of the
transactions contemplated by the Merger Agreement will constitute a "change in
control". If the Merger occurred on December 31, 1997, and all participants in
the plans described above were terminated immediately thereafter, it is
estimated that, based on current compensation levels, valuation factors,
interest rates and a KU Energy Common Stock price of $34.00, the aggregate
after-tax cost of the change in control benefits would be approximately $34
million.
All eligible directors of KU Energy and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs (the "Director
Retirement Plans") of KU Energy and Kentucky Utilities. As a result of the
change in control that will be caused by the consummation of the transactions
contemplated by the Merger Agreement, each person then receiving a retirement
benefit will be paid a lump-sum payment equal to the discounted present value
of all then unpaid installments of the director's retirement benefit. Each
outside director in office immediately prior to the consummation of the
transactions contemplated by the Merger Agreement will be eligible to receive
an accelerated retirement benefit if the director terminates service as a
director for any reason other than death within three years of the date of the
change in control. Such accelerated retirement benefit would be paid in a lump
sum within 30 days of such termination and would be equal to the discounted
present value of the retirement benefit which such director would have received
if the director had retired from service as a director at age 70 (or for
certain directors, 72) and lived to collect the full benefit otherwise payable
under the applicable Director Retirement Plan. Such benefit would be based on
the higher of the annual retainer in effect immediately prior to the change in
control or immediately prior to such director's termination of service.
Directors may elect to have all or a specified portion of their directors'
fees deferred under the Director Deferred Compensation Plans (the "Director
Deferred Compensation Plans") of KU Energy and Kentucky Utilities. As a result
of the change in control that will be caused by the consummation of the
transactions contemplated by the Merger Agreement, all directors who terminated
prior to the change in control whose deferred amounts have not been distributed
will receive a lump sum payment of their undistributed amounts. Each current
director who terminates within three years following the consummation of the
transactions contemplated by this Agreement would be paid, within 15 days after
termination, a lump sum payment of the director's deferred amounts.
LG&E Energy. All executive officers of LG&E Energy and LG&E have change in
control agreements. In the event of a change in control, all such officers of
LG&E Energy and LG&E are entitled to the following payments if, within twenty-
four months after such change in control, they are terminated for reasons other
than cause or disability, or their employment responsibilities are altered: (i)
all accrued compensation; (ii) a severance amount equal to 2.99 times the sum
of (a) his or her annual base salary and (b) his or her "target" award pursuant
to the LG&E Energy Annual Incentive Plan or the prior year's actual award,
whichever is greater. Except for Mr. Hale, in no event is the payment to the
executive to equal or exceed an amount which would constitute a nondeductible
payment pursuant to Section 280G of the Code, or be subject to an excise tax
imposed by Section 4999 of the Code. However, in order to help assure the
continued availability of the services of LG&E Energy and LG&E executive
officers prior to completion of the Merger, the LG&E Energy and LG&E Boards
have approved amendments to the change of control agreements that (i) will
eliminate the limitations described in the preceding sentence and (ii) will
require LG&E Energy and LG&E to "gross-up" payments to cover any excise taxes
that may be due as a result of such severance payments. The executive is
entitled to receive such amounts in a lump-sum payment within thirty days of
termination. A change in control encompasses certain mergers and acquisitions,
changes in Board membership and acquisitions of voting securities of LG&E
Energy
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and will include the Merger. If all LG&E Energy and LG&E executive officers
had been terminated as of December 31, 1997 under circumstances giving rise to
an entitlement to severance payments, the aggregate value of the severance
payments (assuming specified increases in base salary and specified awards
under the Annual Incentive Plan) would have been approximately $13.5 million.
The LG&E Energy Long Term Incentive Plan and Annual Incentive Plan also
contain provisions that accelerate the payment or vesting of benefits upon a
change in control. However, under these plans, the Merger will not be a change
in control.
DIVIDEND REINVESTMENT PLAN
The LG&E Energy DRIP as in effect at the Effective Time will continue as the
dividend reinvestment and stock purchase plan of LG&E Energy following the
Merger. Participants in LG&E Energy's DRIP immediately prior to the Effective
Time will continue to participate in such plan after the Effective Time.
Following the Effective Time, former common shareholders of KU Energy will be
eligible to participate in the LG&E Energy DRIP with respect to the shares of
LG&E Energy Common Stock that they receive in the Merger. In addition, all
accounts under the KU Energy DRIP will be automatically transferred to the
LG&E Energy DRIP when the KU Energy Common Stock held therein is exchanged for
LG&E Energy Common Stock in the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of material federal income
tax consequences of the Merger. This summary is not a complete description of
all of the consequences of the Merger and, in particular, may not address
federal income tax considerations that may be important to a shareholder in
light of such shareholder's particular circumstance or to shareholders subject
to special rules, such as a shareholder that, at the Effective Time, is not a
U.S. person or is a tax-exempt entity or an individual who acquired LG&E
Energy Common Stock or KU Energy Common Stock pursuant to the exercise of
options or similar derivative securities or otherwise as compensation. In
addition, no information is provided with respect to the tax consequences of
the Merger under foreign, state or local laws. This discussion further assumes
that KU Energy shareholders and LG&E Energy shareholders hold their KU Energy
Common Stock and their LG&E Common Stock, respectively, as capital assets
within the meaning of Section 1221 of the Code. The discussion is based on the
Code as in effect on the date of this Joint Proxy Statement/Prospectus,
without consideration of the particular facts or circumstances of any
shareholder. CONSEQUENTLY, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
MERGER.
The Merger. In the opinion of Simpson Thacher & Bartlett, tax counsel to
LG&E Energy, and in the opinion of Jones, Day, Reavis & Pogue, tax counsel to
KU Energy, subject to and assuming the matters set forth in the preceding
paragraph, the receipt of certain customary representations and no change in
relevant provisions of the Code, regulations or interpretation thereof from
those in effect on the date of this Joint Proxy Statement/Prospectus, and
assuming the Merger is consummated in accordance with the Merger Agreement and
as described in this Joint Proxy Statement/Prospectus, the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a) of
the Code. In the opinion of such firms, under current law, material federal
income tax consequences of the Merger, as such a tax-free reorganization, will
be:
(i) No gain or loss will be recognized by LG&E Energy or KU Energy
pursuant to the Merger;
(ii) No gain or loss will be recognized by holders of KU Energy Common
Stock upon the cancellation of their KU Energy Common Stock, together with
the associated KU Energy Rights and conversion thereof into LG&E Energy
Common Stock, together with the associated LG&E Energy Rights, pursuant to
the Merger, except that (i) a holder of KU Energy Common Stock that
receives cash in lieu of a fractional share interest in LG&E Energy Common
Stock will generally recognize capital gain or loss equal to the difference
between the cash received and the tax basis allocated to the fractional
share interest as if the fractional share interest had been distributed as
part of the Merger and then redeemed by LG&E Energy for cash, and (ii) a
holder of KU Energy Dissenting Shares that receives cash instead of stock
will generally recognize capital
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gain or loss equal to the difference between the cash received and the
shareholder's tax basis in the KU Energy Dissenting Shares as though such
KU Energy Dissenting Shares had been redeemed by KU Energy;
(iii) The tax basis of the LG&E Energy Common Stock received by a KU
Energy shareholder will be the same as such shareholder's tax basis in the
KU Energy Common Stock that was exchanged therefor pursuant to the Merger,
reduced by the tax basis allocable to any fractional share interest with
respect to which cash is received;
(iv) The holding period of the LG&E Energy Common Stock received by KU
Energy shareholders pursuant to the Merger will include the shareholder's
holding period with respect to KU Energy Common Stock that was cancelled
pursuant to the Merger; and
(v) No gain or loss will be recognized by holders of LG&E Energy Common
Stock as a result of the Merger and their tax basis and holding period in
such stock will not be effected by the Merger, except that a holder of LG&E
Energy Dissenting Shares that receives cash generally will recognize
capital gain or loss equal to the difference between the cash received and
the shareholder's tax basis in the LG&E Energy Dissenting Shares as though
such LG&E Energy Dissenting Shares had been redeemed by LG&E Energy.
LG&E Energy's obligation to effect the Merger is conditioned on the delivery
of an opinion to LG&E Energy from Simpson Thacher & Bartlett and KU Energy's
obligation to effect the Merger is conditioned on the delivery of an opinion to
KU Energy from Jones, Day, Reavis & Pogue, each dated as of the Closing Date,
substantially to the effect that, for federal income tax purposes, the Merger
constitutes such a tax-free reorganization. However, the Internal Revenue
Service would not be bound by any such opinion. Although it is a condition to
the consummation of the Merger that such opinions be delivered on the Closing
Date, under the Merger Agreement, LG&E Energy is permitted to waive the
condition calling for the opinion of Simpson Thacher & Bartlett, and KU Energy
is permitted to waive the condition calling for the opinion of Jones, Day,
Reavis & Pogue. See "The Merger Agreement--Conditions to Each Party's
Obligation to Effect the Merger." In the event of such a waiver by either
party, the approval of the shareholders of the waiving party would be
resolicited.
ACCOUNTING TREATMENT
The Merger is designed to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of LG&E Energy and KU Energy will be carried forward at
the Effective Time to the consolidated financial statements of LG&E Energy at
their recorded amounts; income of LG&E Energy will include income of LG&E
Energy and KU Energy for the entire fiscal year in which the Merger occurs; and
the reported income of the separate corporations for prior periods will be
combined and restated as income of LG&E Energy. The receipt by each of KU
Energy and LG&E Energy of a letter from their respective independent
accountants, stating that the transaction will qualify as a pooling of
interests, is a condition precedent to consummation of the Merger.
Representatives of Arthur Andersen LLP are expected to be present at the LG&E
Energy Meeting and the KU Energy Meeting and to be available to respond to
questions, and will have an opportunity to make a statement if they desire to
do so. See "The Merger Agreement--Conditions to Each Party's Obligation to
Effect the Merger" and "Unaudited Pro Forma Combined Condensed Financial
Information."
STOCK EXCHANGE LISTING OF LG&E ENERGY COMMON STOCK
Application will be made for the listing on the NYSE of the shares of the
LG&E Energy Common Stock, together with the associated LG&E Energy Rights, to
be issued pursuant to the terms of the Merger Agreement. The listing on the
NYSE of such shares and Rights, subject to notice of issuance, is a condition
precedent to the consummation of the Merger. So long as LG&E Energy and KU
Energy continue to meet the requirements of the NYSE, LG&E Energy Common Stock
and KU Energy Common Stock, as the case may be, will continue to be listed on
the NYSE until the Effective Time. So long as LG&E Energy continues to meet the
requirements of the CSE, LG&E Energy Common Stock will continue to be listed on
the CSE and, so long as KU Energy continues to meet the requirements of the PE,
KU Energy Common Stock will continue to be listed on the PE until the Effective
Time.
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FEDERAL SECURITIES LAW CONSEQUENCES
All shares of the LG&E Energy Common Stock received by KU Energy
shareholders in the Merger will be freely transferable, except that shares of
LG&E Energy Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of LG&E Energy or KU Energy
prior to the Merger may be resold by them only in transactions permitted by
the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144, in the case of such persons who become affiliates of LG&E Energy) or
as otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of LG&E Energy or KU Energy generally include individuals or
entities that control, are controlled by, or are under common control with,
such party and may include certain officers and directors of such party as
well as principal shareholders of such party. The Merger Agreement requires
each of LG&E Energy and KU Energy to use all reasonable efforts to cause each
of its affiliates to execute a written agreement to the effect that such
affiliate will not offer or sell or otherwise dispose of (i) any shares of
LG&E Energy or KU Energy during the period beginning 30 days prior to the
Effective Time and continuing until such time as results covering at least 30
days of post-Effective Time operations of LG&E Energy have been published or
(ii) any of the shares of the LG&E Energy Common Stock issued to such
affiliate in or pursuant to the Merger in violation of the Securities Act or
the rules and regulations promulgated by the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of LG&E Energy
Common Stock received by any person who may be deemed to be an affiliate of
LG&E Energy or KU Energy.
DISSENTERS' RIGHTS
The following discussion of dissenters' rights under the KBCA does not
purport to be complete and is qualified in its entirety by reference to the
provisions of Subtitle 13 of the KBCA attached as Appendix J hereto. Each of
LG&E Energy and KU Energy hereby undertakes to supply a complete copy of
Subtitle 13 upon written request of its respective shareholders to: (i) in the
case of LG&E Energy, John R. McCall, Executive Vice President, General Counsel
and Secretary, LG&E Energy Corp., P.O. Box 32030, 220 West Main Street,
Louisville, Kentucky 40232 or (ii) in the case of KU Energy, George S. Brooks
II, General Counsel and Secretary, KU Energy Corporation, One Quality Street,
Lexington, Kentucky 40507.
Any holder of LG&E Energy Common Stock or KU Energy Common Stock who is
entitled to vote at the LG&E Energy Meeting or the KU Energy Meeting and who
objects to the Merger may demand payment for his or her shares. Any such
shareholder who elects to exercise such Dissenters' Rights and wishes to do so
(i) must, before the vote is taken at the Special Meeting regarding approval
of the Merger, deliver to LG&E Energy or KU Energy, as the case may be,
written notice of such shareholder's intent to demand payment for such
shareholder's shares and (ii) must not vote such shares in favor of approval
of the Merger. A record shareholder may assert Dissenters' Rights as to fewer
than all the shares registered in such shareholder's name only if such record
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies LG&E Energy or KU Energy, as the case may be, in writing
of the name and address of each person on whose behalf such record shareholder
asserts Dissenters' Rights. Similarly, a beneficial owner of LG&E Energy
Common Stock or KU Energy Common Stock may assert Dissenters' Rights as to
shares held on the beneficial owner's behalf if the beneficial owner submits
to LG&E Energy or KU Energy, as the case may be, the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts Dissenters' Rights and the beneficial owner does so with
respect to all shares of which it is the beneficial owner or over which it has
power to direct the vote. All notices to LG&E Energy or KU Energy should be
sent or delivered to its address at the end of the immediately preceding
paragraph.
Not more than ten days after approval of the Merger by shareholders, LG&E
Energy or KU Energy, as the case may be, must send to each person who has
satisfied the foregoing requirements for asserting Dissenters' Rights a notice
(the "Dissenters' Notice") which must, among other things: (i) state where the
payment demand (described below) must be sent, (ii) state where and when share
certificates must be deposited, (iii) supply a form for demanding payment that
includes the date of the first public announcement of the proposed Merger
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(which date was May 21, 1997) and requires that the shareholder asserting
Dissenters' Rights certify whether the shareholder acquired beneficial
ownership of its shares before that date, (iv) set a date (which must be at
least 30 but not more than 60 days after the date the Dissenters' Notice is
delivered) by which LG&E Energy or KU Energy, as the case may be, must receive
the payment demand; and (v) be accompanied by a copy of Subtitle 13 (the
dissenters' rights provision) of the KBCA.
A shareholder who receives a Dissenters' Notice and wishes to exercise
Dissenters' Rights must submit a demand for payment (a "payment demand"), must
certify whether beneficial ownership was acquired prior to May 21, 1997, and
must deposit the applicable share certificates in accordance with the terms of
the Dissenters' Notice. Upon receipt of such payment demand and the share
certificates from a dissenting shareholder who certified that beneficial
ownership was acquired before May 21, 1997, LG&E Energy or KU Energy, as the
case may be, will pay the dissenting shareholder the respective company's
estimate of the fair value of the dissenting shareholder's shares plus
interest, if any, from the date the Merger is consummated. Upon receipt of
such payment demand and the share certificates from a dissenting shareholder
who did not certify that beneficial ownership was acquired prior to May 21,
1997, LG&E Energy or KU Energy, as the case may be, may choose (in lieu of
paying) to offer to purchase the dissenting shareholder's shares at a price
based upon such company's estimate of the fair value of the dissenting
shareholder's shares plus accrued interest, if any.
Within 30 days after receipt of such payment or offer, the dissenting
shareholder either: (i) must accept the payment or offer or (ii) must notify
LG&E Energy or KU Energy, as the case may be, in writing of the shareholder's
estimate of the fair value of the shares (and accrued interest) and demand
payment of the estimate (less any payment previously received). In the event
LG&E Energy or KU Energy, as the case may be, fails to make payment to a
person within 60 days after the date set for demanding payment, such person
may notify such company in writing of his or her own estimate of the fair
value of his or her shares (and accrued interest) and demand payment of such
estimate. If a dissenting shareholder and its company cannot agree as to the
fair value of such dissenter's shares, such company must, within 60 days after
receiving the payment demand, commence a proceeding, in the case of LG&E
Energy, in the Circuit Court of Jefferson County, Kentucky, or, in the case of
KU Energy, in the Circuit Court of Fayette County, Kentucky, to determine the
fair value of such shares. If such company fails to commence such a proceeding
within such 60-day time period, such company must pay to each dissenting
shareholder whose demand remains unsettled the amount each such dissenting
shareholder demands as fair value.
Shareholders contemplating exercising Dissenters' Rights under Kentucky law
are urged to read carefully the provisions of Subtitle 13 of the KBCA attached
as Annex J hereto.
REGULATORY MATTERS
As indicated below, consummation of the Merger is subject to numerous
regulatory approvals, which are presently anticipated to be received by the
second half of 1998. Set forth below is a summary of the material regulatory
requirements affecting the Merger.
State Approvals and Related Matters. LG&E is currently subject to the
jurisdiction of the Kentucky Public Service Commission (the "Kentucky
Commission"). Kentucky Utilities is currently subject to the jurisdiction of
the Kentucky Commission, the Virginia State Corporation Commission (the
"Virginia Commission") and the Tennessee Regulatory Authority (the "Tennessee
Authority").
Applications for approval of the Merger and related transactions were filed
in July 1997 with the Kentucky Commission and the Virginia Commission. A
notice filing will be made with the Tennessee Authority.
Assuming the requisite regulatory approvals are obtained, LG&E's retail
utility operations will remain subject to regulation by the Kentucky
Commission and Kentucky Utilities' retail utility operations will remain
subject to regulation by the Kentucky Commission, the Virginia Commission and
the Tennessee Authority.
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The Kentucky Commission and the Virginia Commission must find, in general,
that the Merger is in the public interest. Such commissions may attach such
conditions to their approval as they deem to be appropriate or necessary.
Kentucky Utilities and LG&E have included a regulatory plan in the filings
seeking regulatory approval of the Merger. The companies propose that the net
non-fuel cost savings expected to result from the Merger be spread among the
shareholders, wholesale requirements customers and the retail electric
customers in each state jurisdiction in an equitable manner over a five year
period. All fuel savings would be passed on to customers through fuel
adjustment clauses. The Kentucky Utilities and LG&E proposal for allocation of
these net non-fuel cost savings among each of the state jurisdictions would,
if approved, result in reductions (in the form of surcredits) in retail
electric customers' bills in amounts based on 50% of the currently estimated
non-fuel cost savings to be achieved as a result of the Merger, less 50% of
the actual costs to achieve such savings (but not in excess of estimated costs
to achieve), in each of the five years following effectiveness of the Merger.
Under the plan, customers would be entitled to such reductions (surcredits)
whether or not such level of cost savings was actually achieved. In addition,
a rate freeze is proposed for five years after consummation of the Merger,
except in the event of an extraordinary circumstance such as a significant
increase in the federal corporate tax rate. No assurance can be given that the
regulatory plan for sharing savings will be approved or that the regulatory
authorities will not seek greater allocation of savings to customers or
otherwise seek reductions in Kentucky Utilities' or LG&E's rates.
Public Utility Holding Company Act of 1935. Section 9(a)(2) of the 1935 Act
provides that it is unlawful for any person to acquire any security of any
public utility company if that person owns, or by virtue of that transaction
will come to own, 5% or more of the voting securities of that public utility
company and of any other public utility company, without the prior approval of
the SEC. As a result of the Merger, LG&E Energy, which is currently an exempt
holding company under the 1935 Act, will be deemed to acquire directly or
indirectly all of the common stock of Kentucky Utilities (a public utility)
and 20% of the common stock of EEI (also a public utility). Accordingly, LG&E
Energy is required to obtain SEC approval under Section 9(a)(2) of the 1935
Act to consummate the Merger. An application for approval of the Merger will
be filed by LG&E Energy at the appropriate time. Under the applicable
standards of the 1935 Act, the SEC is directed to approve a proposed
acquisition unless it finds that (1) the acquisition would tend towards
detrimental interlocking relations or a detrimental concentration of control,
(2) the consideration to be paid in connection with the acquisition is not
reasonable, (3) the acquisition would unduly complicate the capital structure
of the applicant's holding company system or would be detrimental to the
proper functioning of the applicant's holding company system, or (4) the
acquisition would violate applicable state law. In order to approve a proposed
acquisition, the SEC must also find that the acquisition would tend towards
the development of an integrated public utility system and would otherwise
conform to the 1935 Act's integration and corporate simplification standards.
Each of LG&E Energy and KU Energy is currently exempt from the registration
and other requirements of the 1935 Act, other than from Section 9(a)(2)
thereof, pursuant to Rules of the SEC under Section 3(a)(1) of the 1935 Act.
The basis of the exemption under Section 3(a)(1) is that each of LG&E Energy
and KU Energy and their respective public utility subsidiaries are
predominantly intrastate in character and carry on their businesses
substantially in a single state in which they are organized (i.e., Kentucky).
The Section 3(a)(1) exemption under which LG&E Energy and KU Energy currently
operate will be available to LG&E Energy after consummation of the Merger.
Kentucky Utilities, which is also a holding company by virtue of ownership of
20% of EEI, is currently exempt under Section 3(a)(2) of the 1935 Act and will
continue to qualify for such exemption.
Federal Power Act. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional
facilities or, directly or indirectly, merge or consolidate such facilities
with those of any other person or acquire any security of any other public
utility without first having obtained authorization from the FERC. The
approval of the FERC is required in order to consummate the Merger. Under
Section 203 of the Federal Power Act, the FERC will approve a merger if it
finds the merger "consistent with the public interest." FERC has stated in a
recent Policy Statement that, in analyzing a merger under Section 203, it will
evaluate the following criteria: (i) the effect of the merger on competition
in electric power markets, utilizing an initial screening approach derived
from the Department of Justice/Federal Trade Commission Horizontal Merger
Guidelines to determine if a merger will result in an increase in an
applicant's market power;
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(ii) the effect of the merger on the applicants' wholesale and transmission
customers; and (iii) the effect of the merger on state and federal regulation
of the applicants. LG&E Energy and KU Energy will file, at the earliest
practicable date, a combined application with the FERC requesting that the FERC
approve the Merger under Section 203 of the Federal Power Act (the "FERC
Application"). In connection with the FERC Application, LG&E and Kentucky
Utilities also will file an open access transmission service tariff that offers
service over their combined transmission system and a coordination agreement
under Section 205 of the Federal Power Act, to become effective upon
consummation of the Merger.
Antitrust Considerations. The HSR Act and the rules and regulations
promulgated thereunder provide that certain transactions (including the Merger)
may not be consummated until certain information has been submitted to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and specified HSR Act waiting period
requirements have been satisfied. The expiration or earlier termination of the
HSR Act waiting period would not preclude the Antitrust Division or the FTC
from challenging the Merger on antitrust grounds. Neither KU Energy nor LG&E
Energy believes that the Merger will violate federal antitrust laws. If the
Merger is not consummated within 12 months after the expiration or earlier
termination of the initial HSR Act waiting period, LG&E Energy and KU Energy
would be required to submit new information to the Antitrust Division and the
FTC, and a new HSR Act waiting period would have to expire or be earlier
terminated before the Merger could be consummated. LG&E Energy and KU Energy
intend to file their premerger notifications pursuant to the HSR Act at such
time as they believe will result in the expiration or termination of the
waiting period thereunder within 12 months before the anticipated consummation
of the Merger.
Other. Kentucky Utilities and LG&E each have environmental permits and
licenses that may need to be renewed or replaced as a result of the Merger.
Kentucky Utilities and LG&E do not anticipate any difficulties at the present
time in obtaining such renewals or replacements.
General. Under the Merger Agreement, LG&E Energy and KU Energy have agreed to
use all reasonable efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations necessary or advisable to
consummate or effect the transactions contemplated by the Merger Agreement.
Various parties may seek intervention in these proceedings to oppose the Merger
or to have conditions imposed upon the receipt of necessary approvals. While
LG&E Energy and KU Energy believe that they will receive the requisite
regulatory approvals for the Merger, there can be no assurance as to the timing
of such approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Merger that final orders approving the Merger be obtained from the various
federal and state commissions described above on terms and conditions which
would not have, or would not be reasonably likely to have, a material adverse
effect on the business, assets, financial condition or results of operations of
LG&E Energy and its prospective subsidiaries taken as a whole, or of LG&E or of
Kentucky Utilities or which would be materially inconsistent with the
agreements of the parties contained in the Merger Agreement. There can be no
assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such condition to the consummation of
the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Merger
Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareholders of LG&E Energy and KU Energy, and the
satisfaction or waiver of the other conditions to the Merger, including
obtaining the requisite regulatory approvals, KU Energy will be merged with and
into LG&E Energy, with LG&E Energy as the surviving corporation.
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If the Merger Agreement is approved by the shareholders of LG&E Energy and
KU Energy, and the other conditions to the Merger are satisfied or waived, the
closing of the Merger (the "Closing") will take place on the second business
day immediately following the date on which the last of the conditions
referred to below under "The Merger Agreement--Conditions to Each Party's
Obligation to Effect the Merger" is fulfilled or waived, or at such other time
and date as LG&E Energy and KU Energy shall mutually agree (the "Closing
Date"). On or after the Closing Date, the Merger will become effective at the
Effective Time, as specified in the articles of merger filed by LG&E Energy
with the Secretary of State of the Commonwealth of Kentucky.
Subject to the condition that the opinions of Blackstone and Goldman Sachs
as to the fairness of the Exchange Ratio to the holders of LG&E Energy Common
Stock and KU Energy Common Stock, respectively, shall not have been withdrawn,
KU Energy and LG&E Energy agreed in the Merger Agreement to call, give notice
of, convene and hold a meeting of their respective shareholders as soon as
reasonably practicable for the purpose of securing their approval to the
Merger.
Consummation of the Merger. Upon consummation of the Merger:
. Each share of KU Energy Common Stock, together with the associated KU
Energy Rights, that is owned by KU Energy as treasury stock, by
subsidiaries of KU Energy, by LG&E Energy or by any subsidiaries of LG&E
Energy shall be cancelled and cease to exist.
. Each issued and outstanding share of KU Energy Common Stock (other than
shares that are cancelled as described above and KU Energy Dissenting
Shares), together with the associated KU Energy Rights, will be cancelled
and converted into the right to receive 1.67 shares of LG&E Energy Common
Stock, together with the associated LG&E Energy Rights.
. Each issued and outstanding share of LG&E Energy Common Stock (other than
LG&E Energy Dissenting Shares), together with the associated LG&E Energy
Rights, shall remain outstanding and shall continue to represent one
fully paid and nonassessable share of LG&E Energy Common Stock, together
with the associated LG&E Energy Rights.
. KU Energy Dissenting Shares will not be cancelled and converted into the
right to receive LG&E Energy Common Stock in the Merger, and LG&E Energy
Dissenting Shares will not remain outstanding, but each will be cancelled
and converted into such consideration as may be due with respect to such
shares pursuant to the applicable provisions of the KBCA, unless and
until the right of such holder to receive fair value for such KU Energy
Dissenting Shares or LG&E Energy Dissenting Shares, as the case may be,
terminates in accordance with the KBCA, in which case such shares will
cease to be KU Energy Dissenting Shares or LG&E Energy Dissenting Shares,
as the case may be, and will represent the right to receive or retain
LG&E Energy Common Stock, as the case may be, pursuant to the Merger
Agreement.
Based upon the capitalization of LG&E Energy and KU Energy on May 16, 1997,
and the Exchange Ratio of 1.67 shares of LG&E Energy Common Stock per share of
KU Energy Common Stock, 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 Energy
shareholders. The value of the 1.67 shares of LG&E Energy Common Stock to be
received in exchange for each share of KU Energy Common Stock was $40.706
based upon the $24.375 closing price of a share of LG&E Energy Common Stock on
May 20, 1997, the trading day preceding the public announcement of the Merger
Agreement and $36.114 based upon the $21.625 closing price of a share of LG&E
Energy Common Stock on August 19, 1997, the most recent date for which it was
practicable to obtain market price data prior to printing and mailing this
Joint Proxy Statement/Prospectus.
If any holder of KU Energy Common Stock would be entitled to receive a
number of shares of LG&E Energy Common Stock that includes a fraction, then in
lieu of a fractional share, such holder will be entitled to receive a cash
payment in an amount determined by multiplying the fractional share interest
by the average of the last reported sales price, regular way, per share of
LG&E Energy Common Stock on the NYSE Composite Tape for the ten business days
prior to and including the last business day prior to the day on which the
Effective Time occurs.
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As soon as practicable after the Effective Time, a company mutually
agreeable to KU Energy and LG&E Energy (the "Exchange Agent") will mail to
each holder of record of a KU Energy Certificate which immediately prior to
the Effective Time represented outstanding shares of KU Energy Common Stock
(and KU Energy Rights) that were converted into the right to receive shares of
LG&E Energy Common Stock (and LG&E Energy Rights), a letter of transmittal and
instructions for use in effecting the surrender of the KU Energy Certificates
for certificates representing shares of LG&E Energy Common Stock. Upon
surrender of a KU Energy Certificate to the Exchange Agent for cancellation,
together with a duly executed letter of transmittal and such other documents,
if any, as the Exchange Agent may require, the holder of such KU Energy
Certificate will be entitled to receive a certificate representing that number
of whole shares of LG&E Energy Common Stock and any cash in lieu of a
fractional share of LG&E Energy Common Stock which such holder has the right
to receive pursuant to the provisions of the Merger Agreement. Until
surrendered, each KU Energy Certificate will be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of LG&E Energy Common Stock and cash in lieu
of any fractional share of LG&E Energy Common Stock.
The letter of transmittal may, at the option of LG&E Energy, provide for the
ability of a holder of one or more KU Energy Certificates to elect that the
shares of LG&E Energy Common Stock to be received in exchange for the shares
of KU Energy Common Stock formerly represented by such surrendered KU Energy
Certificates be issued in uncertificated form or to elect that such shares be
credited to an account established for such holder under LG&E Energy's DRIP.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of LG&E Energy Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered KU
Energy Certificate and no cash payment in lieu of fractional shares will be
paid to any such holder until such KU Energy Certificate is surrendered. After
such surrender, subject to applicable law, there will be paid to such holder,
without interest, the unpaid dividends and distributions, and any cash payment
in lieu of a fractional share, to which such holder is entitled.
HOLDERS OF KU ENERGY COMMON STOCK SHOULD NOT SEND IN THEIR KU ENERGY
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
DIRECT SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES
The Merger Agreement designates LG&E and Kentucky Utilities and certain
wholly-owned subsidiaries of LG&E Energy and KU Energy, respectively, as "LG&E
Energy Subsidiaries" and "KU Energy Subsidiaries" (which are collectively
referred to as "Direct Subsidiaries"). The remaining subsidiaries, joint
venture interests and investments of LG&E Energy and KU Energy are referred to
as "Unrestricted Subsidiaries." The representations and warranties of LG&E
Energy and KU Energy in the Merger Agreement apply only to, and the covenants
of LG&E Energy and KU Energy in the Merger Agreement apply only to, the
parties themselves and their Direct Subsidiaries. LG&E Energy and KU Energy
have agreed to restrict to a certain dollar figure the amount of additional
investments in, or loans or capital contributions, or guarantees or
obligations that each can allocate to, their Unrestricted Subsidiaries between
the date of the Merger Agreement and the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of LG&E Energy and KU Energy relating to, among other things: (a) their
respective organizations, the organization of their respective subsidiaries
and similar corporate matters; (b) their respective capital structures; (c)
authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters; (d) statutory approvals; (e) their
compliance with applicable laws and agreements; (f) reports and financial
statements filed with the SEC and the accuracy of information contained
therein; (g) the absence of any material adverse effect on their business,
assets, financial condition, results of operations, or prospects; (h) the
absence of adverse material suits, claims or proceedings, and other litigation
issues; (i) the accuracy of information supplied by each of KU Energy
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and LG&E Energy for use in the Registration Statement of which this Joint
Proxy Statement/Prospectus forms a part; (j) tax matters; (k) certain
agreements relating to certain employment, consulting and benefits matters;
(1) retirement and other employee benefit plans and matters relating to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (m)
labor matters; (n) compliance with all applicable environmental laws,
possession of all material environmental, health, and safety permits and other
environmental issues; (o) the regulation of LG&E and Kentucky Utilities as
public utilities in specified states; (p) the shareholder vote required in
connection with the Merger Agreement and the transactions contemplated thereby
(as set forth in this Joint Proxy Statement/Prospectus); (q) that neither LG&E
Energy nor KU Energy or any of their respective affiliates have taken or
agreed to take any action that would prevent LG&E Energy from accounting for
the Merger as a pooling of interests; (r) the applicability of certain
provisions of Kentucky law relating to changes in control; (s) the delivery of
fairness opinions by Blackstone, in the case of LG&E Energy, and Goldman
Sachs, in the case of KU Energy; (t) insurance against customary risks; (u)
the absence of ownership of each other's stock; and (v) the LG&E Energy Rights
and the KU Energy Rights not becoming exercisable by the Merger.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, KU Energy and LG&E Energy have agreed
that, during the period from the date of the Merger Agreement until the
Effective Time, except as permitted by the Merger Agreement (including the
disclosure schedules thereto) or the Stock Option Agreements, or as otherwise
consented to in writing by the other parties, each will (and each of its
Direct Subsidiaries will), subject to certain exceptions specified therein,
among other things: (a) carry on its business only in the ordinary course
consistent with prior practice; (b) not declare or pay any dividends on or
make other distributions in respect of any of its capital stock, other than to
such party or its wholly-owned subsidiaries, dividends required to be paid on
any LG&E Preferred Stock or Kentucky Utilities Preferred Stock, regular
quarterly dividends to be paid on LG&E Energy Common Stock not to exceed 104%
of the dividends for the prior fiscal year, and regular quarterly dividends to
be paid on KU Energy Common Stock not to exceed 102.5% of the dividends for
the prior fiscal year; (c) not issue or encumber any capital stock, rights,
warrants, options or convertible or similar securities other than (i)
issuances pursuant to the Stock Option Agreements, (ii) intercompany
issuances, (iii) issuances pursuant to the LG&E Energy Rights Agreement or KU
Energy Rights Agreement, (iv) in connection with refunding preferred stock
with preferred stock or debt at a lower cost of funds and (v) up to 500,000
shares of KU Energy Common Stock and 500,000 shares of LG&E Energy Common
Stock to be issued for general corporate purposes, including issuances in
connection with acquisitions and financing and issuances pursuant to employee
benefit plans, stock option and other incentive compensation plans, directors'
plans and stock purchase and dividend reinvestment plans; (e) not amend its
articles of incorporation or bylaws except as contemplated in the Merger
Agreement; (f) not engage in material acquisitions in excess of $300 million,
singularly or in the aggregate; (g) not make any capital expenditures in
excess of $50 million in the aggregate over the amounts budgeted; (h) not
sell, lease, encumber or otherwise dispose of material assets in an aggregate
amount equaling or exceeding $100 million, other than planned or ordinary
course of business dispositions and encumbrances; (i) not incur indebtedness
(or guarantees thereof), other than (i) short-term indebtedness in the
ordinary course of business consistent with prior practice, (ii) long-term
indebtedness, not aggregating more than $100 million, (iii) arrangements
between such party and its Direct Subsidiaries or among its Direct
Subsidiaries, (iv) in connection with the refunding of existing indebtedness,
(v) in connection with any permitted refunding of preferred stock, or (vi)
indebtedness incurred to finance acquisitions permitted by, and subject to the
limitations imposed by, the terms of the Merger Agreement; (j) not enter into,
adopt or amend or increase the amount or accelerate the payment or vesting of
any benefit or amount payable under, any employee benefit plan or other
agreement, commitment, arrangement, plan or policy, except for normal
increases in the ordinary course of business consistent with industry practice
that, in the aggregate, do not result in a material increase in benefits; (k)
not engage in any activity which would cause a change in its status under the
1935 Act; (l) not commence construction of or obligate itself to purchase any
additional generating, transmission or delivery capacity other than in the
ordinary course of business consistent with past practice or pursuant to
tariffs on file with the FERC or as budgeted; (m) not make any changes in
their accounting methods other than as required by law or in accordance with
generally accepted accounting principles; (n) not take any action to prevent
LG&E Energy from accounting for the business combination to be
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effected by the Merger as a pooling of interests; (o) not take any action that
would adversely affect the status of the Merger as a tax-free transaction; (p)
not enter into agreements with affiliates (other than wholly-owned
subsidiaries) other than on an arm's-length basis; (q) cooperate with the other
party, provide reasonable access to its books and records and notify the other
party of any significant changes; (r) discuss with the other party any proposed
changes in the rates or charges of LG&E or Kentucky Utilities (other than pass-
through fuel and gas rates or charges) or standards of service or accounting;
consult with the other prior to making any filing (or any amendment thereto),
or effecting any agreement, commitment, arrangement or consent with
governmental regulators; and not make any filing to change the rates of LG&E or
Kentucky Utilities that would have a material adverse effect on the benefits
associated with the Merger; (s) use all commercially reasonable efforts to
obtain certain third-party consents to the Merger; (t) not to willfully take
any action that would or is reasonably likely to result in a material breach of
the Merger Agreement; (u) not take any action that is likely to jeopardize the
qualification of LG&E's or Kentucky Utilities' outstanding revenue bonds as
tax-exempt industrial revenue bonds; (v) create a joint transition management
task force to examine alternatives to effect the integration of the parties
after the Effective Time; (w) refrain from taking specified actions relating to
tax matters; (x) not discharge or satisfy any claims, liabilities or
obligations, other than discharges in the ordinary course of business or in
accordance with their terms, of liabilities reflected in the most recent
consolidated financial statements; (y) not, except in the ordinary course of
business, change the status of any of its material contracts or agreements or
waive or release or assign any material rights or claims; and (z) maintain
adequate insurance and use reasonable efforts to maintain all existing
governmental permits.
In addition, LG&E Energy agreed that it will not make, and will not permit
any of its Direct Subsidiaries to make, any additional investments in, or loans
to, any LG&E Energy Unrestricted Subsidiary in excess of $50 million (exclusive
of the amounts described above that are permitted or budgeted for capital
expenditures and acquisitions), and KU Energy agreed that it will not make, and
will not permit any of its Direct Subsidiaries to make, any additional
investments in, or loans to, any KU Energy Unrestricted Subsidiary in excess of
$50 million (exclusive of the amounts described above that are permitted or
budgeted for capital expenditures and acquisitions).
The parties also agreed in the Merger Agreement that, prior to the mailing of
the Joint Proxy Statement/Prospectus, LG&E Energy and KU Energy shall take all
actions necessary so that at or prior to the Effective Time, the LG&E Energy
Articles shall be amended to increase the number of authorized shares of LG&E
Energy Common Stock to 300 million shares and increase the number of Series A
Preferred Stock to 2 million shares and to amend and restate the bylaws of LG&E
Energy. The Merger Agreement provides that, if the parties are unable to obtain
the necessary statutory approvals and other third-party consents which are
necessary to effect the strategic combination of LG&E Energy and KU Energy in
the form contemplated by the Merger Agreement, and the adoption of an
alternative structure (that otherwise substantially preserves for LG&E Energy
and KU Energy the economic benefits of the Merger) would result in such
conditions being satisfied or waived, then the parties shall use their
respective best efforts to effect a business combination among themselves by
means of a mutually agreed upon structure other than the Merger that so
preserves such benefits.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that no party thereto will, and each such party
will cause its Direct Subsidiaries not to, and each such party will not permit
any of its representatives or subsidiaries that are not Direct Subsidiaries to,
and each such party will use its best efforts to cause such persons not to,
directly or indirectly: initiate, solicit or encourage, or take any action to
facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to, any Business Combination Proposal (as defined
herein), or, in the event of an unsolicited Business Combination Proposal,
engage in negotiations or provide any information or data to any person
relating to any Business Combination Proposal, provided, however, that either
LG&E Energy or KU Energy may, at any time prior to the approval of the Merger
Agreement by the LG&E Energy shareholders, in the case of LG&E Energy, or by
the KU Energy shareholders, in the case of KU Energy, engage in discussions or
negotiations with a third party if, and only to the extent that, (i) such third
party shall first have
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made an unsolicited Business Combination Proposal to LG&E Energy or KU Energy,
respectively, and (ii) the LG&E Energy Board or KU Energy Board, as the case
may be, shall have determined in good faith, based upon the written advice of
outside counsel, that such action is required by its fiduciary duties under
applicable law. Notwithstanding the foregoing, prior to furnishing such
information or entering into such negotiations, the target party must provide
the other party to the Merger prompt notice that such action will be taken and
receive an executed confidentiality agreement from such third party in
customary form on terms not materially more favorable to such party than the
terms of the confidentiality agreement between KU Energy and LG&E Energy. Each
of LG&E Energy and KU Energy must promptly notify the other of any inquiries or
offers relating to a third party business combination, keep the other party
informed of the details and status of any such inquiry or offer and give the
other party five days' advance notice of any agreement to be entered into or
any information to be supplied to any person making such an inquiry or offer.
As used above, "Business Combination Proposal" shall mean any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving any party to the Merger Agreement or any of its material
Direct Subsidiaries, or any proposal or offer (in each case, whether or not in
writing and whether or not delivered to the shareholders of a party generally)
to acquire in any manner, directly or indirectly, a substantial equity interest
in or a substantial portion of the assets of any party to the Merger Agreement
or any of its material subsidiaries, other than pursuant to the transactions
contemplated by the Merger Agreement.
LG&E ENERGY BOARD OF DIRECTORS
The Merger Agreement provides that LG&E Energy's and KU Energy's respective
Boards of Directors will take such action as may be necessary to cause the
number of directors comprising the full LG&E Energy Board at the Effective Time
to be 15 persons, eight of whom shall be designated by LG&E Energy prior to the
Effective Time and seven of whom shall be designated by KU Energy prior to the
Effective Time. If, prior to the Effective Time, any of such designees shall
decline or be unable to serve, the party which designated such person shall
designate another person to serve in such person's stead. To date, LG&E Energy
and KU Energy have not decided who, in addition to Messrs. Hale and Whitley,
will be designated to serve on the LG&E Energy Board after the Effective Time.
The Board of Directors will have the following four committees: (i) an Audit
Committee; (ii) a Compensation Committee; (iii) a Nominating and Governance
Committee and (iv) a Long Range Planning Committee. The Audit Committee will
have ten members, with five designated by LG&E Energy (one of whom would be the
chairman) and five designated by KU Energy. The Compensation Committee will
have seven members, with four designated by LG&E Energy (one of whom would be
the chairman) and three designated by KU Energy. The Nominating and Governance
Committee will have eight members, with four designated by LG&E Energy and four
designated by KU Energy (one of whom would be the chairman). The Long Range
Planning Committee will have nine members, with five designated by LG&E Energy
and four designated by KU Energy (one of whom would be the chairman). Upon
consummation of the Merger, the Board of Directors of LG&E will consist of
those persons serving as directors of LG&E immediately prior to the Merger plus
those persons designated by KU Energy to serve on the LG&E Energy Board.
Similarly, following the Merger, the Board of Directors of Kentucky Utilities
will consist of those persons serving as directors of Kentucky Utilities
immediately prior to the Merger plus those persons designated by LG&E Energy to
serve on the LG&E Energy Board.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and after
the Effective Time, LG&E Energy shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who was at, or
who had been at any time prior to, May 20, 1997, or who becomes prior to the
Effective Time, an officer, director or employee of any of the parties thereto
or any subsidiary (the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior
to the Effective Time (and whether asserted or claimed prior to, at or after
the Effective Time) that are, in
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whole or in part, based on or arising out of the fact that such person is or
was a director, officer or employee of such party, and all such indemnified
liabilities to the extent they are based on or arise out of or pertain to the
transactions contemplated by the Merger Agreement. In the event of any such
loss, expense, claim, damage or liability (whether or not arising before the
Effective Time), (i) LG&E Energy shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to LG&E Energy, and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in
either case to the extent not prohibited by law and upon receipt of any
affirmation and undertaking required by law, (ii) LG&E Energy will cooperate in
the defense of any such matter and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under Kentucky law and the LG&E Energy Articles or the LG&E
Energy Bylaws shall be made by independent counsel mutually acceptable to LG&E
Energy and the Indemnified Party; provided, however, that LG&E Energy shall not
be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld). The Merger Agreement further
provides that the Indemnified Parties as a group may retain only one law firm
with respect to each related matter except to the extent there is, in the sole
opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, LG&E Energy shall cause to be maintained in effect
policies of directors' and officers' liability insurance maintained by LG&E
Energy and KU Energy for the benefit of those persons who were covered by such
policies at May 20, 1997, on terms no less favorable than the terms of such
insurance coverage, provided that LG&E Energy shall not be required to expend
in any year an amount in excess of 200% of the annual aggregate premiums
currently paid by LG&E Energy and KU Energy for such insurance and, if the
annual premiums of such insurance coverage exceed such amount, LG&E Energy
shall be obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the LG&E Energy Board, for a cost not exceeding such
amount. Also, the Merger Agreement provides that to the fullest extent not
prohibited by law, from and after the Effective Time, all rights to
indemnification existing in favor of the employees, agents, directors and
officers of LG&E Energy, KU Energy and their respective subsidiaries with
respect to their activities as such prior to the Effective Time, as provided in
their respective articles of incorporation and bylaws in effect on May 20,
1997, or otherwise in effect on May 20, 1997, shall survive the Merger and
shall continue in full force and effect for a period of not less than six years
from the Effective Time.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligations of KU Energy and LG&E Energy to effect the Merger
are subject to the following conditions: (a) the approval of the Merger
Agreement and the LG&E Energy Articles Amendment by the shareholders of LG&E
Energy and the approval of the Merger Agreement by the shareholders of KU
Energy shall have been obtained; (b) no temporary restraining order,
preliminary or permanent injunction or other order shall be in effect that
prevents consummation of the Merger; (c) the Registration Statement shall have
become effective and shall not be the subject of a stop order; (d) the shares
of LG&E Energy Common Stock issuable in connection with the Merger shall have
been authorized for listing on the NYSE, upon official notice of issuance; (e)
the receipt of all material governmental authorizations, consents, orders or
approvals which do not impose terms or conditions which could reasonably be
expected to have a material adverse effect; (f) the number of LG&E Energy
Dissenting Shares and KU Energy Dissenting Shares not constituting in excess of
10% of the issued and outstanding shares of LG&E Energy Common Stock and KU
Energy Common Stock, as the case may be; (g) the receipt by each of KU Energy
and LG&E Energy of letters from their independent accountants stating that the
Merger will qualify as a pooling of interests transaction under generally
accepted accounting principles and applicable SEC regulations; (h) with respect
to each of LG&E Energy and KU Energy, the accuracy of the representations and
warranties of the other party set forth in the Merger Agreement as of May 20,
1997 and as of the Closing Date (except as would not reasonably be likely to
result in a material adverse effect); (i) with respect to each of LG&E Energy
and KU Energy, the performance in all material respects of all
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obligations of the other party required to be performed under the Merger
Agreement and the Stock Option Agreements; (j) KU Energy and LG&E Energy having
received officers' certificates from each other stating that certain conditions
set forth in the Merger Agreement have been satisfied; (k) with respect to each
of LG&E Energy and KU Energy, there having been no material adverse effect on
the business, assets, financial condition, results of operations or prospects
of the other party and its subsidiaries taken as a whole; (l) with respect to
each of LG&E Energy and KU Energy, the receipt by the other party of certain
material third-party consents; (m) with respect to each of LG&E Energy and KU
Energy, the receipt by LG&E Energy of letter agreements relating to trading in
securities of LG&E Energy and KU Energy (substantially in the form attached as
an exhibit to the Merger Agreement), duly executed by each affiliate of the
other party; (n) the receipt of tax opinions from Simpson Thacher & Bartlett
and Jones, Day, Reavis & Pogue that the Merger will be treated as a tax-free
reorganization; and (o) no occurrence of any event that would result in the
triggering of any right or entitlement of LG&E Energy or KU Energy shareholders
under the LG&E Energy Rights Agreement or the KU Energy Rights Agreement,
including a "flip-in" or "flip-over" or similar event which would have or be
reasonably likely to result in a materially adverse effect.
In addition, the Merger Agreement provides that it shall be a condition to
the obligation of LG&E Energy to hold the LG&E Energy Meeting that the opinion
of Blackstone attached hereto as Annex F shall not have been withdrawn, and it
shall be a condition to the obligation of KU Energy to hold the KU Energy
Meeting that the opinion of Goldman Sachs attached hereto as Annex G shall not
have been withdrawn.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to LG&E Energy's or KU Energy's obligations to
consummate the Merger may be waived by the other party. Any determination to
waive a condition would depend upon the facts and circumstances existing at the
time of such waiver and would be made by the waiving party's Board of
Directors, exercising its fiduciary duties to such party and its shareholders.
See "--Amendment and Waiver."
BENEFIT PLANS
Except for the benefit plans referred to in the immediately following
paragraph, each of the benefit plans of LG&E Energy and KU Energy and certain
subsidiaries in effect as of the Effective Time will be continued for the
employees or former employees of LG&E Energy and KU Energy and any of their
Direct Subsidiaries who are covered by such plans immediately prior to the
Closing Date, until LG&E Energy otherwise determines after the Effective Time
(subject to any reserved right contained in any such benefit plan to amend,
modify, suspend, revoke or terminate such plan). Any employee first hired after
the Closing Date will be eligible to participate in any benefit plan
maintained, or contributed to, by the subsidiary, division or operation
employing such person, so long as such person meets the eligibility
requirements of such plan.
After the Effective Time, each outstanding equity award under KU Energy's and
Kentucky Utilities' employee benefit plans, programs and other similar
arrangements (each a "KU Energy Stock Award") will constitute an award based
upon the same number of shares of LG&E Energy Common Stock as the holder of
such KU Energy Stock Award would have been entitled to receive pursuant to the
Merger had such holder been the owner, immediately before the Effective Time,
of the shares of KU Energy Common Stock on which such KU Energy Stock Award is
based, and otherwise on the same terms and conditions as governed such KU
Energy Stock Award immediately before the Effective Time, except that any
restricted stock outstanding at, or immediately prior to, the Effective Time
will vest at the Effective Time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval by the shareholders of KU Energy and LG&E
Energy: (a) by mutual written consent of the LG&E Energy Board and the KU
Energy Board; (b) by any party thereto, if the Effective Time shall not have
occurred on or before May 20, 1999 (which date shall be extended to November
20, 1999 if the required statutory approvals and consents have not been
obtained by May 20, 1999, but all other conditions to Closing shall be, or
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shall be capable of being, fulfilled); provided, however, that such right to
terminate the Merger Agreement will not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before that date;
(c) by either LG&E Energy or KU Energy, by written notice to the other party,
if any required shareholder approval shall not have been obtained at a duly
held meeting of shareholders or at any adjournment thereof; (d) by any party
thereto, if any state or federal law, order, rule or regulation is adopted or
issued, which has the effect of prohibiting the Merger, or any court of
competent jurisdiction in the U.S. or any state shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Merger, and such order, judgment or decree shall have become final and
nonappealable; (e) by either KU Energy or LG&E Energy, upon five-days' prior
notice to the other party, if, as a result of a tender offer by a person other
than KU Energy or LG&E Energy, or any of their affiliates, or any written offer
or proposal with respect to a merger of such party, sale of a material portion
of such party's assets or other business combination involving such party
(each, a "Business Combination") by a person other than KU Energy or LG&E
Energy, or any of their affiliates, the Board of Directors of such party
determines in good faith that its fiduciary obligations under applicable law
require that such tender offer or other written offer or proposal be accepted;
provided, however, that (i) the Board of Directors of such party shall have
been advised in writing by outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of the Merger Agreement
entered into in the proper exercise of their applicable fiduciary duties and
notwithstanding all concessions which may be offered by the other party, such
fiduciary duties would also require the directors to reconsider such commitment
as a result of such tender offer or other written offer or proposal, and (ii)
prior to any such termination, such party shall, and shall cause its respective
financial and legal advisors to, negotiate with the other party to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
such party to proceed with the transactions contemplated thereby on such
adjusted terms; (f) by either KU Energy on the one hand, or LG&E Energy, on the
other hand, by written notice to the other, if (i) there exist inaccuracies of
the representations and warranties on the part of the other made in the Merger
Agreement as of the date thereof which inaccuracies, individually or in the
aggregate, would or would be reasonably likely to result in a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of the other party and its subsidiaries taken as a whole, and such
inaccuracies shall not have been remedied within 20 days after receipt by the
breaching party of notice in writing from the nonbreaching party, specifying
the nature of such inaccuracies and requesting that they be remedied, (ii) the
other party (and/or its appropriate subsidiaries) shall not have performed and
complied in all respects with certain agreements and covenants relating to the
absence of changes in capitalization or issuance of securities or shall have
failed to perform and comply, in all material respects, with its other
agreements and covenants under the Merger Agreement or under the KU Energy
Stock Option Agreement or the LG&E Energy Stock Option Agreement, as the case
may be, and such failure to perform or comply shall not have been remedied
within 20 days after receipt by the breaching party of notice in writing from
the non-breaching party, specifying the nature of such failure and requesting
that it be remedied, or (iii) the Board of Directors of the other party or any
committee thereof (A) shall withdraw or modify in any manner adverse to such
party its approval or recommendation of the Merger Agreement or the Merger, (B)
shall fail to reaffirm such approval or recommendation upon such party's
request, (C) shall approve or recommend any acquisition of the other party or a
material portion of its assets or any tender offer for the other party's common
stock, in each case by a party other than such party or any of its affiliates
or (D) shall resolve to take any of the actions specified in the foregoing in
clauses (A), (B) or (C); or (g) by either LG&E Energy or KU Energy by written
notice to the other party if (i) a third party acquires securities representing
more than 50% of the voting securities of the other party or (ii) individuals,
who as of the date of the Merger Agreement constitute the LG&E Energy Board or
the KU Energy Board, cease for any reason to constitute a majority of the LG&E
Energy Board or the KU Energy Board, as the case may be, then in office.
In the event of termination of the Merger Agreement by either KU Energy or
LG&E Energy as provided above, there shall be no liability or obligation on the
part of either KU Energy or LG&E Energy or their respective officers or
directors thereunder other than: to comply with the terms and provisions of the
Confidentiality Agreement, dated October 30, 1996 (the "Confidentiality
Agreement") which requires each party, among other things, to hold in strict
confidence all documents furnished to the other in accordance with its
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terms; to pay certain fees and expenses pursuant to certain specified
provisions of the Merger Agreement described below under "--Termination Fees"
and "--Expenses"; and to comply with certain other specified provisions of the
Merger Agreement. See "--Standstill Provisions."
TERMINATION FEES
The Merger Agreement provides that if the Merger Agreement is terminated at
such time as it is terminable by either (but not both) of LG&E Energy and KU
Energy for breaches of any representations or warranties contained in the
Merger Agreement as of the date thereof, or of agreements and covenants
contained in the Merger Agreement or the KU Energy Stock Option Agreement or
LG&E Energy Stock Option Agreement, as the case may be, pursuant to the
provisions of the Merger Agreement described in clauses (f)(i) and (f)(ii)
under "--Termination" above, then, if such breach is not willful, the
nonbreaching party is entitled to reimbursement of its documented out-of-pocket
expenses, not to exceed $10 million. In the event of a termination pursuant to
such provisions as a result of a willful breach, the non-breaching party will
be entitled to its out-of-pocket expenses (which shall not be limited to $10
million) and any remedies it may have at law or in equity, provided that, if at
the time of the breaching party's willful breach, there shall have been a
third-party tender offer or proposal with respect to a Business Combination
involving the breaching party or one of its affiliates which at the time of
termination shall not have been rejected by the breaching party and withdrawn
by the third party, and within two and one-half years of any termination by the
non-breaching party, the breaching party accepts an offer to consummate or
consummates a Business Combination with such third party, then such breaching
party, upon the signing of a definitive agreement relating to such a Business
Combination, or, if no such agreement is signed then at the closing of such
Business Combination, will pay to the non-breaching party an additional fee
equal to $50 million. The Merger Agreement also requires payment of a
termination fee of $50 million (and reimbursement of out-of-pocket expenses) by
one party to the other in certain circumstances, if (i) the Merger Agreement is
terminated (A) pursuant to clause (f) above under "--Termination" or as a
result of the acceptance by such party of a third-party tender offer or
proposal with respect to a Business Combination pursuant to the provisions of
the Merger Agreement described in clause (e) under "--Termination" above, (B)
following a failure of the shareholders of such party to grant their approval
to the Merger (unless the other party's shareholders also fail to grant such
approval) or (C) as a result of such party's material failure to convene a
shareholder meeting, distribute proxy materials and, subject to its Board of
Directors' fiduciary duties, recommend the Merger Agreement and the Merger to
its shareholders; (ii) at the time of such termination or prior to the meeting
of such party's shareholders there shall have been a third-party tender offer
or proposal with respect to a Business Combination involving such party or any
of its affiliates which shall not have been rejected by such party and
withdrawn by the third party; and (iii) within two and one-half years of any
such termination described in clause (i) above, such party or such affiliate
accepts an offer to consummate or consummates a Business Combination with the
third party. Such termination fee and out-of-pocket expenses referred to in the
previous sentence shall be paid upon the signing of a definitive agreement
between such party and the third party, or, if no such agreement is signed,
then at the closing of such third-party Business Combination.
In the event that the Merger Agreement becomes terminable under circumstances
in which a $50 million termination fee could be payable by one party (the
"Payor") pursuant to the immediately preceding paragraph, such event will also
constitute a "Trigger Event" under the Stock Option Agreement pursuant to which
the Payor issued an Option to the other party, so as to entitle the other party
to require the Payor to repurchase such Option or the Option Shares (as defined
herein) issued upon exercise thereof. The aggregate amount payable by KU Energy
or LG&E Energy, as the case may be, pursuant to the provisions described in the
immediately preceding paragraph and upon a required repurchase of an Option or
Option Shares pursuant to the KU Energy Stock Option Agreement or the LG&E
Energy Stock Option Agreement, as the case may be, may not exceed $70 million
(including reimbursement of fees and expenses). See "The Stock Option
Agreements."
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty and, if one party should fail to pay any
termination fee due, the defaulting party shall pay the cost and expenses in
connection with any action taken to collect payment, together with interest on
the amount of any unpaid termination fee.
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EXPENSES
Except as set forth above, all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby shall be paid by
the party incurring such expense, except that those expenses incurred in
connection with printing and filing of this Joint Proxy Statement/Prospectus
shall be shared equally by KU Energy and LG&E Energy.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the directors of the parties thereto,
at any time before or after approval thereof by the shareholders of KU Energy
and LG&E Energy and prior to the Effective Time, but after such approvals no
such amendment shall alter or change the amount or kind of shares, rights or
manner of conversion of such shares, alter or change any of the terms and
conditions of the Merger Agreement if any of the alterations or changes, alone
or in the aggregate, would materially adversely affect the rights of holders of
LG&E Energy Common Stock or KU Energy Common Stock, except for alterations or
changes that could otherwise be adopted by the LG&E Energy Board without the
further approval of such shareholders. The parties to the Merger Agreement may
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, waive any inaccuracies in the representations and
warranties contained therein or in any document delivered pursuant thereto, and
waive compliance with any of the agreements or conditions contained in the
Merger Agreement to the extent permitted by law.
STANDSTILL PROVISIONS
Pursuant to the Confidentiality Agreement, LG&E Energy and KU Energy have
each agreed (other than as contemplated in the Merger Agreement or Stock Option
Agreements), that they will not, until the second anniversary of any
termination of the Merger Agreement, (i) acquire any material portion of the
other party's assets or businesses or in excess of 1% of any class of
securities issued by the other party; (ii) seek or propose a business
combination with the other party or any of its subsidiaries, (iii) seek or
propose to influence or control the management or policies of the other party;
or (iv) enter into or propose any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Stock Option Agreements,
copies of which are attached as Annex C and Annex D and which are incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Stock Option Agreements. The Stock Option Agreements are intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. Consequently, certain aspects of the Stock
Option Agreements may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a significant
interest in, or otherwise effecting a business combination with, LG&E Energy or
KU Energy from considering or proposing such a transaction, even if such
persons were prepared to offer to pay consideration to shareholders of LG&E
Energy or KU Energy, as the case may be, which had a higher value than the
shares of the LG&E Energy Common Stock to be received per share of KU Energy
Common Stock or to be retained by holders of LG&E Energy Common Stock, as the
case may be, pursuant to the Merger Agreement.
GENERAL
Pursuant to mutual Stock Option Agreements entered into concurrently with the
Merger Agreement, KU Energy and LG&E Energy have granted to each other an
irrevocable option to purchase up to 19.9% of the other's total number of
shares of Common Stock outstanding on the date of the Stock Option Agreements,
subject to adjustments provided therein (each an "Option"). LG&E Energy and KU
Energy (each, an "Option Holder") have the right, under certain circumstances,
to purchase, respectively, up to (i) 7,525,757 shares of KU Energy Common
Stock, and (ii) 13,230,490 shares of LG&E Energy Common Stock (collectively,
the "Option
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Shares"). The Option exercise price per share for KU Energy Common Stock is
$40.8315 (i.e., the product of (x) the Fair Market Value (as defined below) of
a share of LG&E Energy common stock on the date of the Stock Option Agreements
and (y) the Exchange Ratio). The Option exercise price per share for LG&E
Energy Common Stock is $24.45, which is equal to the Fair Market Value of a
share of LG&E Energy Common Stock on the date of the Stock Option Agreements.
"Fair Market Value" for any share is the average of the daily closing sales
price for such share on the NYSE during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined. The exercise price is payable, at the Option Holder's option, in
cash or, subject to any required governmental approvals, shares of Common Stock
of the Option Holder.
The Options may be exercised by the Option Holder, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
such Option Holder under circumstances which would entitle such Option Holder
to payment of the $50 million termination fees under the Merger Agreement (each
a "Trigger Event") described above under "The Merger Agreement--Termination
Fees," regardless of whether the Merger Agreement is actually terminated,
whether the Option grantor accepts any third-party offer to consummate a
business combination or such grantor combines with or becomes a subsidiary of
any third-party offeror. The Options will terminate upon the earlier of (i) the
Effective Time, (ii) the termination of the Merger Agreement pursuant to its
terms (other than a termination upon or during the continuance of a Trigger
Event), or (iii) 180 days following any termination of the Merger Agreement
upon or during the continuance of a Trigger Event (or, if at the expiration of
such 180-day period the Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, ten business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal, but in no event under this clause (iii) later than May
20, 2000).
Notwithstanding the foregoing, no Option may be exercised (a) if the Option
Holder is in material breach of any of its material representations or
warranties, or in material breach of any of its covenants or agreements
contained in the Merger Agreement or applicable Stock Option Agreement, or (b)
until all necessary regulatory approvals have been obtained for the acquisition
of shares pursuant to such Option.
CERTAIN REPURCHASES
Option Holder Put. Under the terms of the Stock Option Agreements, at any
time during which the Option is exercisable (the "Repurchase Period"), the
Option Holder has the right to require the issuer of the Option (the "Issuer")
to repurchase from the Option Holder all or any portion of the Option or, at
any time prior to May 20, 1999 (provided that such date shall be extended to
November 20, 1999 under the circumstances where the date after which either
party may terminate the Merger Agreement has been extended to November 20,
1999), all or any portion of the Option Shares purchased pursuant to the
exercise of the Option. The amount that the Issuer will pay to the Option
Holder to repurchase the Option is the difference between the Market/Offer
Price (as defined below) for shares of Issuer common stock as of the date the
Option Holder gives notice of its intent to exercise its repurchase rights (the
"Notice Date") and the exercise price for the Option, multiplied by the number
of Option Shares purchasable pursuant to the Option, or the portion thereof to
be so repurchased, but only if the Market/Offer Price is greater than such
exercise price. The amount that the Issuer will pay to the Option Holder to
repurchase the Option Shares is the exercise price paid by the Option Holder
for the Option Shares plus the difference between the Market/Offer Price and
the exercise price paid by the Option Holder for the Option Shares (but only if
the Market/Offer Price is greater than such exercise price), multiplied by the
number of Option Shares to be so repurchased. The Stock Option Agreements
define "Market/Offer Price" as the higher of (A) the price per share offered as
of the Notice Date pursuant to any tender or exchange offer or other business
combination offer which was made prior to the Notice Date and not terminated or
withdrawn as of such date (the "Offer Price") and (B) the Fair Market Value of
the Issuer's common stock as of the Notice Date (the "Market Price").
Option Holder Call. At any time prior to May 20, 1999 (which date may be
extended to November 20, 1999 under the circumstances described above), the
Option Holder may also require the Issuer to sell to the
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Option Holder any shares of the Option Holder's common stock delivered by the
Option Holder to the Issuer in payment for the exercise price of the Option,
at the price attributed to such shares for such purpose plus interest at the
rate of 7% per annum (from the date of the delivery of such shares through the
date of such repurchase) less any dividends paid or declared and payable
thereon.
VOTING
Each party has agreed to vote, until May 20, 2002, any shares of the capital
stock of the other party acquired pursuant to the Stock Option Agreements
("Restricted Shares") or otherwise beneficially owned by such party on each
matter submitted to a vote of shareholders of such other party for and against
such matter in the same proportion as the vote of all other shareholders of
such other party is voted for and against such matter.
RESTRICTIONS ON TRANSFER
The Stock Option Agreements provide that, until May 20, 2002, neither party
may, directly or indirectly, by operation of law or otherwise, sell, assign,
pledge or otherwise dispose of or transfer any Restricted Shares except as
specifically provided for in the Stock Option Agreements.
REGISTRATION RIGHTS
Following the termination of the Merger Agreement, the parties have the
right to have Restricted Shares registered under the Securities Act for sale
in a public offering. The Stock Option Agreements also provide that, following
the termination of the Merger Agreement, either party may sell any Restricted
Shares pursuant to a tender or exchange offer approved or recommended, or
otherwise determined to be fair and in the best interests of such other
party's shareholders, by a majority of the Board of Directors of such other
party.
AMENDMENT TO LG&E ENERGY ARTICLES OF INCORPORATION
Pursuant to the terms of the Merger Agreement, LG&E Energy shareholders are
being asked to consider and approve the LG&E Energy Articles Amendment, which
would amend and restate the LG&E Energy Articles to increase the amount of
authorized LG&E Energy Common Stock from 125,000,000 shares to 300,000,000
shares, thereby increasing LG&E Energy's authorized capitalization from
130,000,000 shares to 305,000,000 shares (which includes the 5,000,000 shares
of LG&E Energy Preferred Stock presently authorized). The LG&E Energy Articles
as so amended and restated, attached hereto as Annex H, will be the LG&E
Energy Articles at the Effective Time and until thereafter amended in
accordance with the KBCA and the LG&E Energy Articles.
THE LG&E ENERGY BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE LG&E
ENERGY ARTICLES AMENDMENT. Approval of the LG&E Energy Articles Amendment is a
condition to consummation of the Merger. As described below, without the LG&E
Energy Articles Amendment, LG&E Energy will not have a sufficient number of
shares to complete the Merger. If approved by LG&E Energy shareholders, it is
intended that the LG&E Energy Articles Amendment will not become effective
until immediately prior to or concurrent with the Effective Time. If, after
LG&E Energy shareholder approval of the LG&E Energy Articles Amendment, the
Merger is not consummated, LG&E Energy will not file the LG&E Energy Articles
Amendment with the Kentucky Secretary of State and the LG&E Energy Articles
Amendment will therefore not become effective.
As of the LG&E Energy Record Date, of the 125,000,000 shares of LG&E Energy
Common Stock presently authorized, 66,486,875 shares were issued and
outstanding, and approximately 6,259,034 shares of LG&E Energy Common Stock
were reserved for issuance for a specific purpose, as follows: 2,747,443
shares, 200,000 shares, 500,000 shares, 982,621 shares and 1,828,970 shares
for issuance pursuant to LG&E Energy's Omnibus Long-Term Incentive Plan,
Deferred Stock Compensation Plan, Stock Option Plan for Non-Employee
Directors, Employee Common Stock Purchase Plan, and Dividend Reinvestment and
Stock Purchase Plan, respectively. An additional 13,230,490 shares (subject to
adjustment as provided in the LG&E Energy Stock Option Agreement) are reserved
for issuance under the LG&E Energy Stock Option Agreement, but the option to
purchase such shares granted to KU Energy thereunder will terminate at the
Effective Time. See "The Stock Option Agreements." If the Merger is
consummated, up to 63,990,254 additional shares of LG&E Energy Common Stock
would be issued to former holders of KU Energy Common Stock pursuant to the
Merger Agreement.
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Accordingly, without the LG&E Energy Articles Amendment, LG&E Energy would
not have a sufficient number of authorized shares to complete the Merger. In
addition to facilitating consummation of the Merger, the additional 175,000,000
authorized shares of LG&E Energy Common Stock may be issued for any proper
corporate purpose approved by the LG&E Energy Board. The LG&E Energy Board
believes that it is in the best interests of LG&E Energy and its shareholders
to increase the number of authorized shares of LG&E Energy Common Stock so that
a sufficient number of additional shares of LG&E Energy Common Stock will be
available for issuance from time to time in connection with possible future
financing programs, stock dividends, acquisitions, stock option and other
employee benefit plans and other general corporate purposes. Having such
additional authorized shares of LG&E Energy Common Stock available for issuance
in the future will give LG&E Energy greater flexibility and allow additional
shares of LG&E Energy Common Stock, in excess of the number of such shares
presently authorized, to be issued without the expense and delay of a special
meeting of shareholders unless such meeting is required for the particular
transaction by applicable law or regulations or the rules of any stock exchange
on which the shares of LG&E Energy Common Stock may then be listed or quoted.
The LG&E Energy Board has not proposed the increase in the amount of authorized
LG&E Energy Common Stock with the intention of discouraging tender offers or
takeover attempts of LG&E Energy. However, the availability of additional
authorized shares for issuance could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of LG&E
Energy, which may adversely affect the ability of LG&E Energy shareholders to
obtain a premium for their shares of LG&E Energy Common Stock and, accordingly,
have a negative effect on the price of LG&E Energy Common Stock.
LG&E Energy management regularly reviews a range of possible financing
transactions, including the issuance of LG&E Energy Common Stock. Except for
shares to be issued in connection with the Merger and to fund various employee
benefit plans, LG&E Energy has no present intention of issuing or selling LG&E
Energy Common Stock for any purpose, but may do so if market and other
conditions should indicate that such a course of action were advisable. Under
the Merger Agreement, LG&E Energy has agreed, from the date of the Merger
Agreement through the Effective Time or earlier termination of the Merger
Agreement, to issue, without the consent of KU Energy, no more than 500,000
additional shares of LG&E Energy Common Stock for general corporate purposes,
including issuances in connection with acquisitions and financings and pursuant
to employee benefit plans, stock option and other incentive compensation plans,
director plans and stock purchase and dividend reinvestment plans.
If the LG&E Energy Articles Amendment is approved, the LG&E Energy Board
generally may issue such additional authorized shares of LG&E Energy Common
Stock without further shareholder approval. In some instances, shareholder
approval for the issuance of additional shares may be required by law or by the
requirements of the NYSE, on which the LG&E Energy Common Stock will be listed,
or the obtaining of such approvals may be otherwise necessary or desirable.
Except in such cases, it is not anticipated that further shareholder
authorization will be solicited. Holders of LG&E Energy Common Stock are not
entitled to preemptive rights to subscribe for or purchase any part of any new
or additional issue of LG&E Energy Common Stock or securities convertible into
LG&E Energy Common Stock.
The affirmative vote of a majority of the votes cast at the LG&E Energy
Meeting by the holders of the outstanding shares of LG&E Energy Common Stock
entitled to vote thereon and present in person or by proxy is required for
approval of the LG&E Energy Articles Amendment (provided that the total vote
cast represents over 50% of the outstanding LG&E Energy Common Stock entitled
to vote thereon).
DESCRIPTION OF LG&E ENERGY CAPITAL STOCK
GENERAL
Pursuant to the Merger Agreement, no later than the Effective Time, the LG&E
Energy Articles will be amended in the form attached hereto as Annex H subject
to shareholder approval of the LG&E Energy Articles Amendment at the LG&E
Energy Meeting, and, as so amended and restated, shall be the LG&E Energy
Articles until thereafter amended in accordance with the KBCA. See "Amendment
to LG&E Energy Articles of
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Incorporation." The authorized capital stock of LG&E Energy, as of the
Effective Time, will consist of 300,000,000 shares of LG&E Energy Common
Stock, of which approximately 66,486,875 shares were outstanding on the LG&E
Record Date, and 5,000,000 shares of preferred stock, without par value (the
"Preferred Stock"). The description of LG&E Energy capital stock after the
Effective Date set forth herein does not purport to be complete and is
qualified in its entirety by reference to the amended and restated LG&E Energy
Articles and the Bylaws of LG&E Energy (the "LG&E Energy Bylaws"), attached
hereto as Annexes H and I, respectively, as well as applicable statutory or
other law.
PREFERRED STOCK
As discussed below under the caption "Rights to Purchase Series A Preferred
Stock," LG&E Energy 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. Pursuant to the Merger
Agreement, the number of shares constituting such series is to be increased
from 750,000 shares to 2,000,000 shares prior to the Effective Time. Preferred
Stock may be issued in the future in such series as may be designated by LG&E
Energy's Board of Directors. In creating any such series, LG&E Energy'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.
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 LG&E Energy
Common Stock are entitled to receive such dividends as may be declared from
time to time by the Board of Directors of LG&E Energy out of funds legally
available therefor.
The funds required by LG&E Energy to enable it to pay dividends on its
Common Stock are expected to be derived principally from dividends paid by
LG&E on LG&E's common stock and, after the Merger, also from dividends paid by
Kentucky Utilities on Kentucky Utilities' common stock. LG&E Energy'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. 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.
Kentucky Utilities' First Mortgage Indenture, as amended, provides that, so
long as certain currently outstanding series of Kentucky Utilities' first
mortgage bonds are outstanding, Kentucky Utilities will not declare or pay any
dividends on its common stock unless the amounts expended by Kentucky
Utilities for maintenance and repairs and provided for depreciation subsequent
to April 30, 1947, plus Kentucky Utilities' earned surplus (retained earnings)
for such period and remaining after any such payment, distribution or
purchase, shall aggregate not less than 15% of the gross operating revenues of
Kentucky Utilities for the period. The Articles of Incorporation of Kentucky
Utilities provide, in effect, that, so long as any of the preferred stock of
Kentucky Utilities is outstanding, the total amount of all dividends or other
distributions on Common Stock that may be paid or made during any 12-month
period shall not exceed (a) 75% of the "net income available for dividends on
common stock" if the ratio of "common stock equity" to "total capital" (as
defined therein) of Kentucky Utilities shall be 20% to 25%, or (b) 50% of such
net income if such ratio shall be less than 20%. When such ratio is 25% or
more, no such dividends or distributions may be paid or made which would
reduce such ratio to
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less than 25% except to the extent permitted by clauses (a) and (b) above. No
amount of retained earnings of Kentucky Utilities is presently restricted by
the above-referenced provisions.
VOTING RIGHTS
Every holder of LG&E Energy 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 LG&E Energy 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 LG&E Energy Common Stock, will be entitled to elect
two (2) directors of LG&E Energy.
The LG&E Energy Articles contain "fair price" provisions, which require that
mergers and certain other business combinations or transactions involving LG&E
Energy and any substantial (10% or more) holder of LG&E Energy's Voting Stock
(as defined below) must be approved by the holders of at least 80% of the
voting power of LG&E Energy's outstanding Voting Stock and by the holders of at
least 66 2/3% of the voting power of LG&E Energy'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 LG&E Energy's
outstanding Voting Stock and by the holders of at least 66 2/3% of the voting
power of LG&E Energy's Voting Stock not beneficially owned by any 10% owner.
LG&E Energy's Voting Stock consists of all outstanding shares of LG&E Energy
generally entitled to vote in the election of directors and currently consists
of LG&E Energy 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 LG&E Energy Preferred
Stock that may be issued in the future, the LG&E Energy Articles and Bylaws
contain provisions stating that: (a) the LG&E Energy Board 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 LG&E Energy
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 LG&E Energy
Board 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 LG&E Energy Board 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 LG&E Energy generally entitled to vote.
These provisions along with the "fair price" provisions and cumulative voting
provisions discussed above and the LG&E Energy Rights described below, may
deter attempts to change control of LG&E Energy (by proxy contest, tender offer
or otherwise) and will make more difficult a change in control of LG&E Energy
that is opposed by LG&E Energy'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
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liquidation, dissolution or winding up of LG&E Energy, whether voluntary or
involuntary, the holders of the LG&E Energy Common Stock are entitled to the
remaining assets.
OTHER PROVISIONS
No holder of LG&E Energy 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 LG&E Energy
Common Stock is not subject to redemption and does not have any conversion or
sinking fund provisions. The issued and outstanding shares of LG&E Energy
Common Stock are fully paid and nonassessable shares of Common Stock of LG&E
Energy.
Under the LG&E Energy Articles, the LG&E Energy Board may issue additional
shares of authorized but unissued LG&E Energy 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 LG&E Energy Board: (i) declared a dividend
distribution of one LG&E Energy Right for each outstanding share of LG&E Energy
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 LG&E Energy
Right with respect to each share of LG&E Energy Common Stock that becomes
outstanding after such record date and before the Distribution Date (as defined
below).
LG&E Energy declared a three-for-two split of the LG&E Energy Common Stock to
shareholders of record on April 30, 1992. As a result of the stock split and in
accordance with the terms of the LG&E Energy Rights, the number of LG&E Energy
Rights associated with a share of LG&E Energy Common Stock was reduced,
effective May 15, 1992, from one LG&E Energy Right per share to two-thirds of a
LG&E Energy Right per share. LG&E Energy declared a two-for-one split of the
LG&E Energy 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 LG&E
Energy Rights, the number of LG&E Energy Rights associated with a share of LG&E
Energy Common Stock was reduced from two-thirds of a LG&E Energy Right per
share to one-third of a LG&E Energy Right per share, effective April 15, 1996.
On June 7, 1995, the LG&E Energy Board 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 LG&E Energy Common Stock. The previous ownership
threshold was 20%.
In connection with the Merger, on May 20, 1997, the LG&E Energy Board
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 will not cause any LG&E Energy 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.
Each whole LG&E Energy Right entitles the holder of record to purchase from
LG&E Energy one one-hundredth of a share of Series A Preferred Stock, without
par value, of LG&E Energy 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 LG&E Energy Rights Agreement, as amended (the "LG&E Energy Rights
Agreement").
Currently the LG&E Energy Rights are not exercisable, certificates
representing such Rights have not been sent to shareholders and such Rights
automatically trade with the LG&E Energy Common Stock.
The LG&E Energy Rights will be evidenced by the LG&E Energy 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 LG&E Energy becomes aware) that a person or group of
affiliated
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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 LG&E Energy Common Stock (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 LG&E Energy
Common Stock (the earlier of the dates in clause (i) or (ii) being called the
"Distribution Date"). Notwithstanding the foregoing, neither KU Energy nor
certain related persons will be deemed an "Acquiring Person" solely by reason
of the execution of the Merger Agreement or the LG&E Energy Stock Option
Agreement or their acquisition of LG&E Energy Common Stock pursuant to the
Merger or the LG&E Energy Stock Option Agreement. In addition, and
notwithstanding the foregoing, if the LG&E Energy Board 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 LG&E Energy, 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 LG&E Energy 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, (i) the LG&E Energy Rights will be evidenced by the LG&E
Energy Common Stock certificates and will be transferred with and only with
such LG&E Energy Common Stock certificates, (ii) new LG&E Energy Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for LG&E
Energy Common Stock outstanding will also constitute the transfer of the LG&E
Energy Rights associated with the LG&E Energy Common Stock represented by such
certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the LG&E Energy Rights ("Right Certificates") will be mailed to
holders of record of LG&E Energy'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 LG&E Energy
Common Stock: (i) LG&E Energy, any subsidiary of LG&E Energy, any employee
benefit plan or employee stock plan of LG&E Energy or of any subsidiary of LG&E
Energy; and (ii) any person who becomes an Acquiring Person solely by virtue of
a reduction in the number of outstanding shares of LG&E Energy Common Stock,
unless and until such person shall become the beneficial owner of, or make a
tender offer for, any additional shares of LG&E Energy Common Stock.
The LG&E Energy Rights are not exercisable until the Distribution Date. The
LG&E Energy Rights will expire at the close of business on December 19, 2000,
unless earlier redeemed or exchanged by LG&E Energy 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 LG&E
Energy 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 LG&E Energy Rights associated with a share of LG&E
Energy'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 LG&E Energy
Common Stock.
In the event any Person (other than an Exempt Person or KU Energy or certain
related persons as described above) becomes the beneficial owner of 15% or more
of the then outstanding shares of LG&E Energy Common Stock (except pursuant to
an offer for all outstanding shares of LG&E Energy Common Stock that the
independent directors determine to be fair to and otherwise in the best
interest of LG&E Energy and its
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shareholders) or any Exempt Person who is the beneficial owner of 15% or more
of the outstanding LG&E Energy Common Stock fails to continue to qualify as an
Exempt Person, then each holder of record of a whole LG&E Energy Right, other
than the Acquiring Person, will thereafter have the right to receive, upon
payment of the Purchase Price, LG&E Energy Common Stock (or, in certain
circumstances, cash, property or other securities of LG&E Energy) having a
market value at the time of the transaction equal to twice the Purchase Price.
However, LG&E Energy Rights are not exercisable following such event until such
time as the Rights are no longer redeemable by LG&E Energy 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 LG&E Energy Common Stock (or other consideration, as noted above) for
$110. Assuming that the LG&E Energy Common Stock had a per share value of $22
at such time, the holder of each valid LG&E Energy Right would be entitled to
purchase 10 shares of LG&E Energy Common Stock for $110. After the LG&E Energy
Rights have become exercisable, if LG&E Energy is acquired in a merger or other
business combination (in which any shares of LG&E Energy's Common Stock are
changed into or exchanged for other securities or assets) or more than 50% of
the assets or earning power of LG&E Energy 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 LG&E Energy 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 LG&E Energy
Common Stock are available for the exercise in full of the LG&E Energy Rights,
holders of LG&E Energy Rights will receive upon exercise shares of LG&E Energy
Common Stock to the extent available and then other securities of LG&E Energy,
including units of shares of Series A Preferred Stock with rights substantially
comparable to those of the LG&E Energy Common Stock, property, or cash, in
proportions determined by LG&E Energy, so that the aggregate value received is
equal to twice the Purchase Price. LG&E Energy, however, shall not be required
to issue any cash, property or debt securities upon exercise of the LG&E Energy
Rights to the extent their aggregate value would exceed the amount of cash LG&E
Energy would otherwise be entitled to receive upon exercise in full of the then
exercisable Rights.
No fractional shares of Series A Preferred Stock or LG&E Energy Common Stock
will be required to be issued upon exercise of the LG&E Energy Rights and, in
lieu thereof, a payment in cash may be made to the holder of such LG&E Energy
Rights equal to the same fraction of the current market value of a share of
Series A Preferred Stock or, if applicable, LG&E Energy Common Stock.
At any time until ten days after the Stock Acquisition Date (subject to
extension by the LG&E Energy Board), LG&E Energy may redeem the LG&E Energy
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, LG&E Energy's right of redemption may be reinstated, under
certain circumstances, if an Acquiring Person reduces his beneficial ownership
of LG&E Energy Common Stock to below 10% and there is no other Acquiring
Person. Immediately upon the action of the LG&E Energy Board authorizing
redemption of the LG&E Energy Rights, the right to exercise the rights will
terminate, and the only right of the holders of LG&E Energy Rights will be to
receive the Redemption Price without any interest thereon.
The LG&E Energy Board may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the outstanding LG&E
Energy Rights (other than LG&E Energy Rights held by the Acquiring Person and
certain related parties) for shares of LG&E Energy Common Stock at an exchange
ratio of three (3) shares of LG&E Energy Common Stock per LG&E Energy Right
(subject to certain anti-dilution adjustments). However, the LG&E Energy Board
may not effect such an exchange at any time any Person or
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group owns 50% or more of the shares of LG&E Energy Common Stock then
outstanding. Immediately after the LG&E Energy Board orders such an exchange,
the right to exercise the LG&E Energy Rights shall terminate and the holders of
LG&E Energy Rights shall thereafter only be entitled to receive shares of LG&E
Energy Common Stock at the applicable exchange ratio.
The LG&E Energy Board may amend the Rights Agreement. After the Distribution
Date, however, the provisions of the Rights Agreement may be amended by the
LG&E Energy Board only to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of LG&E Energy 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 LG&E Energy 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 of one-hundredths of a share of Series A Preferred Stock for which a
LG&E Energy 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 LG&E Energy Rights (other than an Acquiring Person or an associate or
affiliate of an Acquiring Person).
Until a LG&E Energy Right is exercised, the holder, as such, will have no
rights as a shareholder of LG&E Energy, including, without limitation, the
right to vote or to receive dividends.
The issuance of the LG&E Energy Rights is not taxable to LG&E Energy or to
shareholders under presently existing federal income tax law. If the LG&E
Energy Rights should become exercisable, shareholders, depending on then
existing circumstances, may recognize taxable income.
The LG&E Energy Rights may have certain anti-takeover effects. The LG&E
Energy Rights will cause substantial dilution to a person or group that
attempts to acquire LG&E Energy on terms not approved by the LG&E Energy Board
and, accordingly, will make more difficult a change of control that is opposed
by the LG&E Energy Board. However, the LG&E Energy Rights should not interfere
with a proposed change of control (including a merger or other business
combination) approved by a majority of the LG&E Energy Board since the LG&E
Energy Rights may be redeemed by LG&E Energy at the Redemption Price at any
time until ten days after the Stock Acquisition Date (subject to extension by
the LG&E Energy Board). Thus, the LG&E Energy Rights are intended to encourage
persons who may seek to acquire control of LG&E Energy to initiate such an
acquisition through negotiations with the LG&E Energy Board. Nevertheless, the
LG&E Energy 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, LG&E Energy. To the extent any potential
acquirors are deterred by the LG&E Energy Rights, the LG&E Energy Rights may
have the effect of preserving incumbent management in office.
This summary description of the LG&E Energy Rights does not purport to be
complete and is qualified in its entirety by reference to the LG&E Energy
Rights Agreement, which is incorporated in this summary description herein by
reference.
MISCELLANEOUS
The outstanding LG&E Energy Common Stock is listed on the New York and
Chicago Stock Exchanges.
TRANSFER AGENTS AND REGISTRAR
The Transfer Agents for the LG&E Energy Common Stock are LG&E Energy and
Norwest Bank Minnesota, N.A., Minneapolis, Minnesota. Registrar for the LG&E
Energy Common Stock is PNC Bank, Kentucky, Inc., Louisville, Kentucky.
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<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, the persons who were holders of KU Energy
Common Stock (other than KU Energy Dissenting Shares) immediately prior to the
Merger will become holders of LG&E Energy Common Stock immediately after
consummation of the Merger and their rights will be governed by the LG&E
Energy Articles, the LG&E Energy Bylaws and the KBCA. The LG&E Energy
Articles, as amended by the LG&E Energy Articles Amendment, which is being
submitted for shareholder approval at the LG&E Energy Meeting, will be the new
LG&E Energy Articles at the Effective Time. See "Amendment to LG&E Energy
Articles of Incorporation."
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the amended and restated LG&E Energy Articles and
the LG&E Energy Bylaws which are attached to this Joint Proxy
Statement/Prospectus as Annexes H and I, respectively, and to the Rights
Agreements of LG&E Energy and KU Energy.
COMPARISON OF LG&E ENERGY'S RIGHTS AGREEMENT TO KU ENERGY'S RIGHTS AGREEMENT
Each of the LG&E Energy Board and the KU Energy Board has authorized and
declared, and authorized the issuance of, a dividend of one preferred stock
purchase right (each a "Right") for each share of its respective Common Stock.
As a result of a three-for-two stock split in 1992 and a two-for-one stock
split in 1996, the number of Rights associated with an outstanding share of
LG&E Energy Common Stock has been reduced from one Right per share to one-
third Right per share of LG&E Energy Common Stock. The description and terms
of the separate Rights are set forth in the respective Rights Agreement, as
amended, entered into by LG&E Energy and KU Energy. In general, such terms are
substantially the same in each case, see "Description of LG&E Energy Capital
Stock--Rights to Purchase Series A Preferred Stock," except as discussed in
the following paragraph.
Though each whole Right entitles the holder to purchase one one-hundredth of
a share of preferred stock, the exercise price for the LG&E Energy Right is
$110 per one one-hundredth of a share compared to an exercise price of $65 per
one one-hundredth of a share for each KU Energy Right. While the ownership
threshold for the definition of an Acquiring Person under LG&E Energy's Rights
Agreement is 15%, the ownership threshold for the definition of an Acquiring
Person under KU Energy's Rights Agreement is 10%. Under the Rights Agreements,
each Board has the option, after any person becomes an Acquiring Person, to
exchange all or part of the Rights held by a person other than an Acquiring
Person and/or a related person for shares of Common Stock at an exchange ratio
of three shares of Common Stock per Right in the case of LG&E Energy and at an
exchange ratio of one share of Common Stock per Right in the case of KU
Energy. The Rights under LG&E Energy's Rights Agreement expire at the close of
business on December 19, 2000 unless earlier redeemed or exchanged by the
Company. The Rights under KU Energy's Rights Agreement expire February 7,
2002.
COMPARISON OF LG&E ENERGY ARTICLES AND BYLAWS TO KU ENERGY ARTICLES AND BYLAWS
Board of Directors. KU Energy Articles provide that the affairs of the
corporation shall be conducted by a Board of nine directors, or such other
number of directors (not less than three) as shall from time to time be
prescribed by the KU Energy Bylaws. So long as there are at least nine
directors, the board shall be classified with respect to the time for which
the directors hold office into three classes, as nearly equal in number as
possible. The KU Energy Bylaws provide for a Board of Directors of no more
than eleven and no less than nine members as determined from time to time by
resolution of the Board of Directors. The KU Energy Board currently consists
of 10 directors.
The LG&E Energy Articles provide that the Board of Directors of LG&E shall
be fixed from time to time by or pursuant to the LG&E Energy Bylaws, which
provide that the number of directors shall be fixed from time to time by the
Board of Directors, but shall in no event be less than nine or more than
fifteen directors. In accordance with the Merger Agreement, at the Effective
Time, the LG&E Energy Board will consist of fifteen
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directors, eight of whom will be designated by LG&E Energy and seven of whom
will be designated by KU Energy. See "LG&E Energy Following the Merger--
Management of LG&E Energy After The Merger." As with the KU Energy Board of
Directors, the LG&E Energy Board will be classified with respect to the time
for which they hold office into three classes, as nearly equal in number as
possible, as determined by the Board of Directors.
Removal of Directors. The KU Energy Articles and the KU Energy Bylaws are
silent as to the procedure for removing directors. Under the KBCA, the
shareholders of KU Energy may vote to remove one or more directors, with or
without cause. However, if a director is elected by a voting group of
shareholders, only the voting group of shareholders may vote to remove such
director. Additionally, a director may not be removed if the votes cast against
such removal would have been sufficient to elect the director under cumulative
voting.
Both the LG&E Articles and the LG&E Energy Bylaws provide that any director
may be removed with or without cause by the affirmative vote of at least 80% of
the combined voting power of the then outstanding shares of LG&E Energy stock
entitled to vote generally in the election of directors. The LG&E Energy
Articles and the LG&E Energy Bylaws further provide that if at any time LG&E
Energy's shareholders have cumulative voting rights with respect to the
election of directors and less than the entire Board of Directors is to be
removed, no director may be removed from office if the votes cast against his
or her removal would be sufficient to elect such person under cumulative
voting.
Vacancies on the Board of Directors. The KU Energy Articles are silent as to
the procedures for the filling of a vacancy on the Board of Directors. The KU
Energy Bylaws provide that the Board of Directors may fill vacancies occurring
at any time in the membership of the Board by death, resignation or otherwise
until the next annual election and until the necessary election shall have
taken place. The LG&E Energy Articles and the LG&E Energy Bylaws provide that a
vacancy on the Board of Directors shall be filled by the affirmative vote of a
majority of the remaining directors, even though less than a quorum of the
Board of Directors, and that any director so elected shall hold office for the
remainder of the full term of the class of directors in which the vacancy
occurred and until the election and qualification of such director's successor.
Amendment to Articles of Incorporation. Unless a greater vote or a vote by
voting groups is otherwise required, the KBCA provides that an amendment of the
articles of incorporation requiring adoption by the shareholders may be
approved (i) by a majority of the votes entitled to be cast on the amendment by
any voting group with respect to which the amendment would create dissenter's
rights and (ii) at a meeting where a quorum is present (a quorum being a
majority of the votes entitled to be cast on the matter by the voting group),
if the votes cast within the group favoring the action exceeds the votes cast
opposing the action, unless a greater number of affirmative votes is otherwise
required. The KU Energy Articles require the approval of holders of 80% of the
KU Energy Common Stock to amend the provisions regarding the classification of
directors. The KU Energy Articles also require the affirmative vote of the
holders of at least two-thirds of the outstanding shares of KU Energy's
Preferred Stock, Series A, voting together as a single series, to amend the KU
Energy Articles in any manner which would materially alter or change the
powers, preferences or special rights of the Preferred Stock, Series A.
Similarly, the LG&E Energy Articles prohibit adoption of any amendment which
would adversely alter or change the powers, preferences or special rights of
the Series A Preferred Stock without at least a majority approval of the
outstanding shares of Series A Preferred Stock voting separately as a class.
The LG&E Articles further provide that adoption of an amendment affecting
certain provisions, including those relating to the "fair price" provisions,
the number of directors, and the voting requirements to amend the LG&E Energy
Articles and Bylaws requires the approval of holders of 80% of the outstanding
shares of LG&E Energy entitled to vote generally.
Amendments to Bylaws. The KU Energy Bylaws may be amended or repealed at any
meeting of the KU Energy Board of Directors or by the shareholders. The LG&E
Energy Bylaws may be amended or repealed by (i) the shareholders at any annual
meeting (or special meeting called for that purpose) at which a quorum is
present, by the holders of at least a majority of the voting power of the
shares represented and entitled to vote at such meeting, or (ii) the Board of
Directors by majority vote of those present at any meeting at which a quorum is
present. Notwithstanding the foregoing, however, certain provisions of the LG&E
Energy Bylaws, including
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those provisions (i) authorizing shareholder action by unanimous consent, (ii)
fixing the number of directors, (iii) providing for a classified board of
directors, (iv) establishing procedures for removing directors, (v)
establishing procedures for properly bringing business before an annual meeting
of shareholders and (vi) determining who may call a special meeting of the
shareholders, may not be amended or repealed without the approval of holders of
80% of the outstanding shares of LG&E Energy entitled to vote generally.
Voting/Cumulative Voting. Each share of KU Energy Common Stock is entitled to
one vote on any matter upon which such share is entitled to vote with the
exception of elections for directors of the KU Energy Board. In all elections
for directors, each holder of KU Energy Common Stock has the right to
cumulative voting. The voting rights of holders of LG&E Energy Common Stock are
substantially the same except that shareholders' rights to cumulative voting
are qualified by the extent to which such right is required by law.
Special Meetings of Shareholders; Shareholder Action by Written Consent. The
KU Energy Bylaws provide that special meetings of shareholders may be called by
the KU Energy Board, the holders of at least 51% of all the votes entitled to
be cast on each issue proposed for consideration at the special meeting, or as
otherwise provided by the KBCA. The LG&E Energy Bylaws provide that, except as
otherwise mandated by the KBCA, only the President of LG&E Energy or the LG&E
Energy Board (by resolution approved by a majority of the entire LG&E Energy
Board) may call a special meeting of the shareholders. While the KU Energy
Bylaws do not address action by the shareholders without a meeting, the LG&E
Energy Bylaws state that shareholders may take action without a meeting only by
written consent of all shareholders entitled to vote on the subject matter.
Notice of Shareholder Proposals/Nominations. The KU Energy Bylaws require
advance notice of the introduction by shareholders of business at annual
meetings of shareholders, or of nominations for election as director. For any
such proposal or nomination to be properly brought before an annual meeting, a
shareholder must have given timely and proper notice thereof to the Secretary
of KU Energy. To be timely, a shareholder must deliver a written notice to the
Secretary of KU Energy not fewer than 60 days prior to the scheduled annual
meeting; provided that if the date of such meeting is not disclosed at least 70
days in advance of the meeting date, a shareholder notice will be timely
delivered if received by the close of business on the tenth day following the
day on which notice of the date of the meeting or public disclosure of the
meeting date was made. The required written notice from a shareholder must set
forth (i) a description in reasonable detail of the proposed business and the
reasons for conducting such business or the name and certain information about
the nominee and a signed consent to serve if elected, (ii) the name and address
of the proponent, or the shareholder proposing such business or granting a
proxy to the proponent or an intermediary as it appears on KU Energy's books,
(iii) the class and number of shares owned by the shareholder, (iv) a
description of any material interest of such shareholder in such business, (v)
a representation that the shareholder is a holder of record of stock of KU
Energy entitled to vote at such meeting and intends to appear at the meeting to
make the proposal or to nominate the person or persons specified in the notice
and (vi) the name and address of the proponent, if the holder of a proxy from a
qualified shareholder of record, and the names and addresses of any
intermediate proxies.
Similarly, LG&E Energy's Bylaws require advance notice of any business to be
brought before the annual meeting by a shareholder, including nominations for
election as director. For business to be timely and properly brought by a
shareholder, the Secretary of LG&E Energy must have received written notice
thereof not less than 90 days prior to the meeting. If the date of the meeting
is not publicly announced by LG&E Energy more than 100 days prior to the
meeting, the shareholder must deliver timely notice to the Secretary not later
than the close of business on the tenth day following the day on which such
public announcement was communicated to the shareholders. For business other
than nominations for election as director, such notice must contain (i) a
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on LG&E Energy's books, of the shareholder
proposing such business, (iii) the class and number of shares of LG&E Energy
which are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. With respect to shareholder nominations
for election as director, such notice must contain: (i) the name and address of
the shareholder who intends to make the nomination and of the person or persons
to be nominated; (ii) a representation that the shareholder is a holder of
record of stock of LG&E Energy entitled to vote at such meeting
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<PAGE>
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (iv) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the SEC, had the nominee been nominated, or intended to be nominated, by the
LG&E Energy Board; and (v) the consent of each nominee to serve as a director
of LG&E Energy if so elected.
Indemnification/Limitation of Liability. The KU Energy Bylaws provide that KU
Energy shall indemnify any person made or threatened to be made a party to a
proceeding by reason of his or her former or present official capacity as a
director, officer, employee or agent of KU Energy or acting in an official
capacity with another entity at the direction or request of KU Energy,
according to the terms and under the procedures provided in the KBCA. To the
fullest extent permitted by Kentucky law, the KU Energy Articles also limit the
personal liability of directors for monetary damages for breach of their
fiduciary duties, except for (i) breaches of their duty of loyalty to KU Energy
or its shareholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of the law, (iii) transactions
from which the directors receive improper personal benefits or (iv) any vote
for or assent to an unlawful distribution to shareholders. The LG&E Energy
Articles contain similar provisions limiting personal liability of a director
for a breach of his or her fiduciary duty.
The LG&E Energy Articles provide that LG&E Energy shall indemnify to the
fullest extent permitted by law any person who is or was a party or threatened
to be made a party to any legal proceeding by reason of the fact that such
person is or was a director or officer of LG&E Energy, or is or was serving at
the request of LG&E Energy as a director or officer of another enterprise,
against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person. This right of
indemnity includes the advancement of expenses upon receipt of an undertaking
to repay such advance upon specified conditions.
UNAUDITED PRO FORMA COMBINED CONDENSED 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 June 30,
1997 gives effect to the Merger as if it had occurred at June 30, 1997. The
unaudited pro forma combined condensed statements of income for each of the
years in the three-year period ended December 31, 1996, the six-month period
ended June 30, 1997, and the 12-month period ended June 30, 1997 give effect to
the Merger as if it had occurred at January 1, 1994. 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, incorporated herein by
reference. 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. In addition, due to the effect
of seasonal fluctuations in temperature and other weather-related factors on
the operations of LG&E Energy and KU Energy, financial results for the six-
month period ended June 30, 1997 are not necessarily indicative of trends for
any future period.
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LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LG&E ENERGY KU ENERGY PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENT COMBINED
(NOTE 1) (NOTE 2) (NOTE 3)
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Energy marketing and
trading.................. $1,580,966 $ -- $ (4) $1,580,962
Electric utility.......... 274,746 341,769 (240) 616,275
Gas utility............... 130,929 -- -- 130,929
Other..................... 63,863 2,727 -- 66,590
---------- -------- ------- ----------
Total revenues........ 2,050,504 344,496 (244) 2,394,756
---------- -------- ------- ----------
Cost of revenues
Energy marketing and
trading.................. 1,554,329 -- (15) 1,554,314
Fuel and power purchased.. 73,426 123,528 (229) 196,725
Gas supply expenses....... 88,969 -- -- 88,969
Other..................... 37,593 -- -- 37,593
---------- -------- ------- ----------
Total cost of
revenues............. 1,754,317 123,528 (244) 1,877,601
---------- -------- ------- ----------
Gross profit................ 296,187 220,968 -- 517,155
Operating expenses
Operation and maintenance:
Utility................. 109,396 101,599 -- 210,995
Energy marketing and
trading and other...... 43,699 1,463 -- 45,162
Depreciation and
amortization............. 56,762 41,839 -- 98,601
Non-recurring charges..... (592) -- -- (592)
---------- -------- ------- ----------
Total operating
expenses............. 209,265 144,901 -- 354,166
---------- -------- ------- ----------
Equity in earnings of joint
ventures .................. 8,941 -- -- 8,941
---------- -------- ------- ----------
Operating income............ 95,863 76,067 -- 171,930
Other income and
(deductions)............... 6,077 2,361 -- 8,438
Interest charges, minority
interest and preferred
dividends.................. 34,458 20,904 -- 55,362
---------- -------- ------- ----------
Income before income taxes.. 67,482 57,524 -- 125,006
Income taxes................ 24,626 20,611 -- 45,237
---------- -------- ------- ----------
Net Income (Note 5)......... $ 42,856 $ 36,913 $ -- $ 79,769
========== ======== ======= ==========
Average common shares
outstanding (Note 4)....... 66,433 37,818 25,338 129,589
Earnings per share of common
stock...................... $ 0.65 $ 0.98 -- $ 0.62
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
TWELVE MONTHS ENDED JUNE 30, 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KU PRO FORMA PRO FORMA
LG&E ENERGY ADJUSTMENT COMBINED
ENERGY (NOTE 1) (NOTE 2) (NOTE 3)
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Energy marketing and trading (Note
6)................................ $3,099,192 $ -- $ (4) $3,099,188
Electric utility................... 594,230 694,955 (425) 1,288,760
Gas utility........................ 224,930 -- -- 224,930
Other.............................. 85,275 5,039 -- 90,314
---------- -------- ------- ----------
Total revenues................. 4,003,627 699,994 (429) 4,703,192
---------- -------- ------- ----------
Cost of revenues
Energy marketing and trading....... 3,039,965 -- (85) 3,039,880
Fuel and power purchased........... 158,870 250,020 (344) 408,546
Gas supply expenses................ 152,567 -- -- 152,567
Other.............................. 44,202 -- -- 44,202
---------- -------- ------- ----------
Total cost of revenues......... 3,395,604 250,020 (429) 3,645,195
---------- -------- ------- ----------
Gross profit......................... 608,023 449,974 -- 1,057,997
Operating expenses
Operation and maintenance:
Utility.......................... 213,690 203,622 -- 417,312
Energy marketing and trading and
other........................... 79,175 3,215 -- 82,390
Depreciation and amortization...... 108,826 82,232 -- 191,058
Non-recurring charges (Notes 7 and
8)................................ 25,738 4,012 -- 29,750
---------- -------- ------- ----------
Total operating expenses....... 427,429 293,081 -- 720,510
---------- -------- ------- ----------
Equity in earnings of joint ventures. 18,958 -- -- 18,958
---------- -------- ------- ----------
Operating income..................... 199,552 156,893 -- 356,445
Other income and (deductions)........ 8,344 4,186 -- 12,530
Interest charges, minority interest
and preferred dividends............. 60,466 41,687 -- 102,153
---------- -------- ------- ----------
Income before income taxes........... 147,430 119,392 -- 266,822
Income taxes......................... 51,488 42,923 -- 94,411
---------- -------- ------- ----------
Net Income (Note 5).................. $ 95,942 $ 76,469 $ -- $ 172,411
========== ======== ======= ==========
Average common shares outstanding
(Note 4)............................ 66,378 37,818 25,338 129,534
Earnings per share of common stock... $ 1.45 $ 2.02 -- $ 1.33
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KU ENERGY PRO FORMA PRO FORMA
LG&E 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).......... $2,736,940 $ -- $ -- $2,736,940
Electric utility........... 607,160 711,686 (760) 1,318,086
Gas utility................ 214,419 -- -- 214,419
Other...................... 30,946 4,522 -- 35,468
---------- -------- ------ ----------
Total revenues......... 3,589,465 716,208 (760) 4,304,913
---------- -------- ------ ----------
Cost of revenues
Energy marketing and
trading................... 2,663,902 -- (257) 2,663,645
Fuel and power purchased... 166,323 260,688 (503) 426,508
Gas supply expenses........ 140,482 -- -- 140,482
Other...................... 13,556 -- -- 13,556
---------- -------- ------ ----------
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:
Utility.................. 214,786 201,811 -- 416,597
Energy marketing and
trading and other....... 67,907 2,759 -- 70,666
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....................... $ 1.57 $ 2.17 -- $ 1.44
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KU ENERGY PRO FORMA PRO FORMA
LG&E 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
(Note 9)................. (28,300) -- -- (28,300)
Gas utility............... 181,126 -- -- 181,126
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
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:
Utility................. 203,284 198,712 -- 401,996
Energy marketing and
trading and other...... 39,874 2,969 -- 42,843
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...................... $ 1.25 $ 2.01 -- $ 1.23
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
93
<PAGE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KU ENERGY PRO FORMA PRO FORMA
LG&E ENERGY (AS REPORTED) ADJUSTMENT COMBINED
(AS REPORTED) (NOTE 1) (NOTE 2) (NOTE 3)
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Energy marketing and
trading.................. $ 1,289 $ -- $ -- $ 1,289
Electric Utility (Note
10)...................... 559,327 636,628 (328) 1,195,627
Gas utility............... 200,129 -- -- 200,129
Other..................... 68,918 2,604 -- 71,522
-------- -------- ------ ----------
Total revenues........ 829,663 639,232 (328) 1,468,567
-------- -------- ------ ----------
Cost of revenues
Energy marketing and
trading.................. 1,222 -- -- 1,222
Fuel and power purchased
(Note 10)................ 153,356 232,096 (328) 385,124
Gas supply expenses....... 131,561 -- -- 131,561
Other..................... 56,395 -- -- 56,395
-------- -------- ------ ----------
Total cost of
revenues............. 342,534 232,096 (328) 574,302
-------- -------- ------ ----------
Gross profit................ 487,129 407,136 -- 894,265
Operating expenses
Operation and maintenance:
Utility................. 202,123 193,428 -- 395,551
Energy marketing and
trading and other...... 24,629 2,053 -- 26,682
Depreciation and
amortization............. 84,173 65,441 -- 149,614
Non-recurring charges
(Note 11)................ 48,743 -- -- 48,743
-------- -------- ------ ----------
Total operating
expenses............. 359,668 260,922 -- 620,590
-------- -------- ------ ----------
Equity in earnings of joint
ventures................... 12,883 -- -- 12,883
-------- -------- ------ ----------
Operating income............ 140,344 146,214 -- 286,558
Other income and
(deductions)............... 13,718 8,121 -- 21,839
Contribution to charitable
foundation (Note 12)....... 15,000 -- -- 15,000
Interest charges and
preferred dividends........ 48,839 36,453 -- 85,292
-------- -------- ------ ----------
Income from continuing
operations before income
taxes...................... 90,223 117,882 -- 208,105
Income taxes................ 33,394 42,006 -- 75,400
-------- -------- ------ ----------
Income from continuing
operations................. 56,829 75,876 -- 132,705
Gain on sale of discontinued
operations, net of income
taxes of $35,048 (Note 13). 51,805 -- -- 51,805
-------- -------- ------ ----------
Income before cumulative
effect of change in
accounting principle....... 108,634 75,876 -- 184,510
Cumulative effect of change
in accounting for post-
employment benefits, net of
income taxes of $2,280
(Note 14).................. (3,369) -- -- (3,369)
-------- -------- ------ ----------
Net Income.................. $105,265 $ 75,876 $ -- $ 181,141
======== ======== ====== ==========
Average common shares
outstanding (Note 4)....... 65,982 37,818 25,338 129,138
Earnings per share of common
stock
From continuing
operations............... $ 0.86 $ 2.01 $ -- $ 1.03
Gain on sale of
discontinued operations.. 0.79 -- -- 0.40
Cumulative effect of
accounting change........ (0.05) -- -- (0.03)
-------- -------- ------ ----------
Total................. $ 1.60 $ 2.01 -- $ 1.40
======== ======== ====== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
94
<PAGE>
LG&E ENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT JUNE 30, 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
KU ENERGY PRO FORMA PRO FORMA
LG&E ENERGY (AS REPORTED) ADJUSTMENT COMBINED
(AS REPORTED) (NOTE 1) (NOTE 2) (NOTE 3)
ASSETS ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and temporary cash
investments............... $ 132,210 $ 21,418 $ -- $ 153,628
Marketable securities...... 10,996 -- -- 10,996
Accounts receivable--less
reserve................... 376,327 66,425 (21) 442,731
Materials and supplies--
primarily at average cost:
Fuel (predominately
coal)................... 15,651 37,189 -- 52,840
Gas stored underground... 16,174 -- -- 16,174
Other.................... 31,802 23,370 -- 55,172
Price risk management
assets.................... 62,782 -- -- 62,782
Prepayments and other...... 3,472 6,679 -- 10,151
---------- ---------- ------- ----------
Total current assets... 649,414 155,081 (21) 804,474
---------- ---------- ------- ----------
Other property and
investments--less reserve:
Investments in affiliates.. 171,384 2,172 -- 173,556
Non-utility property and
plant, net................ 408,058 2,714 -- 410,772
Price risk management
assets.................... 49,924 -- -- 49,924
Other...................... 25,261 41,327 -- 66,588
---------- ---------- ------- ----------
Total other property
and investments....... 654,627 46,213 -- 700,840
---------- ---------- ------- ----------
Utility plant, at original
cost:
Electric................... 2,245,213 2,577,611 -- 4,822,824
Gas........................ 337,324 -- -- 337,324
Common..................... 138,724 -- -- 138,724
---------- ---------- ------- ----------
Gross utility plant...... 2,721,261 2,577,611 -- 5,298,872
Less: reserve for
depreciation................ 1,037,437 1,099,749 -- 2,137,186
---------- ---------- ------- ----------
Net utility plant........ 1,683,824 1,477,862 -- 3,161,686
---------- ---------- ------- ----------
Deferred debits and other
assets...................... 121,389 47,585 8,250 177,224
---------- ---------- ------- ----------
Total assets........... $3,109,254 $1,726,741 $ 8,229 $4,844,224
========== ========== ======= ==========
<CAPTION>
CAPITAL AND LIABILITIES
<S> <C> <C> <C> <C>
Current liabilities:
Long-term debt due within
one year.................. $ 20,000 $ 21 $ -- $ 20,021
Notes payable.............. 298,000 51,800 -- 349,800
Accounts payable........... 322,749 26,937 16,479 366,165
Trimble County settlement.. 15,072 -- -- 15,072
Accrued taxes.............. 5,532 2,849 (3,330) 5,051
Price risk management
liabilities............... 77,637 -- -- 77,637
Other...................... 76,006 35,306 -- 111,312
---------- ---------- ------- ----------
Total current
liabilities........... 814,996 116,913 13,149 945,058
---------- ---------- ------- ----------
Long-Term Debt............... 664,284 546,351 -- 1,210,635
Deferred credits and other
liabilities:
Accumulated deferred income
taxes..................... 312,326 249,208 -- 561,534
Investment tax credit, in
process of amortization... 77,869 28,123 -- 105,992
Regulatory liability....... 75,600 53,305 -- 128,905
Price risk management
liabilities............... 23,824 -- -- 23,824
Other...................... 123,939 43,706 -- 167,645
---------- ---------- ------- ----------
Total deferred credits
and other liabilities. 613,558 374,342 -- 987,900
---------- ---------- ------- ----------
Minority interests........... 102,594 -- -- 102,594
Cumulative preferred stock... 95,328 40,000 -- 135,328
Common equity................ 818,494 649,135 (4,920) 1,462,709
---------- ---------- ------- ----------
Total capital and
liabilities........... $3,109,254 $1,726,741 $(8,229) $4,844,224
========== ========== ======= ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
95
<PAGE>
LG&E ENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
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. The allocation between LG&E Energy and KU Energy and their customers of
the estimated cost savings resulting from the Merger, net of the estimated
costs incurred to achieve such savings, and the treatment of transaction
costs, will be subject to regulatory review and approval. None of the
estimated cost savings or costs to achieve such savings has 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) to
retained earnings and $8.25 million as deferred debits and other assets in
the pro forma combined condensed balance sheet has been made to recognize
such estimated transaction costs. Transaction costs are currently
estimated to be approximately $16.5 million (including fees for financial
advisors, attorneys, accountants, consultants, filings and printing).
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 net income for the six months, and twelve months, ended June
30, 1997, includes the effect of an $8.5 million insurance settlement and
related legal costs associated with the Calgary trading loss discussed in
Note 7 below, partially offset by a one-time restructuring charge of $7
million for the consolidation of LG&E Energy's energy marketing group.
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 and $16.6 million for the twelve
months ended June 30, 1997. The impact on prior period financial results
was immaterial.
7. LG&E Energy's net income for the year ended December 31, 1996 and twelve
months ended June 30, 1997, 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 twelve months ended June 30, 1997 and year
ended 1996 include a non-recurring write-off of nonutility investments.
This charge is reflected in non-recurring charges on the respective
statements of income.
9. 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 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.
10. Electric utility revenues and fuel and power purchased costs for KU Energy
for 1994 were reduced by $19.4 million and $23.1 million, respectively,
resulting from refunds made pursuant to regulatory orders related to the
resolution of a coal contract dispute. The difference between the
reduction in operating revenues and the reduction in fuel expense is
attributable to incurred litigation costs, fuel cost savings related to
opportunity sales and costs incurred to administer the refund plan. These
amounts were retained by Kentucky Utilities pursuant to regulatory orders.
11. LG&E Energy's 1994 net income includes pre-tax non-recurring charges of
$48.7 million. As part of a study of its business strategy and realignment
during 1994, LG&E re-evaluated its regulatory strategy
96
<PAGE>
which previously had been to seek full recovery of certain costs deferred
in accordance with prior precedents established by the Kentucky Commission.
As a result of this re-evaluation, LG&E wrote off certain expenses that had
previously been deferred amounting to approximately $38.6 million before
taxes. While LG&E continues to believe that it could have reasonably
expected to recover these costs in future rate proceedings before the
Kentucky Commission, LG&E decided to deduct these expenses currently and
not seek recovery for such expenses in future rates due to increasing
competitive pressures and the existing and anticipated future economic
conditions. In addition, a nonutility subsidiary of LG&E Energy recorded a
reserve of $10.1 million before taxes for the costs related to vacating
leased office space.
12. LG&E Energy's 1994 net income includes a pre-tax charge of $15 million.
This represented an irrevocable payment made to a tax-exempt charitable
foundation formed by LG&E Energy in 1994. This charge is reflected in the
Contribution to Charitable Foundation on the statements of income.
13. LG&E Energy's 1994 net income includes the recognition of a gain on the
sale of its 36.5% partnership interest in Natural Gas Clearinghouse for
$170 million. The transaction resulted in an after-tax gain of
approximately $52 million. This adjustment is reflected as a gain on sale
of discontinued operations, net of income taxes.
14. LG&E Energy's 1994 net income includes an adjustment for a change in
accounting for post-employment benefits adopted pursuant to Statement of
Financial Accounting Standards No. 112, Employers' Accounting for Post-
Employment Benefits. This adjustment is reflected as a cumulative effect of
change in accounting for post-employment benefits, net of income taxes.
97
<PAGE>
SELECTED INFORMATION CONCERNING KU ENERGY AND LG&E ENERGY
BUSINESS OF KU ENERGY
KU Energy is a holding company, with two wholly-owned subsidiaries, Kentucky
Utilities and KU Capital. Kentucky Utilities is a public utility that provides
electricity to approximately 432,900 customers in over 600 communities and
adjacent suburban and rural areas in 77 counties in central, southeastern and
western Kentucky, and to about 28,800 customers in five counties in
southwestern Virginia. In Virginia, Kentucky Utilities operates under the name
Old Dominion Power Company. The territory served by Kentucky Utilities has an
aggregate population estimated at about 1,000,000, which includes Lexington,
Kentucky. The territory served includes most of the Bluegrass Region of central
Kentucky and parts of the coal mining areas in southeastern and western
Kentucky and southwestern Virginia. KU Capital is KU Energy's vehicle for
investments in various non-utility energy related ventures. Kentucky Utilities
owns 20% of the common stock of EEI, which owns and operates a 1,000 megawatt
coal-fired electric generating station in Joppa, Illinois. The remaining 80% is
owned by three unaffiliated public utilities or public utility holding
companies. Additional information concerning KU Energy and its subsidiaries is
included in the KU Energy documents filed with the SEC which are incorporated
by reference herein. See "Incorporation by Reference."
BUSINESS OF LG&E ENERGY
LG&E Energy is a holding company engaged, through its subsidiaries, in retail
utility services, energy marketing and trading, power generation and project
development. LG&E Energy owns LG&E, which is an operating public utility that
supplies natural gas to approximately 277,000 customers and electricity to
approximately 351,000 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 800,000. 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 remove sulfur dioxide, produce
most of the LG&E electricity; the remainder is generated by a hydroelectric
power plant and combustion turbines. Through its non-utility subsidiaries, LG&E
Energy has interests in and operates power plants in several states, Argentina
and Spain, and two gas distribution companies in Mendoza and Cordoba provinces
in Argentina. LG&E Energy also is actively involved through its non-utility
subsidiaries in energy marketing and trading and, for the year ended December
31, 1996, was the largest utility-affiliated power marketer in the United
States. LG&E Energy recently received the requisite Bankruptcy Court approvals
for the use and/or lease of the generation assets of Big Rivers Electric
Corporation, a rural electric cooperative in Kentucky ("Big Rivers") and the
sale of power to Big Rivers over a twenty-five year term. Upon receipt of
certain additional regulatory approvals, LG&E Energy affiliates will (i) lease
the generation assets of Big Rivers (approximately 1,400 megawatts) and own the
electrical output thereof, (ii) receive the economic benefits of the electrical
output of a generation facility (approximately 300 megawatts) owned by the City
of Henderson, Kentucky (to the extent the output of such facility is not
committed to meet the requirements of such municipality's residents), (iii)
sell to Big Rivers an amount of power as agreed upon by contract to permit Big
Rivers to serve its cooperative members, satisfy certain other obligations and
enter into additional contracts for the sale of power, and (iv) sell
additional, excess electrical output of the Big Rivers' facilities to third
parties on the open market. Additional information concerning LG&E Energy and
its subsidiaries is included in the LG&E Energy documents filed with the SEC
which are incorporated by reference herein. See "Incorporation by Reference".
CERTAIN BUSINESS RELATIONSHIPS BETWEEN KENTUCKY UTILITIES AND LG&E
In the normal course of business, Kentucky Utilities and LG&E buy and sell
electric power from and to each other in arm's-length transactions pursuant to
filed rate schedules. At various times in the past, LG&E and Kentucky Utilities
have assisted one another in service restoration following major storms. LG&E
and Kentucky
98
<PAGE>
Utilities are both parties to the East Central Area Reliability Coordination
Agreement, which is designed to augment the reliability of the members' bulk
power supply through coordination of planning and operation of generation and
transmission facilities. Each of LG&E and Kentucky Utilities also own an
interest in Ohio Valley Electric Corporation ("OVEC") and have cooperated, with
OVEC's other owners, in the operation of OVEC's two generating stations, with
an aggregate capability of 2,365 megawatts, that are owned by OVEC (or its
subsidiary) in Madison, Indiana and Cheshire, Ohio. OVEC provides power to the
gaseous diffusion facility of the United States Department of Energy in Pike
County, Ohio. Available power is also sold by OVEC to the utilities that own
its stock. Kentucky Utilities owns 2.5%, and LG&E owns 4.9%, of the common
stock of OVEC.
LG&E ENERGY FOLLOWING THE MERGER
The following chart shows the organizational structure of LG&E Energy and its
first-tier subsidiaries and KU Energy and its first-tier subsidiaries prior to
the Merger:
LG&E Energy
--------------------------------------------------------
Louisville Gas LG&E Energy LG&E Gas LG&E Energy
and Foundation Inc. Systems Inc. Systems Inc.
Electric
Company
KU Energy
-------------------
Kentucky KU Capital
Utilities Corporation
Company
As a result of the Merger, LG&E Energy will become the parent company of KU
Energy's principal operating subsidiary, 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. The utility subsidiaries of LG&E Energy
will serve approximately 784,000 electric customers and 277,000 natural gas
customers. Present non-utility operations of LG&E Energy will be unaffected.
The non-utility subsidiaries of KU Energy will become subsidiaries of LG&E
Energy. The business of LG&E Energy will consist of owning utilities and
various non-utility subsidiaries. The following chart depicts the
organizational structure of LG&E Energy after the Merger:
99
<PAGE>
LG&E Energy
--------------------------------------------------------------------
Louisville LG&E LG&E
Kentucky Gas and Energy KU Capital LG&E Gas Energy
Utilities Electric Foundation Corporation Systems Systems
Company Company Inc. Inc.* Inc.*
- --------
*As previously announced and for reasons unrelated to the Merger, LG&E
Energy plans in the near future to merge these two non-utility subsidiaries
into one company.
MANAGEMENT OF LG&E ENERGY AFTER THE MERGER
Pursuant to the Merger Agreement, at the Effective Time, the new LG&E Energy
Board will consist of 15 members, seven members of which will be designated by
KU Energy and eight members of which will be designated by LG&E Energy. To
date, LG&E Energy and KU Energy have not determined which individuals, in
addition to Messrs. Hale and Whitley, will be designated to serve as directors
of LG&E Energy as of the Effective Time. The Board of Directors will have the
following four committees: (i) an Audit Committee; (ii) a Compensation
Committee; (iii) a Nominating and Governance Committee and (iv) a Long Range
Planning Committee. The Audit Committee will have ten members, with five
designated by LG&E Energy (one of whom would be the chairman) and five
designated by KU Energy. The Compensation Committee will have seven members,
with four designated by LG&E Energy (one of whom would be the chairman) and
three designated by KU Energy. The Nominating and Governance Committee will
have eight members, with four designated by LG&E Energy and four designated by
KU Energy (one of whom would be the chairman). The Long Range Planning
Committee will have nine members, with five designated by LG&E Energy and four
designated by KU Energy (one of whom would be the chairman). Upon consummation
of the Merger, the Board of Directors of LG&E will consist of those
persons serving as directors of LG&E immediately prior to the Merger plus those
persons designated by KU Energy to serve on the LG&E Energy Board. Similarly,
following the Merger, the Board of Directors of Kentucky Utilities will
consist of those persons serving as directors of Kentucky Utilities
immediately prior to the Merger plus those persons designated by LG&E Energy
to serve on the LG&E Energy Board. See "The Merger Agreement--LG&E Energy
Board of Directors."
Mr. Hale will be Chairman and Chief Executive Officer of LG&E Energy, LG&E
and Kentucky Utilities and Mr. Whitley will be Vice Chairman, President and
Chief Operating Officer of LG&E Energy and Vice Chairman and Chief Operating
Officer of LG&E and Kentucky Utilities. Each of these individuals will have an
employment agreement with LG&E Energy following the Merger. See "The Merger--
Employment Agreements."
Except as set forth above regarding Mr. Hale and Mr. Whitley, no formal
action has been taken regarding other executive officers of LG&E Energy or its
subsidiaries after the Effective Time. However, Mr. Hale and Mr. Whitley have
agreed orally as to certain members of senior management of LG&E Energy, LG&E
and Kentucky Utilities after the Effective Time and have advised their
respective boards of directors. The names of these individuals, their current
positions and their anticipated positions after the Effective Time are as
follows:
100
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL CURRENT POSITION POSITION AFTER EFFECTIVE TIME
---------- ---------------- -----------------------------
<S> <C> <C>
Walter Z. Group President--Energy Group President--Energy Marketing
Berger Marketing of LG&E Energy of LG&E Energy
O.M. Senior Vice President, Finance Executive Vice President and
Goodlett and Administration and Chief Chief Administrative Officer of
Financial Officer of KU Energy LG&E Energy
and Kentucky Utilities
Robert M. Senior Vice President-- President of Kentucky Utilities
Hewett Customer Service and
Marketing of Kentucky Utilities
Wayne T. Lu- Senior Vice President, Energy Executive Vice President, Power
cas Supply of Kentucky Utilities Generation of LG&E Energy
John R. Executive Vice President, Executive Vice President and
McCall General Counsel and Corporate General Counsel of LG&E Energy,
Secretary of LG&E Energy and LG&E and Kentucky Utilities
LG&E
Victor A. Chief Financial Officer of Chief Financial Officer of LG&E
Staffieri LG&E Energy and LG&E Energy, LG&E and Kentucky
Utilities
Stephen R. President of LG&E President of LG&E
Wood
</TABLE>
OPERATIONS
After the Merger, LG&E and Kentucky Utilities will continue to operate as the
utility subsidiaries of LG&E Energy.
Upon receipt of the necessary approval from the FERC and on or after the
Effective Time, LG&E and Kentucky Utilities will become parties to a
Coordination Agreement, whereby the operation and planning for generating
capacity and transmission are integrated. The integration of the Kentucky
Utilities and LG&E generating capacity should increase the ability of these
companies to meet demands for electricity within the territories each serves.
The non-utility operations of KU Energy are presently conducted through KU
Capital, a wholly-owned subsidiary. The non-utility operations of LG&E Energy
are conducted primarily through LG&E Energy Systems Inc. and LG&E Gas Systems
Inc.
Pursuant to the Merger Agreement, Kentucky Utilities and LG&E shall continue
to provide charitable contributions and community support within the service
areas of Kentucky Utilities and LG&E, at comparable levels to those provided by
such parties within the two-year period prior to the Effective Time.
DIVIDENDS
Following the Merger, the LG&E Energy Board is expected to continue LG&E
Energy's existing dividend payment policy. LG&E Energy currently pays $1.15 per
share annually, and KU Energy's annual dividend rate is currently $1.76 per
share. However, no assurance can be given that such dividend rate will be in
effect or will remain unchanged, and LG&E Energy reserves the right to increase
or decrease its dividend as may be required by law or contract or as may be
determined by the LG&E Energy Board, in its discretion, to be advisable.
Declaration and timing of dividends on the LG&E Energy Common Stock will be a
business decision to be made by the LG&E Energy Board from time to time based
upon the results of operations and financial condition of
101
<PAGE>
LG&E Energy and its subsidiaries and such other business considerations as the
LG&E Energy Board considers relevant in accordance with applicable laws. For a
description of certain restrictions on LG&E Energy's ability to pay dividends
on LG&E Energy Common Stock, see "Description of LG&E Energy Capital Stock."
EXPERTS
The audited consolidated financial statements incorporated in this Joint
Proxy Statement/Prospectus by reference from KU Energy's Annual Report on Form
10-K for the year ended December 31, 1996 have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report with respect
thereto, which is incorporated herein by reference, and has been so
incorporated in reliance upon the authority of said firm as experts in giving
said report.
The audited consolidated financial statements incorporated in this Joint
Proxy Statement/Prospectus by reference from LG&E Energy's Annual Report on
Form 10-K for the year ended December 31, 1996 have been audited by Arthur
Andersen LLP, independent public accountants, as stated in their report with
respect thereto, which is incorporated herein by reference, and has been so
incorporated in reliance upon the authority of said firm as experts in giving
said report.
LEGAL MATTERS
John R. McCall, Esq., Executive Vice President, General Counsel and
Corporate Secretary of LG&E Energy will pass upon the legality of the shares
of LG&E Energy Common Stock to be issued in connection with the Merger.
SHAREHOLDER PROPOSALS
LG&E Energy. Any shareholder of LG&E Energy may submit a proposal for
consideration at LG&E Energy's 1998 Annual Meeting. Any shareholder desiring
to submit a proposal for inclusion in the proxy statement for consideration at
LG&E Energy's 1998 Annual Meeting should forward the proposal so that it will
be received at LG&E Energy's principal executive offices no later than
November 26, 1997. Proposals received by that date that are proper for
consideration at the Annual Meeting and otherwise conforming to the rules of
the SEC will be included in the 1998 proxy statement.
KU Energy. Under the rules of the SEC, any shareholder proposal intended to
be presented at KU Energy's 1998 Annual Meeting must be received by KU Energy
at its principal executive offices no later than November 17, 1997 in order to
be eligible to be considered for inclusion in KU Energy's proxy materials
relating to that meeting. A shareholder submitting a proposal or nominating a
person to serve as director must comply with procedures set forth in the KU
Energy By-laws. In general, the By-laws provide that for business to be
considered at an annual meeting of shareholders, a shareholder must give
timely and proper notice of the matter to the Secretary of KU Energy. The
notice must specify in reasonable detail the business desired to be brought
before the meeting and contain other information required by the By-laws.
Nominations for director may be made by shareholders only if the shareholder
has given timely and proper notice thereof to the Secretary of KU Energy. The
notice must contain the name of the person or persons nominated, certain
information about the nominee and other information required by the By-laws.
In addition to SEC requirements, shareholder proposals or nominations must be
received no fewer than 60 days prior to the meeting (or, if the date of the
meeting has not been made public, within 10 days after the publication of the
date of the meeting).
102
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
LG&E ENERGY CORP.
AND
KU ENERGY CORPORATION
DATED AS OF MAY 20, 1997
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I. THE MERGER.................................................... A-4
Section 1.1. The Merger............................................. A-4
Section 1.2. Effects of the Merger.................................. A-4
Section 1.3. Effective Time of the Merger........................... A-4
ARTICLE II. TREATMENT OF SHARES.......................................... A-5
Section 2.1. Effect of the Merger on Capital Stock.................. A-5
Section 2.2. Dissenting Shares...................................... A-5
Section 2.3. Exchange of Certificates............................... A-6
ARTICLE III. THE CLOSING................................................. A-7
Section 3.1. Closing................................................ A-7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF KU ENERGY.................. A-7
Section 4.1. Organization and Qualification......................... A-7
Section 4.2. Subsidiaries........................................... A-7
Section 4.3. Capitalization......................................... A-8
Authority; Non-Contravention; Statutory Approvals;
Section 4.4. Compliance............................................. A-9
Section 4.5. Reports and Financial Statements....................... A-10
Section 4.6. Absence of Certain Changes or Events................... A-10
Section 4.7. Litigation............................................. A-11
Section 4.8. Registration Statement and Proxy Statement............. A-11
Section 4.9. Tax Matters............................................ A-11
Section 4.10. Employee Matters; ERISA................................ A-13
Section 4.11. Environmental Protection............................... A-14
Section 4.12. Regulation as a Utility................................ A-16
Section 4.13. Vote Required.......................................... A-16
Section 4.14. Accounting Matters..................................... A-16
Section 4.15. Non-applicability of Certain Kentucky Law.............. A-16
Section 4.16. Opinion of Financial Advisor........................... A-16
Section 4.17. Insurance.............................................. A-16
Section 4.18. Ownership of LG&E Energy Common Stock.................. A-17
Section 4.19. KU Energy Rights Agreement............................. A-17
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF LG&E ENERGY................. A-17
Section 5.1. Organization and Qualification......................... A-17
Section 5.2. Subsidiaries........................................... A-17
Section 5.3. Capitalization......................................... A-18
Authority; Non-Contravention; Statutory Approvals;
Section 5.4. Compliance............................................. A-18
Section 5.5. Reports and Financial Statements....................... A-20
Section 5.6. Absence of Certain Changes or Events................... A-20
Section 5.7. Litigation............................................. A-20
Section 5.8. Registration Statement and Proxy Statement............. A-20
Section 5.9. Tax Matters............................................ A-21
Section 5.10. Employee Matters; ERISA................................ A-22
Section 5.11. Environmental Protection............................... A-23
Section 5.12. Regulation as a Utility................................ A-24
Section 5.13. Vote Required.......................................... A-24
Section 5.14. Accounting Matters..................................... A-24
Section 5.15. Non-applicability of Certain Kentucky Law.............. A-25
Section 5.16. Opinion of Financial Advisor........................... A-25
Section 5.17. Insurance.............................................. A-25
Section 5.18. Ownership of KU Energy Common Stock.................... A-25
Section 5.19. LG&E Energy Rights Agreement........................... A-25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER...................... A-25
Section 6.1. Covenants of the Parties.............................. A-25
ARTICLE VII. ADDITIONAL AGREEMENTS...................................... A-30
Section 7.1. Access to Information................................. A-30
Section 7.2. Joint Proxy Statement and Registration Statement...... A-31
Section 7.3. Regulatory Matters.................................... A-32
Section 7.4. Shareholder Approval.................................. A-32
Section 7.5. Directors' and Officers' Indemnification.............. A-33
Section 7.6. Disclosure Schedules.................................. A-34
Section 7.7. Public Announcements.................................. A-34
Section 7.8. Rule 145 Affiliates................................... A-34
Section 7.9. Employee Agreements and Workforce Matters............. A-35
Section 7.10. Employee Benefit Plans................................ A-35
Section 7.11. Stock Option and Other Stock Plans.................... A-35
Section 7.12. No Solicitations...................................... A-36
Section 7.13. Company and Subsidiary Board of Directors............. A-37
Section 7.14. Company Officers...................................... A-37
Section 7.15. Post-Merger Operations................................ A-37
Section 7.16. Expenses.............................................. A-38
Section 7.17. Further Assurances.................................... A-38
Section 7.18. Charter and Bylaw Amendments.......................... A-38
ARTICLE VIII. CONDITIONS................................................ A-38
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger................................................ A-38
Section 8.2. Conditions to Obligation of LG&E Energy to Effect the
Merger................................................ A-39
Section 8.3. Conditions to Obligation of KU Energy to Effect the
Merger................................................ A-40
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER........................... A-41
Section 9.1. Termination........................................... A-41
Section 9.2. Effect of Termination................................. A-43
Section 9.3. Termination Fee; Expenses............................. A-43
Section 9.4. Amendment............................................. A-45
Section 9.5. Waiver................................................ A-45
ARTICLE X. GENERAL PROVISIONS........................................... A-45
Section 10.1. Non-Survival; Effect of Representations and
Warranties............................................ A-45
Section 10.2. Brokers............................................... A-45
Section 10.3. Notices............................................... A-45
Section 10.4. Miscellaneous......................................... A-46
Section 10.5. Interpretation........................................ A-47
Section 10.6. Counterparts; Effect.................................. A-47
Section 10.7. Parties in Interest................................... A-47
Section 10.8. Waiver of Jury Trial and Certain Damages.............. A-47
Section 10.9. Enforcement........................................... A-47
EXHIBITS
EXHIBIT A -- KU Energy Stock Option Agreement
EXHIBIT B -- LG&E Energy Stock Option Agreement
EXHIBIT C-1 -- KU Energy Affiliate Agreement
EXHIBIT C-2 -- LG&E Affiliate Agreement
EXHIBIT D -- Employment Agreement for Chairman of the Board and CEO
EXHIBIT E -- Employment Agreement for Vice Chairman of the Board,
President and COO
EXHIBIT F -- Bylaws of LG&E Energy
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 20, 1997 (this "Agreement"),
by and between LG&E Energy Corp., a Kentucky corporation ("LG&E Energy") and
KU Energy Corporation, a Kentucky corporation ("KU Energy").
WHEREAS, LG&E Energy and KU Energy have determined to engage in a business
combination transaction as peer firms in a merger of equals;
WHEREAS, in furtherance thereof, the respective Boards of Directors of LG&E
Energy and KU Energy have approved the merger of KU Energy with and into LG&E
Energy pursuant to the terms and conditions set forth in this Agreement (such
transaction referred to herein as the "Merger");
WHEREAS, the Board of Directors of LG&E Energy and the Board of Directors of
KU Energy have approved and KU Energy has executed an agreement with LG&E
Energy in the form of Exhibit A (the "KU Energy Stock Option Agreement")
whereby KU Energy has granted LG&E Energy an option to purchase shares of its
common stock upon the terms and conditions provided in such agreement;
WHEREAS, the Board of Directors of LG&E Energy and the Board of Directors of
KU Energy have approved and LG&E Energy has executed an agreement with KU
Energy in the form of Exhibit B (the "LG&E Energy Stock Option Agreement")
whereby LG&E Energy has granted KU Energy an option to purchase shares of its
common stock upon the terms and conditions provided in such agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code (as defined in Section 4.9(e));
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement:
At the Effective Time (as defined in Section 1.3), KU Energy shall be merged
with and into LG&E Energy in accordance with the laws of the Commonwealth of
Kentucky. LG&E Energy shall be the surviving corporation in the Merger and
shall continue its corporate existence under the laws of the Commonwealth of
Kentucky. The effects and the consequences of the Merger shall be as set forth
in Section 1.2 and, with respect to the capital stock of LG&E Energy and KU
Energy, as set forth in Article II.
Section 1.2. Effects of the Merger.
At the Effective Time, (i) the articles of incorporation of LG&E Energy
shall be amended and restated as provided in Section 7.18 hereof and shall be
the articles of incorporation of the surviving corporation (the "Surviving
Corporation" or the "Company") in the Merger (the "Articles of Incorporation")
until thereafter amended as provided by law and the Articles of Incorporation,
and (ii) the bylaws of LG&E Energy shall be amended and restated as provided
in Section 7.18 hereof and shall be the bylaws of the Surviving Corporation
(the "Bylaws") until thereafter amended as provided by law, the Articles of
Incorporation and the Bylaws. Subject to the foregoing, the additional effects
of the Merger shall be as provided in the applicable provisions of the
Kentucky Business Corporation Act (the "KBCA").
Section 1.3. Effective Time of the Merger. On the Closing Date (as defined
in Section 3.1), with respect to the Merger, articles of merger complying with
the requirements of the KBCA shall be filed with the Secretary of State of the
Commonwealth of Kentucky. The Merger shall take effect upon the effective date
of the articles of merger filed with the Secretary of State of the
Commonwealth of Kentucky (the "Effective Time").
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ARTICLE II.
TREATMENT OF SHARES
Section 2.1. Effect of the Merger on Capital Stock.
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of KU Energy or LG&E Energy:
(a) Cancellation of Certain KU Energy Stock. Each share of Common Stock,
no par value, of KU Energy (the "KU Energy Common Stock"), together with
the associated purchase rights (the "KU Energy Rights") under the KU Energy
Rights Agreement (as defined in Section 4.19), that is owned by KU Energy
as treasury stock, by subsidiaries of KU Energy, by LG&E Energy or by any
subsidiaries of LG&E Energy shall be cancelled and cease to exist.
(b) Conversion of KU Energy Common Stock. Each issued and outstanding
share of KU Energy Common Stock together with the associated KU Energy
Rights (other than shares cancelled pursuant to Section 2.1(a) and KU
Energy Dissenting Shares (as hereinafter defined)), shall be cancelled and
converted into the right to receive 1.67 (the "Exchange Ratio") fully paid
and non-assessable shares of common stock, without par value, of LG&E
Energy ("LG&E Energy Common Stock"), together with the associated purchase
rights (the "LG&E Energy Rights") under the LG&E Energy Rights Agreement
(as defined in Section 5.19). Upon such cancellation and conversion, each
holder of a certificate formerly representing any such shares of KU Energy
Common Stock and, prior to the Distribution Date (as defined in the KU
Energy Rights Agreement), the associated KU Energy Rights shall cease to
have any rights with respect thereto, except (i) the right to receive the
shares of LG&E Energy Common Stock and LG&E Energy Rights to be issued in
consideration therefor upon the surrender of such certificate in accordance
with Section 2.3 or (ii) the rights afforded pursuant to the KBCA and
Section 2.2 hereof.
(c) No Change to LG&E Energy Common Stock. Each issued and outstanding
share of LG&E Energy Common Stock (other than LG&E Energy Dissenting Shares
(as defined in Section 2.2(b)), together with the LG&E Energy Rights, shall
remain outstanding and shall continue to represent one fully paid and
nonassessable share of LG&E Energy Common Stock together with the LG&E
Energy Rights.
Section 2.2. Dissenting Shares.
(a) Shares of KU Energy Common Stock together with the associated KU
Energy Rights held by any holder entitled to relief as a dissenter under
Sections 271B.13-010 through 271B.13-310 of the KBCA (the "KU Energy
Dissenting Shares") shall not be converted into the right to receive shares
of LG&E Energy Common Stock and LG&E Energy Rights in accordance with
Section 2.1(b) of this Agreement but shall be cancelled and converted into
such consideration as may be due with respect to such shares pursuant to
the applicable provisions of the KBCA unless and until the right of such
holder to receive fair value for such KU Energy Dissenting Shares
terminates in accordance with Sections 271B.13-230 or 271B.13-280 of the
KBCA. If such right is terminated otherwise than by the purchase of such
shares by LG&E Energy, then such shares shall cease to be KU Energy
Dissenting Shares and shall represent the right to receive LG&E Energy
Common Stock and LG&E Energy Rights, as provided in Section 2.1(b).
(b) Shares of LG&E Energy Common Stock together with the associated LG&E
Energy Rights held by any holder entitled to relief as a dissenter under
Sections 271B.13-010 through 271B.13-310 of the KBCA (the "LG&E Energy
Dissenting Shares") shall not remain outstanding in accordance with Section
2.1(c) of this Agreement but shall be cancelled and converted into such
consideration as may be due with respect to such shares pursuant to the
applicable provisions of the KBCA unless and until the right of such holder
to receive fair value for such LG&E Energy Dissenting Shares terminates in
accordance with Sections 271B.13-230 or 271B.13-280 of the KBCA. If such
right is terminated otherwise than by the purchase of such shares by LG&E
Energy, then such shares shall cease to be LG&E Energy Dissenting Shares
and shall continue to represent shares of LG&E Energy Common Stock and LG&E
Energy Rights, as provided in Section 2.1(c).
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<PAGE>
Section 2.3. Exchange of Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the
Effective Time, LG&E Energy shall deposit with a bank or trust company
mutually agreeable to KU Energy and LG&E Energy (the "Exchange Agent"),
certificates representing shares of LG&E Energy Common Stock and associated
LG&E Energy Rights required to effect the exchanges referred to in Section
2.1, together with cash payable in respect of fractional shares pursuant to
Section 2.3(d).
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of KU Energy Common Stock (and KU Energy Rights) (the
"Certificates") that were converted (the "Converted Shares") into the right
to receive shares of LG&E Energy Common Stock (and LG&E Energy Rights) (the
"LG&E Energy Shares") pursuant to Section 2.1(b) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent) and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing
LG&E Energy Shares. Upon surrender of a Certificate to the Exchange Agent
for cancellation (or to such other agent or agents as may be appointed by
agreement of LG&E Energy and KU Energy), together with a duly executed
letter of transmittal and such other documents as the Exchange Agent may
require, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole LG&E
Energy Shares which such holder has the right to receive pursuant to the
provisions of this Article II. In the event of a transfer of ownership of
Converted Shares which is not registered in the transfer records of KU
Energy, a certificate representing the proper number of LG&E Energy Shares
may be issued to a transferee if the Certificate representing such
Converted Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.3, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing LG&E Energy Shares and cash in lieu of any fractional shares
of LG&E Energy Common Stock as contemplated by this Section 2.3.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to LG&E Energy Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
LG&E Energy Shares represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.3(d) until the holder of record of such Certificate shall surrender such
Certificate in accordance with this Section 2.3. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole LG&E Energy Shares issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount
of any cash payable in lieu of a fractional share of LG&E Energy Common
Stock to which such holder is entitled pursuant to Section 2.3(d) and the
amount of dividends or other distributions with a record date after the
Effective Time paid prior to the time of such surrender with respect to
such whole LG&E Energy Shares and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole LG&E Energy Shares.
(d) No Fractional Securities. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of LG&E
Energy Common Stock shall be issued upon the surrender for exchange of
Certificates and such fractional shares shall not entitle the owner thereof
to vote or to any other rights of a holder of LG&E Energy Common Stock. A
holder of KU Energy Common Stock who would otherwise have been entitled to
a fractional share of LG&E Energy Common Stock shall be entitled to receive
a cash payment in lieu of such fractional share in an amount equal to the
product of such fraction multiplied by the average of the last reported
sales price, regular way, per share of LG&E Energy Common Stock on the New
York Stock Exchange ("NYSE") Composite Tape for the ten business days prior
to and including the last business day prior to the day on which the
Effective Time occurs.
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<PAGE>
(e) Closing of Transfer Books. From and after the Effective Time the
stock transfer books of KU Energy shall be closed and no transfer of any
capital stock of KU Energy or KU Energy Rights shall thereafter be made.
If, after the Effective Time, Certificates are presented to KU Energy, they
shall be cancelled and exchanged for certificates representing the
appropriate number of LG&E Energy Shares, and/or cash payments in lieu of
any fractional shares, as provided in Section 2.1 and in this Section 2.3.
(f) Termination of Exchange Agent. Any certificates representing LG&E
Energy Shares deposited with the Exchange Agent pursuant to Section 2.3(a)
and not exchanged within six months after the Effective Time pursuant to
this Section 2.3 shall be returned by the Exchange Agent to the Company,
which shall thereafter act as Exchange Agent. All funds held by the
Exchange Agent for payment to the holders of unsurrendered Certificates and
unclaimed at the end of six months from the Effective Time shall be
returned to the Company, after which time any holder of unsurrendered
Certificates shall look as a general creditor only to the Company for
payment of such funds to which such holder may be due, subject to
applicable law. Neither the Company nor the Exchange Agent shall be liable
to any person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III.
THE CLOSING
Section 3.1. Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Gardner, Carton & Douglas, 321 North Clark Street,
Chicago, Illinois at 10:00 A.M., local time, on the second business day
immediately following the date on which the last of the conditions set forth
in Article VIII hereof is fulfilled or waived, or at such other time and date
or other place as LG&E Energy and KU Energy shall mutually agree in writing
(the "Closing Date").
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF KU ENERGY
KU Energy represents and warrants to LG&E Energy as follows:
Section 4.1. Organization and Qualification. Except as set forth in Section
4.1 of the KU Energy Disclosure Schedule (as defined in Section 7.6(ii)), each
of KU Energy and each KU Energy Subsidiary (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals
and orders, to own, lease and operate its assets and properties to the extent
owned, leased and operated and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing
of its assets and properties makes such qualification necessary. As used in
this Agreement, (a) the term "subsidiary" of a person shall mean any
corporation or other entity (including partnerships and other business
associations) of which at least a majority of the outstanding capital stock,
other voting securities or voting or other membership interests having voting
power under ordinary circumstances to elect directors or similar members of
the governing body of such corporation or entity shall at the time be held,
directly or indirectly, by such person, (b) the term "KU Energy Subsidiary"
shall mean those of the subsidiaries or partnership interests of KU Energy
identified as KU Energy Subsidiaries in Section 4.2 of the KU Energy
Disclosure Schedule and (c) the term "Direct Subsidiary" shall be deemed to
mean KU Energy Subsidiaries or LG&E Energy Subsidiaries (as defined in Section
5.1), as the case may be.
Section 4.2. Subsidiaries. Section 4.2 of the KU Energy Disclosure Schedule
sets forth a description as of the date hereof of all subsidiaries and joint
ventures of KU Energy, including (a) the name of each such entity and KU
Energy's interest therein, and (b) as to each KU Energy Subsidiary and KU
Energy Joint Venture (as
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<PAGE>
defined below), a brief description of the principal line or lines of business
conducted by each such entity. Except as set forth in Section 4.2 of the KU
Energy Disclosure Schedule, none of the KU Energy Subsidiaries is a "public
utility company", a "holding company", a "subsidiary company" or an
"affiliate" of any public utility company within the meaning of Section
2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company
Act of 1935, as amended (the "1935 Act"), respectively. Except as set forth in
Section 4.2 of the KU Energy Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each KU Energy Subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights, and are
owned, directly or indirectly, by KU Energy free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of any
nature whatsoever and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such KU Energy Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating it to grant, extend or enter into any such agreement or
commitment. As used in this Agreement, (a) the term "joint venture" of a
person shall mean any corporation or other entity (including partnerships and
other business associations) that is not a subsidiary of such person, in which
such person or one or more of its subsidiaries owns an equity, voting or other
membership interest having voting power under ordinary circumstances to elect
directors or similar members of the governing body of such corporation or
entity, other than equity, voting or other membership interests held for
passive investment purposes which are less than 5% of any class of the
outstanding voting securities or equity or other voting or membership
interests of any such entity and (b) the term "KU Energy Joint Venture" shall
mean those of the joint ventures of KU Energy or any KU Energy Subsidiary
identified as a KU Energy Joint Venture in Section 4.2 of the KU Energy
Disclosure Schedule. With respect to the subsidiaries and joint ventures of KU
Energy that are not KU Energy Subsidiaries (the "KU Energy Unrestricted
Subsidiaries"): (i) except as set forth in Section 4.2 of the KU Energy
Disclosure Schedule, (A) neither KU Energy nor any KU Energy Subsidiary is
liable for any obligations or liabilities of any KU Energy Unrestricted
Subsidiary as of the date of this Agreement, and (B) neither KU Energy nor any
KU Energy Subsidiary is obligated to make any loans or capital contributions
to, or to undertake any guarantees or obligations with respect to, KU Energy
Unrestricted Subsidiaries as of the date of this Agreement, and (ii) the
aggregate book value as of December 31, 1996, of KU Energy's investment in the
KU Energy Unrestricted Subsidiaries was not in excess of $32 million.
Section 4.3. Capitalization. (a) The authorized capital stock of KU Energy
consists of 160,000,000 shares of KU Energy Common Stock and 20,000,000 shares
of KU Energy preferred stock, without par value ("KU Energy Preferred Stock").
As of the close of business on May 16, 1997, there were issued and outstanding
37,817,878 shares of KU Energy Common Stock and no shares of KU Energy
Preferred Stock were outstanding. All of the issued and outstanding shares of
the capital stock of KU Energy are, and any shares of KU Energy Common Stock
issued pursuant to the KU Energy Stock Option Agreement will be, upon payment
therefor in accordance with the terms of such agreement, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as set forth in
Section 4.3(a) of the KU Energy Disclosure Schedule, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating KU Energy or any of the KU Energy Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of KU Energy, or obligating KU Energy to grant, extend or enter
into any such agreement or commitment, other than the KU Energy Rights and
under the KU Energy Stock Option Agreement. Other than in connection with the
KU Energy Stock Option Agreement, there are no outstanding stock appreciation
rights of KU Energy which were not granted in tandem with a related stock
option and no outstanding limited stock appreciation rights or other rights to
redeem for cash options or warrants of KU Energy.
(b) The authorized capital stock of Kentucky Utilities Company, a Kentucky
and Virginia corporation and wholly owned subsidiary of KU Energy ("KU"),
consists of 80,000,000 shares of common stock, without par value ("KU Common
Stock"), and 5,300,000 shares of preferred stock, without par value but with a
maximum aggregate stated value of $200,000,000 ("KU Preferred Stock"), and
2,000,000 shares of preference stock,
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<PAGE>
without par value ("KU Preference Stock"). As of the close of business on May
16, 1997 there were issued and outstanding 37,817,878 shares of KU Common
Stock (all of which were owned by KU Energy), and 400,000 shares of KU
Preferred Stock and no shares of KU Preference Stock. All of the issued and
outstanding shares of the capital stock of KU are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section
4.3(b) of the KU Energy Disclosure Schedule, as of the date hereof, there are
no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating KU or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of KU, or obligating KU to
grant, extend or enter into any such agreement or commitment. There are no
outstanding stock appreciation rights of KU which were not granted in tandem
with a related stock option and no outstanding limited stock appreciation
rights or other rights to redeem for cash options or warrants of KU.
Section 4.4. Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. KU Energy has all requisite corporate power and authority
to enter into this Agreement and the KU Energy Stock Option Agreement, and,
subject to the KU Energy Shareholders' Approval (as defined in Section
4.13) and the applicable KU Energy Required Statutory Approvals (as defined
in Section 4.4(c)), to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and the KU Energy
Stock Option Agreement and the consummation by KU Energy of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of KU Energy, subject, in the
case of this Agreement, to obtaining the KU Energy Shareholders' Approval.
Each of this Agreement and the KU Energy Stock Option Agreement has been
duly and validly executed and delivered by KU Energy and, assuming the due
authorization, execution and delivery hereof and thereof by the other
signatories hereto and thereto, constitutes the valid and binding
obligation of KU Energy enforceable against it in accordance with its
terms.
(b) Non-Contravention. Except as set forth in Section 4.4(b) of the KU
Energy Disclosure Schedule, the execution and delivery of this Agreement
and the KU Energy Stock Option Agreement by KU Energy do not, and the
consummation of the transactions contemplated hereby or thereby will not,
in any material respect, violate, conflict with, or result in a material
breach of any provision of, or constitute a material default (with or
without notice or lapse of time or both) under, or result in the
termination or modification of, or accelerate the performance required by,
or result in a right of termination, cancellation, or acceleration of any
obligation or the loss of a material benefit under, or result in the
creation of any material lien, security interest, charge or encumbrance
("Liens") upon any of the properties or assets of KU Energy or any of the
KU Energy Subsidiaries or KU Energy Joint Ventures (any such violation,
conflict, breach, default, right of termination, modification, cancellation
or acceleration, loss of a material benefit or creation of a Lien, a
"Violation" with respect to KU Energy, such term when used in Article V
having a correlative meaning with respect to LG&E Energy) pursuant to any
provisions of (i) the articles of incorporation, bylaws or similar
governing documents of KU Energy or any of the KU Energy Subsidiaries or
the KU Energy Joint Ventures, (ii) subject to obtaining the KU Energy
Required Statutory Approvals and the receipt of the KU Energy Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority
(as defined in Section 4.4(c)) applicable to KU Energy or any of the KU
Energy Subsidiaries or the KU Energy Joint Ventures or any of their
respective properties or assets or (iii) subject to obtaining the third-
party consents set forth in Section 4.4(b) of the KU Energy Disclosure
Schedule (the "KU Energy Required Consents"), any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which KU Energy or any of the KU Energy Subsidiaries or KU Energy Joint
Ventures is a party or by which it or any of its properties or assets may
be bound or affected.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal,
state, local or foreign governmental or regulatory body (including
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a stock exchange or other self-regulatory body) or authority (each, a
"Governmental Authority") is necessary for the execution and delivery of
this Agreement or the KU Energy Stock Option Agreement by KU Energy or the
consummation by KU Energy of the transactions contemplated hereby or
thereby, except as described in Section 4.4(c) of the KU Energy Disclosure
Schedule (the "KU Energy Required Statutory Approvals", it being understood
that references in this Agreement to "obtaining" such KU Energy Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents
or approvals; and having such waiting periods expire as are necessary to
avoid a violation of law).
(d) Compliance. Except as set forth in Section 4.4(d), Section 4.10 or
Section 4.11 of the KU Energy Disclosure Schedule, or as disclosed in the
KU Energy SEC Reports (as defined in Section 4.5) filed prior to the date
hereof, neither KU Energy nor any of the KU Energy Subsidiaries nor, to the
knowledge of KU Energy, any KU Energy Joint Venture, is in material
violation of, is under investigation with respect to any material violation
of, or has been given notice or been charged with any material violation
of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance
or regulation) of any Governmental Authority. Except as set forth in
Section 4.4(d) of the KU Energy Disclosure Schedule or in Section 4.11 of
the KU Energy Disclosure Schedule, KU Energy and the KU Energy Subsidiaries
and KU Energy Joint Ventures have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to
conduct their businesses as presently conducted in all material respects.
Except as set forth in Section 4.4(d) of the KU Energy Disclosure Schedule,
neither KU Energy nor any of the KU Energy Subsidiaries nor, to the
knowledge of KU Energy, any KU Energy Joint Venture, is in material breach
or violation of or in material default in the performance or observance of
any term or provision of, and no event has occurred which, with lapse of
time or action by a third party, could result in a material default under,
(i) its articles of incorporation or bylaws or (ii) any material contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease,
bond, license, approval or other instrument to which it is a party or by
which it is bound or to which any of its property is subject.
Section 4.5. Reports and Financial Statements. Except as set forth in
Section 4.5 of the KU Energy Disclosure Schedule, the filings required to be
made by KU Energy and the KU Energy Subsidiaries since January 1, 1991 under
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1935 Act, the
Federal Power Act, as amended (the "Power Act"), and applicable state public
utility laws and regulations have been filed with the Securities and Exchange
Commission (the "SEC"), the Federal Energy Regulatory Commission (the "FERC")
or the appropriate state public utilities commission, as the case may be,
including all forms, statements, declarations, reports, agreements (oral or
written) and all documents, exhibits, amendments and supplements appertaining
thereto, and complied, as of their respective dates, in all material respects
with all applicable requirements of the appropriate statute and the rules and
regulations thereunder. KU Energy has made available to LG&E Energy a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by KU Energy with the SEC since January 1, 1993 (as such
documents have since the time of their filing been amended, the "KU Energy SEC
Reports"). As of their respective dates, the KU Energy SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of KU Energy included in the KU Energy SEC
Reports (collectively, the "KU Energy Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis ("GAAP") (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position
of KU Energy as of the dates included therein and the consolidated results of
its operations and cash flows for the periods then ended. True, accurate and
complete copies of the amended and restated articles of incorporation and by
laws of KU Energy, as in effect on the date hereof, have been made available
to LG&E Energy.
Section 4.6. Absence of Certain Changes or Events. Except as disclosed in
the KU Energy SEC Reports filed prior to the date hereof or as set forth in
Section 4.6 of the KU Energy Disclosure Schedule, from December
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31, 1996, KU Energy and each of the KU Energy Subsidiaries have conducted
their business only in the ordinary course of business consistent with past
practice and there has not been, and no fact or condition exists which would
have or, insofar as reasonably can be foreseen, could have, a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of KU Energy and its subsidiaries taken as a whole (a "KU Energy
Material Adverse Effect").
Section 4.7. Litigation. Except as disclosed in the KU Energy SEC Reports
filed prior to the date hereof or as set forth in Section 4.7, Section 4.9 or
Section 4.11 of the KU Energy Disclosure Schedule, (i) there are no material
claims, suits, actions or proceedings, pending or, to the knowledge of KU
Energy, threatened, nor are there, to the knowledge of KU Energy, any material
investigations or reviews pending or threatened against, relating to or
affecting KU Energy or any of the KU Energy Subsidiaries, (ii) there have not
been any significant developments since December 31, 1996 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews and
(iii) there are no material judgments, decrees, injunctions, rules or orders
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to KU Energy or any of the KU Energy
Subsidiaries.
Section 4.8. Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of KU Energy for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC in connection with the issuance of shares of
LG&E Energy Common Stock in the Merger (the "Registration Statement") will, at
the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the joint
proxy statement, in definitive form, relating to the meetings of LG&E Energy
and KU Energy shareholders to be held in connection with the Merger (the
"Proxy Statement") will not, at the dates mailed to shareholders and at the
times of the meetings of shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement and the Proxy Statement, insofar as
they relate to KU Energy or any KU Energy Subsidiary, will comply as to form
in all material respects with the applicable provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder.
Section 4.9. Tax Matters. As used in this Agreement, "Taxes" means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes or charges imposed by any governmental entity,
and includes any interest and penalties (civil or criminal) on or additions to
any such taxes. "Tax Return", as used in this Agreement, means a report,
return or other information required to be supplied to a governmental entity
with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes KU Energy or any
of its subsidiaries, or LG&E Energy or any of its subsidiaries, as the case
may be.
Except as set forth in Section 4.9 of the KU Energy Disclosure Schedule:
(a) Filing of Timely Tax Returns. KU Energy and each of the KU Energy
Subsidiaries have filed (or there has been filed on its behalf) all
material Tax Returns required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) Payment of Taxes. KU Energy and each of the KU Energy Subsidiaries
have, within the time and in the manner prescribed by law, paid all Taxes
that are currently due and payable except for those contested in good faith
and for which adequate reserves have been taken.
(c) Deferred Income Taxes. KU Energy and the KU Energy Subsidiaries have
accounted for deferred income taxes in accordance with GAAP.
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(d) Tax Liens. There are no Tax liens upon the assets of KU Energy or any
of the KU Energy Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. KU Energy and each of the KU Energy Subsidiaries
have complied in all material respects with the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), relating to the withholding
of Taxes, as well as similar provisions under any other laws, and have,
within the time and in the manner prescribed by law, withheld and paid over
to the proper governmental authorities all amounts required with respect to
any employee, independent contractor, creditor, stockholder or other third
party.
(f) Extensions of Time for Filing Tax Returns. Neither KU Energy nor any
of the KU Energy Subsidiaries has requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither KU Energy nor any of the
KU Energy Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
KU Energy and each of the KU Energy Subsidiaries or those Tax Returns have
been examined by the appropriate taxing authorities for all periods through
the date hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against KU Energy or any of the KU Energy Subsidiaries
that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of KU Energy or any of the KU Energy
Subsidiaries. No issue has been raised by any tax authority that could, by
application of the same or similar principles, reasonably be expected to
result in a material adjustment to any Taxes or Tax Returns of KU Energy
and the KU Energy Subsidiaries in any subsequent period.
(j) Powers of Attorney. No power of attorney currently in force has been
granted by KU Energy or any of the KU Energy Subsidiaries concerning any
Tax matter.
(k) Tax Rulings. Neither KU Energy nor any of the KU Energy Subsidiaries
has received a Tax Ruling (as defined below) or entered into a Closing
Agreement (as defined below) with any taxing authority that would have a
continuing adverse effect after the Closing Date. "Tax Ruling", as used in
this Agreement, shall mean a written ruling of a taxing authority relating
to Taxes. "Closing Agreement", as used in this Agreement, shall mean a
written and legally binding agreement with a taxing authority relating to
Taxes.
(l) Availability of Tax Returns. KU Energy has made available to LG&E
Energy complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by KU Energy or any of the KU Energy Subsidiaries
since January 1, 1992, (ii) all audit reports received from any taxing
authority relating to any Tax Return filed by KU Energy or any of the KU
Energy Subsidiaries and (iii) any Closing Agreements entered into by KU
Energy or any of the KU Energy Subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Neither KU Energy nor any KU Energy
Subsidiary is a party to any agreement relating to the allocation,
indemnification, or sharing of Taxes. None of KU Energy and the KU Energy
Subsidiaries has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of which
was KU Energy).
(n) Liability for Others. Neither KU Energy nor any of the KU Energy
Subsidiaries has any liability for Taxes of any person other than KU Energy
and the KU Energy Subsidiaries (i) under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, (ii) by contract or (iii) otherwise.
(o) Code (S) 341(f). Neither KU Energy nor any of the KU Energy
Subsidiaries has filed (or will file prior to the Closing) a consent
pursuant to Code (S) 341(f) or has agreed to have Code (S) 341(f)(2) apply
to any disposition of a subsection (f) asset (as that term is defined in
Code (S) 341(f)(4)) owned by KU Energy or any of the KU Energy
Subsidiaries.
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(p) Code (S) 168. No property of KU Energy or any of the KU Energy
Subsidiaries is property that KU Energy or any such subsidiary or any party
to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code (S) 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is "tax-
exempt use property" within the meaning of Code (S) 168.
(q) Code (S) 481 Adjustments. Neither KU Energy nor any of the KU Energy
Subsidiaries is required to include in income any adjustment pursuant to
Code (S) 481(a) by reason of a voluntary change in accounting method
initiated by KU Energy or any of the KU Energy Subsidiaries, and to the
best of the knowledge of KU Energy, the Internal Revenue Service (the
"IRS") has not proposed any such adjustment or change in accounting method.
(r) Acquisition Indebtedness. No indebtedness of KU Energy or any of the
KU Energy Subsidiaries is "corporate acquisition indebtedness" within the
meaning of Code (S) 279(b).
(s) Intercompany Transactions. Neither KU Energy nor any of the KU Energy
Subsidiaries has engaged in any intercompany transactions within the
meaning of Treasury Regulations (S) 1.1502-13 for which any income remains
unrecognized as of the close of the last taxable year prior to the Closing
Date.
Section 4.10. Employee Matters; ERISA. Except as set forth in the KU Energy
SEC Reports (other than with respect to Section 4.10(a) below) or in Section
4.10 of the KU Energy Disclosure Schedule and except as could not,
individually or in the aggregate, reasonably be expected to have a KU Energy
Material Adverse Effect:
(a) Benefit Plans. Section 4.10(a) of the KU Energy Disclosure Schedule
contains a true and complete list of each employee benefit plan, program or
arrangement, including, but not limited to, any employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or contributed to by
KU Energy, any of the KU Energy Subsidiaries or any other entity which
would be treated under Section 414 of the Code as a single employer with KU
Energy (collectively, with KU Energy Subsidiaries, a "KU Energy Commonly
Controlled Entity") for the benefit of any current or former employee,
officer or director or their dependents or beneficiaries (collectively, the
"KU Energy Plans") and each employment, consulting, severance, change-in-
control, termination, compensation, collective bargaining or
indemnification agreement, arrangement or understanding between KU Energy
or any of the KU Energy Commonly Controlled Entities (or by which they are
bound) and any current or former employee, officer or director of KU Energy
or any of the KU Energy Subsidiaries (collectively, the "KU Energy
Employment Arrangements"). None of the KU Energy Plans is a multiemployer
plan within the meaning of ERISA.
(b) Qualification; Compliance. Each KU Energy Plan intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS that it is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such KU Energy Plan. Each KU Energy Plan and
each KU Energy Employment Arrangement has been operated in all respects in
accordance with its terms and the requirements of applicable laws, rules
and regulations. There are no pending or, to the knowledge of KU Energy,
threatened or anticipated claims under or with respect to any KU Energy
Plan or KU Energy Employment Arrangement by or on behalf of any current
employee, officer or director, or dependent or beneficiary thereof, or
otherwise (other than routine claims for benefits).
(c) Liabilities. Neither KU Energy nor any of the KU Energy Commonly
Controlled Entities has incurred any direct or indirect liability under,
arising out of or by operation of Title IV of ERISA (other than for premium
payments and contributions in the ordinary course of business), and no fact
or event exists that could reasonably be expected to give rise to any such
liability. The aggregate accumulated benefit obligations of each KU Energy
Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such KU Energy Plan) do not exceed the
fair market value of the assets of such Plan (as of the date of such
valuation). KU Energy and each of the KU Energy Commonly Controlled
Entities have not incurred any liability under, and have complied in all
respects with, the Worker Adjustment Retraining Notification Act, and no
fact or event exists that could give rise to liability under such act. All
contributions and other payments required to be made for any period through
the date hereof, by KU Energy
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or any KU Energy Commonly Controlled Entity, to any KU Energy Plan or KU
Energy Employment Agreement (or to any person pursuant to the terms
thereof) have been timely made or paid in full, or, to the extent not
required to be made or paid on or before the date hereof, have been
reflected in the KU Energy Financial Statements.
(d) Welfare Plans. None of the KU Energy Plans or KU Energy Employment
Arrangements promises or provides retiree medical or life insurance
benefits to any person, except as otherwise required by law in the
applicable jurisdiction and, outside of the United States, in accordance
with local law, custom and practice.
(e) Documents Made Available. KU Energy has made available to LG&E Energy
a true and correct copy of each KU Energy Employment Arrangement to which
KU Energy or any of the KU Energy Commonly Controlled Entities is a party
or under which KU Energy or any of the KU Energy Commonly Controlled
Entities has obligations and, with respect to each KU Energy Plan, where
applicable, (i) such plan and the most recent summary plan description,
(ii) the most recent annual report filed with the IRS, (iii) each related
trust agreement, insurance contract, service provider or investment
management agreement (including all amendments to each such document), (iv)
the most recent determination of the IRS with respect to the qualified
status of such KU Energy Plan, and (v) the most recent actuarial report or
valuation.
(f) Payments Resulting from the Merger. No KU Energy Plan or KU Energy
Employment Arrangement exists which could result in the payment to any
current, former or future director or employee of KU Energy, any KU Energy
Commonly Controlled Entity or to any trustee under any "rabbi trust" or
similar arrangement of any money or other property or rights or accelerate,
vest or provide any other rights or benefits to or in any such employee or
director as a result of the consummation, announcement of or other action
relating to the transactions contemplated by this Agreement, whether or not
such payment, acceleration, vesting or provision would constitute a
"parachute payment" (within the meaning of Section 280G of the Code) or
whether or not some other subsequent action or event would be required to
cause such payment, acceleration, vesting or provision to be triggered.
(g) Labor Agreements. Neither KU Energy nor any of the KU Energy
Subsidiaries is a party to any collective bargaining agreement. Since
January 1, 1993, neither KU Energy nor any of the KU Energy Subsidiaries
has had any employee strikes, work stoppages, slowdowns or lockouts or
received any requests for certifications of bargaining units or any other
requests for collective bargaining. There is no unfair labor practice,
employment discrimination or other complaint against KU Energy or any of
the KU Energy Subsidiaries pending or, to the best knowledge of KU Energy,
threatened.
Section 4.11. Environmental Protection. Except as set forth in Section 4.11
of the KU Energy Disclosure Schedule or in the KU Energy SEC Reports filed
prior to the date hereof:
(a) Compliance. KU Energy and each of the KU Energy Subsidiaries are in
material compliance with all applicable Environmental Laws (as defined in
Section 4.11(g)(ii)); and neither KU Energy nor any of the KU Energy
Subsidiaries has received any communication (written or oral) from any
person or Governmental Authority that asserts that KU Energy or any of the
KU Energy Subsidiaries is not or has not been in material compliance with
applicable Environmental Laws, except for communications with respect to
such matters as have been fully and finally resolved or as to which no
material obligation of KU Energy remains.
(b) Environmental Permits. KU Energy and each of the KU Energy
Subsidiaries have obtained or have timely applied for all material
environmental, health and safety permits and governmental authorizations
(collectively, the "Environmental Permits") necessary for the construction
of their facilities or the conduct of their operations, and all such
Environmental Permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval, and KU
Energy and the KU Energy Subsidiaries are in material compliance with all
terms and conditions of the Environmental Permits and KU Energy reasonably
believes that any transfer, renewal or reapplication for any Environmental
Permit required as a result of the Merger can be accomplished in the
ordinary course of business.
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(c) Environmental Claims. To the best knowledge of KU Energy, there is no
material Environmental Claim (as defined in Section 4.11(g)(i)) pending (i)
against KU Energy or any of the KU Energy Subsidiaries or KU Energy Joint
Ventures, or (ii) against any real or personal property or operations which
KU Energy or any of the KU Energy Subsidiaries owns, leases or manages, in
whole or in part.
(d) Releases. KU Energy has no knowledge of any Releases (as defined in
Section 4.11(g)(iv)) of any Hazardous Material (as defined in Section
4.11(g)(iii)) that would be reasonably likely to form the basis of any
material Environmental Claim against KU Energy or any of the KU Energy
Subsidiaries.
(e) Predecessors. KU Energy has no knowledge of any material
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials or other circumstances that would be reasonably likely to form
the basis of any material Environmental Claim, in each case against any
person or entity (including, without limitation, any predecessor of KU
Energy or any of the KU Energy Subsidiaries) whose liability KU Energy or
any of the KU Energy Subsidiaries has or may have retained or assumed
either contractually or by operation of law or against any real or personal
property which KU Energy or any of the KU Energy Subsidiaries formerly
owned, leased or managed, in whole or in part.
(f) Disclosure. To KU Energy's best knowledge, KU Energy has disclosed to
LG&E Energy all material facts which KU Energy reasonably believes (i)
relate to the cost of KU Energy pollution control equipment currently
required or known to be required in the future; (ii) relate to the cost
that KU Energy reasonably expects to incur to comply with the requirements
of the Clean Air Act Amendments of 1990; (iii) relate to current KU Energy
remediation costs or KU Energy remediation costs known to be required in
the future (including, without limitation, any payments to resolve any
threatened or asserted Environmental Claim for remediation costs); or (iv)
form the basis of any other material Environmental Claim affecting KU
Energy.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any person or entity
(including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resource damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, or Release
or threatened Release into the environment, of any Hazardous Materials
at any location, whether or not owned, operated, leased or managed by
KU Energy or any of the KU Energy Subsidiaries or KU Energy Joint
Ventures (for purposes of this Section 4.11), or by LG&E Energy or any
of the LG&E Energy Subsidiaries or LG&E Energy Joint Ventures (for
purposes of Section 5.11); or (B) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law; or (C)
any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local
statutes, codes, laws, ordinances, rules, regulations and other
enforceable standards (including without limitation common law),
relating to pollution, the environment (including, without limitation,
indoor and ambient air, surface water, groundwater, land surface or
subsurface strata, land-use planning, and species protection) or
protection of human health as it relates to the environment including,
without limitation, laws and regulations relating to Releases or
threatened Releases of Hazardous Materials, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and polychlorinated
biphenyls ("PCBs"); and (b) any chemicals, materials or substances
which are now defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic
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substances", "toxic pollutants", or words of similar import, under any
Environmental Law; and (c) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under
any Environmental Law in a jurisdiction in which KU Energy or any of
the KU Energy Subsidiaries or KU Energy Joint Ventures operates (for
purposes of this Section 4.11) or in which LG&E Energy or any of the
LG&E Energy Subsidiaries or LG&E Energy Joint Ventures operates (for
purposes of Section 5.11).
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the atmosphere, soil, surface water, ground water or
property.
Section 4.12. Regulation as a Utility. KU Energy is an exempt public utility
holding company under Section 3(a)(1) of the 1935 Act. KU is regulated as a
public utility in the Commonwealth of Kentucky, the Commonwealth of Virginia,
may be subject to regulation as a public utility in the State of Tennessee and
is not subject to regulation as a public utility in any other state or
commonwealth. Except as set forth in the immediately preceding sentence or in
Section 4.12 of the KU Energy Disclosure Schedule, neither KU Energy nor any
"subsidiary company" or "affiliate" (as those terms are defined in the 1935
Act) of KU Energy is subject to regulation as a public utility or public
service company (or similar designation) by any state in the United States or
any foreign country.
Section 4.13. Vote Required. The approval of the Merger by a majority of all
the votes entitled to be cast by all holders of KU Energy Common Stock (the
"KU Energy Shareholders' Approval") is the only vote of the holders of any
class or series of the capital stock of KU Energy or any of its subsidiaries
required to approve this Agreement, the Merger and the other transactions
contemplated hereby. No vote of the shareholders of KU Energy or any of its
subsidiaries is required to approve the KU Energy Stock Option Agreement.
Section 4.14. Accounting Matters. Neither KU Energy, any KU Energy
Subsidiary nor, to KU Energy's best knowledge, any of its affiliates has taken
or agreed to take any action that would prevent the Company from accounting
for the transactions to be effected pursuant to this Agreement as a pooling of
interests in accordance with GAAP and applicable SEC regulations. As used in
this Agreement (except as specifically otherwise defined), the term
"affiliate", except where otherwise defined herein, shall mean, as to any
person, any other person which directly or indirectly controls, or is under
common control with, or is controlled by, such person. As used in this
definition, "control" (including, with its correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
Section 4.15. Non-applicability of Certain Kentucky Law. Except as set forth
in Section 4.4(c) of the KU Energy Disclosure Schedule, assuming that the
representation and warranty of LG&E Energy made in Section 5.18 is correct,
none of the requirements relating to certain business combinations of Sections
271B.12-200 through 271B.12-230 of the KBCA or any similar provisions of the
KBCA (or, to the best knowledge of KU Energy, any other similar state statute)
is applicable to the transactions contemplated by this Agreement, including
the granting of the KU Energy Stock Option pursuant to the KU Energy Stock
Option Agreement or the exercise thereof.
Section 4.16. Opinion of Financial Advisor. On May 20, 1997, Goldman, Sachs
& Co., delivered its opinion to the effect that, as of the date thereof, the
Exchange Ratio is fair to the holders of KU Energy Common Stock.
Section 4.17. Insurance. Except as set forth in Section 4.17 of the KU
Energy Disclosure Schedule, KU Energy and each of the KU Energy Subsidiaries
are, and have been continuously since January 1, 1991, insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary in all material respects for companies conducting the
business as conducted by KU Energy and the KU Energy Subsidiaries during such
time period. Except as set forth in Section 4.17 of the KU Energy Disclosure
Schedule,
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neither KU Energy nor any of the KU Energy Subsidiaries has received any
notice of cancellation or termination with respect to any material insurance
policy of KU Energy or any of the KU Energy Subsidiaries. The insurance
policies of KU Energy and each of the KU Energy Subsidiaries are valid and
enforceable policies in all material respects.
Section 4.18. Ownership of LG&E Energy Common Stock. Except pursuant to the
terms of the LG&E Energy Stock Option Agreement and as set forth in Section
4.18 of the KU Energy Disclosure Schedule, KU Energy does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange
Act) any shares of LG&E Energy Common Stock.
Section 4.19. KU Energy Rights Agreement. KU Energy and the Board of
Directors of KU Energy have taken all necessary action so that none of the
execution of this Agreement, the KU Energy Stock Option Agreement and the
consummation of the transactions contemplated hereby or thereby will (i) cause
any KU Energy Rights issued pursuant to the Rights Agreement, dated as of
January 27, 1992, between KU Energy and Illinois Stock Transfer Company, as
rights agent (the "KU Energy Rights Agreement") to become exercisable, (ii)
cause LG&E Energy or any of its Affiliates (as defined in the KU Energy Rights
Agreement) to be an Acquiring Person (as defined in the KU Energy Rights
Agreement) or give rise to a Distribution Date or Triggering Event (as each
such term is defined in the KU Energy Rights Agreement). KU Energy has
delivered to LG&E Energy a complete and correct copy of the KU Energy Rights
Agreement as amended and supplemented to the date of this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF LG&E ENERGY
LG&E Energy represents and warrants to KU Energy as follows:
Section 5.1. Organization and Qualification. Except as set forth in Section
5.1 of the LG&E Energy Disclosure Schedule (as defined in Section 7.6(i)),
each of LG&E Energy and each LG&E Energy Subsidiary (as defined below) is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has all requisite
corporate power and authority, and has been duly authorized by all necessary
approvals and orders to own, lease and operate its assets and properties to
the extent owned, leased and operated and to carry on its business as it is
now being conducted and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary. As
used in this Agreement, the term: (a) "LG&E Energy Subsidiary" shall mean
those of the subsidiaries or partnership interests of LG&E Energy identified
as LG&E Energy Subsidiaries in Section 5.2 of the LG&E Energy Disclosure
Schedule; and (b) "LG&E Energy Joint Venture" shall mean those of the joint
ventures of LG&E Energy or any LG&E Energy Subsidiary identified as a LG&E
Energy Joint Venture in Section 5.2 of the LG&E Energy Disclosure Schedule.
Section 5.2. Subsidiaries. Section 5.2 of the LG&E Energy Disclosure
Schedule sets forth a description as of the date hereof of all subsidiaries
and joint ventures of LG&E Energy, including (a) the name of each such entity
and LG&E Energy's interest therein, and (b) as to each LG&E Energy Subsidiary
and LG&E Energy Joint Venture, a brief description of the principal line or
lines of business conducted by each such entity. Except as set forth in
Section 5.2 of the LG&E Energy Disclosure Schedule, none of the LG&E Energy
Subsidiaries is a "public utility company", a "holding company", a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively.
Except as set forth in Section 5.2 of the LG&E Energy Disclosure Schedule, all
of the issued and outstanding shares of capital stock of each LG&E Energy
Subsidiary are validly issued, fully paid, nonassessable and free of
preemptive rights, and are owned, directly or indirectly, by LG&E Energy free
and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any
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outstanding security, instrument or other agreement, obligating any such LG&E
Energy Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of its capital stock or obligating it to grant,
extend or enter into any such agreement or commitment. With respect to the
subsidiaries and joint ventures of LG&E Energy that are not LG&E Energy
Subsidiaries (the "LG&E Energy Unrestricted Subsidiaries"): (i) except as set
forth in Section 5.2 of the LG&E Energy Disclosure Schedule, (A) neither LG&E
Energy nor any LG&E Energy Subsidiary is liable for any obligations or
liabilities of any LG&E Energy Unrestricted Subsidiary as of the date of this
Agreement, and (B) neither LG&E Energy nor any LG&E Energy Subsidiary is
obligated to make any loans or capital contributions to, or to undertake any
guarantees or obligations with respect to, LG&E Energy Unrestricted
Subsidiaries as of the date of this Agreement, and (ii) the aggregate book
value as of December 31, 1996, of LG&E Energy's investment in the LG&E Energy
Unrestricted Subsidiaries was not in excess of $225 million.
Section 5.3. Capitalization. (a) The authorized capital stock of LG&E Energy
consists of 125,000,000 shares of LG&E Energy Common Stock and 5,000,000
shares of LG&E Energy preferred stock, without par value ("LG&E Energy
Preferred Stock"). As of the close of business on May 16, 1997, there were
issued and outstanding 66,484,875 shares of LG&E Energy Common Stock and no
shares of LG&E Energy Preferred Stock were outstanding. All of the issued and
outstanding shares of the capital stock of LG&E Energy are, and any shares of
LG&E Energy Common Stock issued pursuant to the LG&E Energy Stock Option
Agreement will be, upon payment therefor in accordance with the terms of such
agreement, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in Section 5.3(a) of the LG&E Energy Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating LG&E Energy or any of the LG&E Energy Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of LG&E Energy, or obligating LG&E
Energy to grant, extend or enter into any such agreement or commitment, other
than the LG&E Energy Rights and under the LG&E Energy Stock Option Agreement.
Other than in connection with the LG&E Energy Stock Option Agreement, there
are no outstanding stock appreciation rights of LG&E Energy which were not
granted in tandem with a related stock option and no outstanding limited stock
appreciation rights or other rights to redeem for cash options or warrants of
LG&E Energy.
(b) The authorized capital stock of Louisville Gas and Electric Company, a
Kentucky corporation and wholly owned subsidiary of LG&E Energy ("LG&E"),
consists of 75,000,000 shares of common stock, without par value ("LG&E Common
Stock"), and 1,720,000 shares of preferred stock, par value $25 per share, and
6,750,000 shares of preferred stock without par value (collectively, "LG&E
Preferred Stock"). As of the close of business on May 16, 1997 there were
issued and outstanding 21,294,223 shares of LG&E Common Stock (all of which
were owned by LG&E Energy) and 1,610,287 shares of LG&E Preferred Stock. All
of the issued and outstanding shares of the capital stock of LG&E are validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 5.3(b) of the LG&E Energy Disclosure Schedule, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating LG&E or any of its subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of the capital stock of
LG&E, or obligating LG&E to grant, extend or enter into any such agreement or
commitment. There are no outstanding stock appreciation rights of LG&E which
were not granted in tandem with a related stock option and no outstanding
limited stock appreciation rights or other rights to redeem for cash options
or warrants of LG&E.
Section 5.4. Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. LG&E Energy has all requisite corporate power and
authority to enter into this Agreement and the LG&E Energy Stock Option
Agreement, and, subject to the LG&E Energy Shareholders' Approval (as
defined in Section 5.13) and the applicable LG&E Energy Required Statutory
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Approvals (as defined in Section 5.4(c)), to consummate the transactions
contemplated hereby or thereby. The execution and delivery of this
Agreement and the LG&E Energy Stock Option Agreement and the consummation
by LG&E Energy of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of LG&E
Energy, subject, in the case of this Agreement, to obtaining the LG&E
Energy Shareholders' Approval, and the Merger has been approved in
accordance with Section 3(a) of Paragraph C of Article Seventh of the
Articles of Incorporation of LG&E Energy. Each of this Agreement and the
LG&E Energy Stock Option Agreement has been duly and validly executed and
delivered by LG&E Energy and, assuming the due authorization, execution and
delivery hereof and thereof by the other signatories hereto and thereto,
constitutes the valid and binding obligation of LG&E Energy enforceable
against it in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 5.4(b) of the LG&E
Energy Disclosure Schedule, the execution and delivery of this Agreement
and the LG&E Energy Stock Option Agreement by LG&E Energy do not, and the
consummation of the transactions contemplated hereby or thereby will not,
result in a material Violation pursuant to any provisions of (i) the
articles of incorporation, by laws or similar governing documents of LG&E
Energy or any of the LG&E Energy Subsidiaries or the LG&E Energy Joint
Ventures, (ii) subject to obtaining the LG&E Energy Required Statutory
Approvals and the receipt of the LG&E Energy Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority
applicable to LG&E Energy or any of the LG&E Energy Subsidiaries or the
LG&E Energy Joint Ventures or any of their respective properties or assets
or (iii) subject to obtaining the third-party consents set forth in Section
5.4(b) of the LG&E Energy Disclosure Schedule (the "LG&E Energy Required
Consents"), any material note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which LG&E Energy or any
of the LG&E Energy Subsidiaries or LG&E Energy Joint Ventures is a party or
by which it or any of its properties or assets may be bound or affected.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement or
the LG&E Energy Stock Option Agreement by LG&E Energy or the consummation
by LG&E Energy of the transactions contemplated hereby or thereby, except
as described in Section 5.4(c) of the LG&E Energy Disclosure Schedule (the
"LG&E Energy Required Statutory Approvals", it being understood that
references in this Agreement to "obtaining" such LG&E Energy Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents
or approvals; and having such waiting periods expire as are necessary to
avoid a violation of law).
(d) Compliance. Except as set forth in Section 5.4(d), Section 5.10 or
Section 5.11 of the LG&E Energy Disclosure Schedule, or as disclosed in the
LG&E Energy SEC Reports (as defined in Section 5.5) filed prior to the date
hereof, neither LG&E Energy nor any of the LG&E Energy Subsidiaries nor, to
the knowledge of LG&E Energy, any LG&E Energy Joint Venture, is in material
violation of, is under investigation with respect to any material violation
of, or has been given notice or been charged with any material violation
of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance
or regulation) of any Governmental Authority. Except as set forth in
Section 5.4(d) of the LG&E Energy Disclosure Schedule or in Section 5.11 of
the LG&E Energy Disclosure Schedule, LG&E Energy and the LG&E Energy
Subsidiaries and LG&E Energy Joint Ventures have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted in all
material respects. Except as set forth in Section 5.4(d) of the LG&E Energy
Disclosure Schedule, neither LG&E Energy nor any of the LG&E Energy
Subsidiaries nor, to the knowledge of LG&E Energy, any LG&E Energy Joint
Venture, is in material breach or violation of or in material default in
the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result
in a material default under, (i) its articles of incorporation or bylaws or
(ii) any material contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument to
which it is a party or by which it is bound or to which any of its property
is subject.
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Section 5.5. Reports and Financial Statements. Except as set forth in
Section 5.4(d) of the LG&E Energy Disclosure Schedule, the filings required to
be made by LG&E Energy and the LG&E Energy Subsidiaries since January 1, 1991
under the Securities Act, the Exchange Act, the 1935 Act, the Power Act and
applicable state public utility laws and regulations have been filed with the
SEC, the FERC or the appropriate state public utilities commission, as the
case may be, including all forms, statements, declarations, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and complied, as of their respective dates,
in all material respects with all applicable requirements of the appropriate
statute and the rules and regulations thereunder. LG&E Energy has made
available to KU Energy a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by LG&E Energy
with the SEC since January 1, 1993 (as such documents have since the time of
their filing been amended, the "LG&E Energy SEC Reports"). As of their
respective dates, the LG&E Energy SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements
of LG&E Energy included in the LG&E Energy SEC Reports (collectively, the
"LG&E Energy Financial Statements") have been prepared in accordance with GAAP
(except as may be indicated therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q of the SEC) and
fairly present the consolidated financial position of LG&E Energy as of the
dates thereof and the consolidated results of its operations and cash flows
for the periods then ended. True, accurate and complete copies of LG&E
Energy's restated articles of incorporation and bylaws of LG&E Energy as in
effect on the date hereof have been made available to KU Energy.
Section 5.6. Absence of Certain Changes or Events. Except as disclosed in
the LG&E Energy SEC Reports filed prior to the date hereof or as set forth in
Section 5.6 of the LG&E Energy Disclosure Schedule, from December 31, 1996,
LG&E Energy and each of the LG&E Energy Subsidiaries have conducted their
business only in the ordinary course of business consistent with past practice
and there has not been, and no fact or condition exists which would have or,
insofar as reasonably can be foreseen, could have, a material adverse effect
on the business, assets, financial condition, results of operations or
prospects of LG&E Energy and its subsidiaries taken as a whole (a "LG&E Energy
Material Adverse Effect").
Section 5.7. Litigation. Except as disclosed in the LG&E Energy SEC Reports
filed prior to the date hereof or as set forth in Section 5.7, Section 5.9 or
Section 5.11 of the LG&E Energy Disclosure Schedule, (i) there are no material
claims, suits, actions or proceedings, pending or, to the knowledge of LG&E
Energy, threatened, nor are there, to the knowledge of LG&E Energy, any
material investigations or reviews pending or threatened against, relating to
or affecting LG&E Energy or any of the LG&E Energy Subsidiaries, (ii) there
have not been any significant developments since December 31, 1996 with
respect to such disclosed claims, suits, actions, proceedings, investigations
or reviews and (iii) there are no material judgments, decrees, injunctions,
rules or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to LG&E Energy or
any of the LG&E Energy Subsidiaries.
Section 5.8. Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of LG&E Energy for
inclusion or incorporation by reference in (i) the Registration Statement
will, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) the Proxy Statement will not, at the dates mailed to shareholders and at
the times of the meetings of shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement and the Proxy Statement, insofar as
they relate to LG&E Energy or any LG&E Energy Subsidiary, will comply as to
form in all material respects with the applicable provisions of the Securities
Act and the Exchange Act and the rules and regulations thereunder.
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Section 5.9. Tax Matters. Except as set forth in Section 5.9 of the LG&E
Energy Disclosure Schedule:
(a) Filing of Timely Tax Returns. LG&E Energy and each of the LG&E Energy
Subsidiaries have filed (or there has been filed on its behalf) all
material Tax Returns required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) Payment of Taxes. LG&E Energy and each of the LG&E Energy
Subsidiaries have, within the time and in the manner prescribed by law,
paid all Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.
(c) Deferred Income Taxes. LG&E Energy and the LG&E Energy Subsidiaries
have accounted for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of LG&E Energy or
any of the LG&E Energy Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. LG&E Energy and each of the LG&E Energy
Subsidiaries have complied in all material respects with the provisions of
the Code relating to the withholding of Taxes, as well as similar
provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld and paid over to the proper governmental
authorities all amounts required with respect to any employee, independent
contractor, creditor, stockholder or other third party.
(f) Extensions of Time for Filing Tax Returns. Neither LG&E Energy nor
any of the LG&E Energy Subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
filed.
(g) Waivers of Statute of Limitations. Neither LG&E Energy nor any of the
LG&E Energy Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
LG&E Energy and each of the LG&E Energy Subsidiaries or those Tax Returns
have been examined by the appropriate taxing authorities for all periods
through the date hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against LG&E Energy or any of the LG&E Energy
Subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of LG&E Energy or any of the LG&E Energy
Subsidiaries. No issue has been raised by any tax authority that could, by
application of the same or similar principles, reasonably be expected to
result in a material adjustment to any Taxes or Tax Returns of LG&E Energy
and the LG&E Energy Subsidiaries in any subsequent period.
(j) Powers of Attorney. No power of attorney currently in force has been
granted by LG&E Energy or any of the LG&E Energy Subsidiaries concerning
any Tax matter.
(k) Tax Rulings. Neither LG&E Energy nor any of the LG&E Energy
Subsidiaries has received a Tax Ruling or entered into a Closing Agreement
with any taxing authority that would have a continuing adverse effect after
the Closing Date.
(l) Availability of Tax Returns. LG&E Energy has made available to KU
Energy complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by LG&E Energy or any of the LG&E Energy
Subsidiaries since January 1, 1992, (ii) all audit reports received from
any taxing authority relating to any Tax Return filed by LG&E Energy or any
of the LG&E Energy Subsidiaries and (iii) any Closing Agreements entered
into by LG&E Energy or any of the LG&E Energy Subsidiaries with any taxing
authority.
(m) Tax Sharing Agreements. Neither LG&E Energy nor any LG&E Energy
Subsidiary is a party to any agreement relating to allocation,
indemnification or sharing of Taxes. None of LG&E Energy and the LG&E
Energy Subsidiaries has been a member of an affiliated group filing a
consolidated federal income Tax Return (other than a group, the common
parent of which was LG&E Energy).
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(n) Liability for Others. Neither LG&E Energy nor any of the LG&E Energy
Subsidiaries has any liability for Taxes of any person other than LG&E
Energy and the LG&E Energy Subsidiaries (i) under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local or foreign law)
as a transferee or successor, (ii) by contract or (iii) otherwise.
(o) Code (S) 341(f). Neither LG&E Energy nor any of the LG&E Energy
Subsidiaries has filed (or will file prior to the Closing) a consent
pursuant to Code (S) 341(f) or has agreed to have Code (S) 341(f)(2) apply
to any disposition of a subsection (f) asset (as that term is defined in
Code (S) 341(f)(4)) owned by LG&E Energy or any of the LG&E Energy
Subsidiaries.
(p) Code (S) 168. No property of LG&E Energy or any of the LG&E Energy
Subsidiaries is property that LG&E Energy or any such subsidiary or any
party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code (S) 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is "tax-
exempt use property" within the meaning of Code (S) 168.
(q) Code (S) 481 Adjustments. Neither LG&E Energy nor any of the LG&E
Energy Subsidiaries is required to include in income any adjustment
pursuant to Code (S) 481(a) by reason of a voluntary change in accounting
method initiated by LG&E Energy or any of the LG&E Energy Subsidiaries, and
to the best of the knowledge of LG&E Energy, the IRS has not proposed any
such adjustment or change in accounting method.
(r) Acquisition Indebtedness. No indebtedness of LG&E Energy or any of
the LG&E Energy Subsidiaries is "corporate acquisition indebtedness" within
the meaning of Code (S) 279(b).
(s) Intercompany Transactions. Neither LG&E Energy nor any of the LG&E
Energy Subsidiaries has engaged in any intercompany transactions within the
meaning of Treasury Regulations (S) 1.1502-13 for which any income remains
unrecognized as of the close of the last taxable year prior to the Closing
Date.
Section 5.10. Employee Matters; ERISA. Except as set forth in the LG&E
Energy SEC Reports (other than with respect to Section 5.10(a) below) or in
Section 5.10 of the LG&E Energy Disclosure Schedule and except as could not,
individually or in the aggregate, reasonably be expected to have a LG&E Energy
Material Adverse Effect:
(a) Benefit Plans. Section 5.10(a) of the LG&E Energy Disclosure Schedule
contains a true and complete list of each employee benefit plan, program or
arrangement, including, but not limited to, any employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or contributed to by
LG&E Energy, any of the LG&E Energy Subsidiaries or any other entity which
would be treated under Section 414 of the Code as a single employer with
LG&E Energy (collectively, with LG&E Energy Subsidiaries, a "LG&E Energy
Commonly Controlled Entity") for the benefit of any current or former
employee, officer or director or their dependents or beneficiaries
(collectively, the "LG&E Energy Plans") and each employment, consulting,
severance, change-in-control, termination, compensation, collective
bargaining or indemnification agreement, arrangement or understanding
between LG&E Energy or any of the LG&E Energy Commonly Controlled Entities
(or by which they are bound) and any current or former employee, officer or
director of LG&E Energy or any of the LG&E Energy Subsidiaries
(collectively, the "LG&E Energy Employment Arrangements"). None of the LG&E
Energy Plans is a multiemployer plan within the meaning of ERISA.
(b) Qualification; Compliance. Each LG&E Energy Plan intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS that it is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such LG&E Energy Plan. Each LG&E Energy Plan
and each LG&E Energy Employment Arrangement has been operated in all
respects in accordance with its terms and the requirements of applicable
laws, rules and regulations. There are no pending or, to the knowledge of
LG&E Energy, threatened or anticipated claims under or with respect to any
LG&E Energy Plan or LG&E Energy Employment Arrangement by or on behalf of
any current employee, officer or director, or dependent or beneficiary
thereof, or otherwise (other than routine claims for benefits).
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(c) Liabilities. Neither LG&E Energy nor any of the LG&E Energy Commonly
Controlled Entities has incurred any direct or indirect liability under,
arising out of or by operation of Title IV of ERISA (other than for premium
payments and contributions in the ordinary course of business), and no fact
or event exists that could reasonably be expected to give rise to any such
liability. The aggregate accumulated benefit obligations of each LG&E
Energy Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such LG&E Energy Plan) do not exceed the
fair market value of the assets of such Plan (as of the date of such
valuation). LG&E Energy and each of the LG&E Energy Commonly Controlled
Entities have not incurred any liability under, and have complied in all
respects with, the Worker Adjustment Retraining Notification Act, and no
fact or event exists that could give rise to liability under such act. All
contributions and other payments required to be made for any period through
the date hereof, by LG&E Energy or any LG&E Energy Commonly Controlled
Entity, to any LG&E Energy Plan or LG&E Energy Employment Agreement (or to
any person pursuant to the terms thereof) have been timely made or paid in
full, or, to the extent not required to be made or paid on or before the
date hereof have been reflected in the LG&E Energy Financial Statements.
(d) Welfare Plans. None of the LG&E Energy Plans or LG&E Energy
Employment Arrangements promises or provides retiree medical or life
insurance benefits to any person, except as otherwise required by law in
the applicable jurisdiction and, outside of the United States, in
accordance with local law, custom and practice.
(e) Documents Made Available. LG&E Energy has made available to KU Energy
a true and correct copy of each LG&E Energy Employment Arrangement to which
LG&E Energy or any of the LG&E Energy Commonly Controlled Entities is a
party or under which LG&E Energy or any of the LG&E Energy Commonly
Controlled Entities has obligations and, with respect to each LG&E Energy
Plan, where applicable, (i) such plan and the most recent summary plan
description, (ii) the most recent annual report filed with the IRS, (iii)
each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to
the qualified status of such LG&E Energy Plan, and (v) the most recent
actuarial report or valuation.
(f) Payments Resulting from the Merger. No LG&E Energy Plan or LG&E
Energy Employment Arrangement exists which could result in the payment to
any current, former or future director or employee of LG&E Energy, any LG&E
Energy Commonly Controlled Entity or to any trustee under any "rabbi trust"
or similar arrangement of any money or other property or rights or
accelerate, vest or provide any other rights or benefits to or in any such
employee or director as a result of the consummation, announcement of or
other action relating to the transactions contemplated by this Agreement,
whether or not such payment, acceleration, vesting or provision would
constitute a "parachute payment" (within the meaning of Section 280G of the
Code) or whether or not some other subsequent action or event would be
required to cause such payment, acceleration, vesting or provision to be
triggered.
(g) Labor Agreements. Neither LG&E Energy nor any of the LG&E Energy
Subsidiaries is a party to any collective bargaining agreement. Since
January 1, 1993, neither LG&E Energy nor any of the LG&E Energy
Subsidiaries has had any employee strikes, work stoppages, slowdowns or
lockouts or received any requests for certifications of bargaining units or
any other requests for collective bargaining. There is no unfair labor
practice, employment discrimination or other complaint against LG&E Energy
or any of the LG&E Energy Subsidiaries pending or, to the best knowledge of
LG&E Energy, threatened.
Section 5.11. Environmental Protection. Except as set forth in Section 5.11
of the LG&E Energy Disclosure Schedule or in the LG&E Energy SEC Reports filed
prior to the date hereof:
(a) Compliance. LG&E Energy and each of the LG&E Energy Subsidiaries are
in material compliance with all applicable Environmental Laws; and neither
LG&E Energy nor any of the LG&E Energy Subsidiaries has received any
communication (written or oral) from any person or Governmental Authority
that asserts that LG&E Energy or any of the LG&E Energy Subsidiaries is not
or has not been in material compliance with applicable Environmental Laws,
except for communications with respect to such matters as have been fully
and finally resolved or as to which no material obligation of LG&E Energy
remains.
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(b) Environmental Permits. LG&E Energy and each of the LG&E Energy
Subsidiaries have obtained or have timely applied for all Environmental
Permits necessary for the construction of their facilities or the conduct
of their operations, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending agency approval, and LG&E Energy and the LG&E Energy
Subsidiaries are in material compliance with all terms and conditions of
the Environmental Permits and LG&E Energy reasonably believes that any
transfer, renewal or reapplication for any Environmental Permit required as
a result of the Merger can be accomplished in the ordinary course of
business.
(c) Environmental Claims. To the best knowledge of LG&E Energy, there is
no material Environmental Claim pending (i) against LG&E Energy or any of
the LG&E Energy Subsidiaries or LG&E Energy Joint Ventures, or (ii) against
any real or personal property or operations which LG&E Energy or any of the
LG&E Energy Subsidiaries owns, leases or manages, in whole or in part.
(d) Releases. LG&E Energy has no knowledge of any Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
material Environmental Claim against LG&E Energy or any of the LG&E Energy
Subsidiaries.
(e) Predecessors. LG&E Energy has no knowledge of any material
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials or other circumstances that would be reasonably likely to form
the basis of any material Environmental Claim, in each case against any
person or entity (including, without limitation, any predecessor of LG&E
Energy or any of the LG&E Energy Subsidiaries) whose liability LG&E Energy
or any of the LG&E Energy Subsidiaries has or may have retained or assumed
either contractually or by operation of law or against any real or personal
property which LG&E Energy or any of the LG&E Energy Subsidiaries formerly
owned, leased or managed, in whole or in part.
(f) Disclosure. To LG&E Energy's best knowledge, LG&E Energy has
disclosed to KU Energy all material facts which LG&E Energy reasonably
believes (i) relate to the cost of LG&E Energy pollution control equipment
currently required or known to be required in the future; (ii) relate to
the cost that LG&E Energy reasonably expects to incur to comply with the
requirements of the Clean Air Act Amendments of 1990; (iii) relate to
current LG&E Energy remediation costs or LG&E Energy remediation costs
known to be required in the future (including, without limitation, any
payments to resolve any threatened or asserted Environmental Claim for
remediation costs); or (iv) form the basis of any other material
Environmental Claim affecting LG&E Energy.
Section 5.12. Regulation as a Utility. LG&E Energy is an exempt public
utility holding company under Section 3(a)(1) of the 1935 Act. LG&E is
regulated as a public utility in the Commonwealth of Kentucky and in no other
state or commonwealth. Except as set forth in the immediately preceding
sentence or in Section 5.12 of the LG&E Energy Disclosure Schedule, neither
LG&E Energy nor any "subsidiary company" or "affiliate" (as those terms are
defined in the 1935 Act) of LG&E Energy is subject to regulation as a public
utility or public service company (or similar designation) by any state in the
United States or any foreign country.
Section 5.13. Vote Required. The issuance of the LG&E Energy Common Stock
requires that the restated articles of incorporation of LG&E Energy be amended
to increase the number of authorized shares of LG&E Energy Common Stock (the
"Articles Amendment"). The approval of the Articles Amendment requires the
affirmative vote of a majority of the votes entitled to be cast by holders of
outstanding shares of LG&E Energy Common Stock. The approval of the Merger by
a majority of all the votes entitled to be cast by all holders of LG&E Energy
Common Stock is required to approve this Agreement, the Merger and the other
transactions contemplated hereby (the "LG&E Energy Shareholders' Approval").
No vote of the shareholders of LG&E Energy or any of its subsidiaries is
required to approve the LG&E Energy Stock Option Agreement.
Section 5.14. Accounting Matters. Neither LG&E Energy, any LG&E Energy
Subsidiary nor, to LG&E Energy's best knowledge, any of its affiliates has
taken or agreed to take any action that would prevent the Company from
accounting for the transactions to be effected pursuant to this Agreement as a
pooling of interests in accordance with GAAP and applicable SEC regulations.
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Section 5.15. Non-applicability of Certain Kentucky Law. Except as set forth
in Section 5.4(c) of the LG&E Energy Disclosure Schedule, assuming that the
representation and warranty of KU Energy made in Section 4.18 is correct, none
of the requirements relating to certain business combinations of Sections
271B.12-200 through 271B.12-230 of the KBCA or any similar provisions of the
KBCA (or, to the best knowledge of LG&E Energy, any other similar state
statute) are applicable to the transactions contemplated by this Agreement,
including the granting of the LG&E Energy Stock Option pursuant to the LG&E
Energy Stock Option Agreement or the exercise thereof.
Section 5.16. Opinion of Financial Advisor. On May 20, 1997, The Blackstone
Group L.P. delivered its opinion, to the effect that, as of the date thereof,
the Exchange Ratio is fair from a financial point of view to the holders of
LG&E Energy Common Stock.
Section 5.17. Insurance. Except as set forth in Section 5.17 of the LG&E
Energy Disclosure Schedule, LG&E Energy and each of the LG&E Energy
Subsidiaries are, and have been continuously since January 1, 1991, insured
with financially responsible insurers in such amounts and against such risks
and losses as are customary in all material respects for companies conducting
the business as conducted by LG&E Energy and the LG&E Energy Subsidiaries
during such time period. Except as set forth in Section 5.17 of the LG&E
Energy Disclosure Schedule, neither LG&E Energy nor any of the LG&E Energy
Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of LG&E Energy or any of the LG&E
Energy Subsidiaries. The insurance policies of LG&E Energy and each of the
LG&E Energy Subsidiaries are valid and enforceable policies in all material
respects.
Section 5.18. Ownership of KU Energy Common Stock. Except pursuant to the
terms of the KU Energy Stock Option Agreement and as set forth in Section 5.18
of the LG&E Energy Disclosure Schedule, LG&E Energy does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange
Act) any shares of KU Energy Common Stock.
Section 5.19. LG&E Energy Rights Agreement. LG&E Energy and the Board of
Directors of LG&E Energy have taken all necessary action so that none of the
execution of this Agreement, the LG&E Energy Stock Option Agreement and the
consummation of the transactions contemplated hereby or thereby will (i) cause
any LG&E Energy Rights issued pursuant to the Rights Agreement, dated as of
December 19, 1990, as amended (the "LG&E Energy Rights Agreement"), to become
exercisable, (ii) cause KU Energy or any of its Affiliates (as defined in the
LG&E Energy Rights Agreement) to be 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). LG&E Energy has delivered to KU Energy a complete and correct copy
of the LG&E Energy Rights Agreement as amended and supplemented to the date of
this Agreement.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Covenants of the Parties. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, LG&E Energy and
KU Energy each agree as follows, each as to itself and as to each of the LG&E
Energy Subsidiaries and the KU Energy Subsidiaries, as the case may be, except
as expressly contemplated or permitted in this Agreement, the LG&E Energy
Stock Option Agreement or the KU Energy Stock Option Agreement, or to the
extent LG&E Energy or KU Energy, as the case may be, shall otherwise consent
in writing:
(a) Ordinary Course of Business. Each party hereto shall, and shall cause
its Direct Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to
preserve intact their present business organizations and goodwill, preserve
the goodwill and relationships with customers, suppliers and others having
business dealings with them and, subject to prudent management of workforce
needs and
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ongoing programs currently in force, keep available the services of their
present officers and employees. Except as set forth in Section 6.1(a) of
the LG&E Energy Disclosure Schedule or the KU Energy Disclosure Schedule,
respectively, and except for acquisitions and capital expenditures
permitted by Sections 6.1(e), 6.1(f) and 6.1(aa), no party shall, nor shall
any party permit any of its Direct Subsidiaries to, enter into a new line
of business, or make any change in the line of business it engages in as of
the date hereof involving any material investment of assets or resources or
any material exposure to liability or loss (including without limitation
any loans or capital contributions to, and the undertaking of any
guarantees in favor of or any "keep well" or other agreements to maintain
the financial condition of, another person), in the case of KU Energy, to
KU Energy and its subsidiaries taken as a whole, and in the case of LG&E
Energy, to LG&E Energy and its subsidiaries taken as a whole.
(b) Dividends. No party shall, nor shall any party permit any of its
Direct Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than to such
party or its wholly owned subsidiaries, dividends required to be paid on
any preferred stock of any LG&E Energy Subsidiary or KU Energy Subsidiary
in accordance with their respective terms, regular quarterly dividends on
LG&E Energy Common Stock with usual record and payment dates not, during
any fiscal year, in excess of 104% of the dividends per share for the prior
fiscal year, regular quarterly dividends on KU Energy Common Stock with
usual record and payment dates not, during any fiscal year, in excess of
102.5% of the dividends per share for the prior fiscal year; (ii) split,
combine or reclassify any of their capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or
in substitution for, shares of their capital stock; or (iii) redeem,
repurchase or otherwise acquire any shares of their capital stock, other
than with respect to clauses (i), (ii) and (iii) (A) as required by the
respective terms of any preferred stock of any LG&E Energy Subsidiary or KU
Energy Subsidiary, (B) in connection with refunding preferred stock of any
LG&E Energy Subsidiary or KU Energy Subsidiary with preferred stock or debt
at a lower cost of funds (calculating such cost on an after-tax basis), (C)
in connection with intercompany purchases of capital stock or (D) for the
purpose of funding or providing benefits under employee benefit plans,
stock option and other incentive compensation plans, directors plans and
stock purchase and dividend reinvestment plans in accordance with past
practice or as may be permitted by Section 6.1(i). The last record date of
each of LG&E Energy and KU Energy on or prior to the Effective Time which
relates to a regular quarterly dividend on LG&E Energy Common Stock or KU
Energy Common Stock, as the case may be, shall be agreed to by the parties
in advance and shall be the same date and shall be prior to the Effective
Time.
(c) Issuance of Securities. No party shall, nor shall any party permit
any of its Direct Subsidiaries to, issue, agree to issue, deliver, sell,
award, pledge, dispose of, or otherwise encumber or authorize or propose
the issuance, delivery, sale, award, pledge, disposal or other encumbrance
of, any shares of their capital stock of any class or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares or convertible or exchangeable securities, other
than pursuant to the KU Energy Stock Option Agreement or the LG&E Energy
Stock Option Agreement, other than intercompany issuances of capital stock
to wholly owned subsidiaries, and other than issuances (i) in the case of
KU Energy and the KU Energy Subsidiaries, (x) in connection with refunding
preferred stock of the KU Energy Subsidiaries with preferred stock or debt
at a lower cost of funds (calculating such cost on an after-tax basis) and
(y) up to 500,000 shares of KU Energy Common Stock (and associated KU
Energy Rights) that may be issued in connection with the Long Term
Incentive Plan identified in Section 4.10(a)(20) of the KU Energy
Disclosure Schedule or pursuant to other employee benefit plans, stock
option and other incentive compensation plans and directors plans; (ii), in
the case of LG&E Energy and the LG&E Energy Subsidiaries, (x) in connection
with refunding preferred stock of the LG&E Energy Subsidiaries with
preferred stock or debt at a lower cost of funds (calculating such cost on
an after-tax basis) and (y) up to 500,000 shares of LG&E Energy Common
Stock (and associated LG&E Energy Rights) to be issued pursuant to employee
benefit plans, stock option and other incentive compensation plans,
directors plans, and stock purchase and dividend reinvestment plans; and
(iii) the issuance of capital stock under the KU Energy Rights Agreement or
the LG&E Energy Rights Agreement if required by the respective terms
thereof. The parties shall promptly furnish to each other such information
as may be reasonably requested
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(including financial information) and take such action as may be reasonably
necessary and otherwise fully cooperate with each other in the preparation
of any registration statement under the Securities Act and other documents
necessary in connection with issuance of securities as contemplated by this
Section 6.1(c), subject to obtaining customary indemnities.
(d) Charter Documents. Neither KU Energy nor LG&E Energy shall, nor shall
either of them permit either KU or LG&E, as the case may be, to, amend or
propose to amend its respective articles of incorporation, bylaws or
regulations, or similar organic documents, except as contemplated herein,
as may be required to implement the provisions of Sections 7.13 and 7.14 or
as set forth in Section 6.1(d) of the KU Energy Disclosure Schedule or LG&E
Energy Disclosure Schedule.
(e) No Acquisitions. Except as set forth in Section 6.1(e) of the KU
Energy Disclosure Schedule or the LG&E Energy Disclosure Schedule, other
than (i) acquisitions by KU Energy and its Direct Subsidiaries not in
excess of $300 million, singularly or in the aggregate and (ii)
acquisitions by LG&E Energy and its Direct Subsidiaries not in excess of
$300 million, singularly or in the aggregate, no party shall, nor shall any
party permit any of its Direct Subsidiaries to, acquire, or publicly
propose to acquire, or agree to acquire, by merger or consolidation with,
or by purchase or otherwise, a substantial equity interest in or a
substantial portion of the assets of, any business or any corporation,
partnership, association or other business organization or division
thereof.
(f) Capital Expenditures. Except as set forth in Section 6.1(f) of the KU
Energy Disclosure Schedule or the LG&E Energy Disclosure Schedule or as
required by law, or for acquisitions permitted by Section 6.1(e), no party
shall, nor shall any party permit any of its Direct Subsidiaries to, (i)(x)
in the case of KU Energy, make capital expenditures in excess of $50
million over the amount budgeted by KU Energy or its Direct Subsidiaries
for capital expenditures as set forth in such Section 6.1(f) of the KU
Energy Disclosure Schedule and (y) in the case of LG&E Energy, make capital
expenditures in excess of $50 million over the amount budgeted by LG&E
Energy or its Direct Subsidiaries for capital expenditures as set forth in
such Section 6.1(f) of the LG&E Energy Disclosure Schedule or (ii) enter
into written commitments for the purchase of sulfur dioxide emission
allowances as provided for by the Clean Air Act Amendments of 1990.
(g) No Dispositions. Except as set forth in Section 6.1(g) of the KU
Energy Disclosure Schedule or the LG&E Energy Disclosure Schedule, other
than (i) dispositions by KU Energy and its Direct Subsidiaries of less than
$100 million in book value, singularly or in the aggregate and (ii)
dispositions by LG&E Energy and its Direct Subsidiaries of less than $100
million in book value, singularly or in the aggregate, no party shall, nor
shall any party permit any of its Direct Subsidiaries to, sell, lease,
license, encumber or otherwise dispose of, any of its assets, other than
encumbrances or dispositions in the ordinary course of its business
consistent with past practice.
(h) Indebtedness. Except as contemplated by this Agreement, no party
shall, nor shall any party permit any of its Direct Subsidiaries to, incur
or guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed including, without limitation, the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of
any of the foregoing other than (i) short-term indebtedness in the ordinary
course of business consistent with past practice (such as the issuance of
commercial paper or the use of existing credit facilities); (ii)
arrangements between such party and its Direct Subsidiaries or among its
Direct Subsidiaries; (iii) indebtedness incurred to finance acquisitions
permitted by, and subject to the limitations imposed by, Section 6.1(e);
(iv) additional indebtedness in an amount not to exceed in the aggregate
$100 million, in the case of KU Energy and its Direct Subsidiaries, and
additional indebtedness in an amount not to exceed in the aggregate $100
million, in the case of LG&E Energy and its Direct Subsidiaries; or (v) in
connection with the refunding of existing indebtedness or the refunding of
preferred stock of the KU Energy Subsidiaries or the LG&E Energy
Subsidiaries as permitted by Sections 6.1(b) or 6.1(c).
(i) Compensation, Benefits. Except as set forth in Section 6.1(i) of the
KU Energy Disclosure Schedule or the LG&E Energy Disclosure Schedule, as
may be required by applicable law, as may be required to facilitate or
obtain a determination from the IRS that a plan is "qualified" within the
meaning
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of Section 401(a) of the Code or as contemplated by this Agreement, no
party shall, nor shall any party permit any of its Direct Subsidiaries to,
(i) enter into, adopt or amend or increase the amount or accelerate the
payment or vesting of any benefit or amount payable under, any employee
benefit plan or any other contract, agreement, commitment, arrangement,
plan or policy covering employees, former employees, directors or former
directors or their beneficiaries or providing benefits to such persons that
is maintained by, contributed to or entered into by such party or any of
its Direct Subsidiaries, or increase, or enter into any contract,
agreement, commitment or arrangement to increase in any manner, the
compensation or fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights of, or take any other
action or grant any benefit (including, without limitation, any stock
options or stock option plan) not required under the terms of any existing
employee benefit plan, or other contract, agreement, commitment,
arrangement, plan or any policy to or with any director, officer or other
employee of such party or any of its Direct Subsidiaries, except for normal
(including incentive) increases or grants or actions in the ordinary course
of business consistent with applicable industry practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to such party or any of its Direct Subsidiaries or (ii) enter into
or amend any LG&E Energy Employment Arrangements or KU Energy Employment
Arrangements, respectively, or any other employment, severance or special
pay arrangement with respect to the employment or termination of employment
or other similar contract, agreement or arrangement with any director or
officer or other employee other than in the ordinary course of business
consistent with applicable industry practice; provided, however, neither KU
Energy nor LG&E Energy shall provide change in control protections to a
greater number of its respective employees than the number of participants
in KU Energy's Supplemental Security Plan as of January 1, 1997.
(j) 1935 Act. Except as set forth in Section 6.1(j) of the KU Energy
Disclosure Schedule or LG&E Energy Disclosure Schedule, and except as
required or contemplated by this Agreement, no party shall, nor shall any
party permit any of its subsidiaries to, take or fail to take any action
which would cause a change in such party's status as an exempt public
utility holding company under the 1935 Act.
(k) Transmission, Generation. Except as permitted pursuant to Section
6.1(f) and except as required pursuant to tariffs on file with the FERC as
of the date hereof, in the ordinary course of business consistent with past
practice, or as set forth in Section 6.1(k) of the KU Energy Disclosure
Schedule or the LG&E Energy Disclosure Schedule, neither KU Energy nor LG&E
Energy shall permit KU or LG&E, as the case may be, to (i) commence
construction of any additional generating, transmission or delivery
capacity, or gas storage capacity, or (ii) obligate itself to purchase or
otherwise acquire any additional generating, transmission or delivery
facilities, or gas storage facilities, or to sell or otherwise dispose of,
or to share, any generating, transmission or delivery facilities owned by
KU or LG&E except as set forth in the budgets of KU Energy and LG&E Energy.
(l) Accounting. Except as set forth in Section 6.1(l) of the KU Energy
Disclosure Schedule or LG&E Energy Disclosure Schedule, no party shall, nor
shall any party permit any of its Direct Subsidiaries to, make any changes
in its accounting methods, except as required by law, rule, regulation or
GAAP.
(m) Pooling. No party shall, nor shall any party permit any of its
subsidiaries to, take any action which would, or would be reasonably likely
to, prevent the Company from accounting for the transactions to be effected
pursuant to this Agreement as a pooling of interests in accordance with
GAAP and applicable SEC regulations, and each party hereto shall use all
reasonable efforts to achieve such result (including taking such actions as
may be necessary to cure any facts or circumstances that could prevent such
transactions from qualifying for pooling-of-interests accounting
treatment).
(n) Tax-Free Status. No party shall, nor shall any party permit any of
its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a tax-free
reorganization under Section 368(a) of the Code, and each party hereto
shall use all reasonable efforts to achieve such result.
(o) Affiliate Transactions. Except as set forth in Section 6.1(o) of each
of the KU Energy Disclosure Schedule or the LG&E Energy Disclosure
Schedule, no party shall, nor shall any party permit any of its Direct
Subsidiaries to, enter into any material agreement or arrangement with any
of their respective
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affiliates (other than wholly owned subsidiaries) on terms materially less
favorable to such party than could be reasonably expected to have been
obtained with an unaffiliated third party on an arm's-length basis.
(p) Cooperation, Notification. Each party shall, and shall cause its
Direct Subsidiaries to, (i) confer on a regular and frequent basis with one
or more representatives of the other party to discuss, subject to
applicable law, material operational matters and the general status of its
ongoing operations; (ii) promptly notify the other party of any significant
changes in its business, properties, assets, condition (financial or
other), results of operations or prospects; (iii) advise the other party of
any change or event which has had or, insofar as reasonably can be
foreseen, is reasonably likely to result in, in the case of KU Energy, a KU
Energy Material Adverse Effect or, in the case of LG&E Energy, a LG&E
Energy Material Adverse Effect; and (iv) promptly provide the other party
with copies of all filings made by such party or any of its Direct
Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby.
(q) Rate Matters. Each of KU Energy and LG&E Energy shall, and shall
cause KU or LG&E, as the case may be, to discuss with the other any changes
in regulated rates or charges (other than automatic cost pass-through rate
adjustment clauses), standards of service or accounting of KU or LG&E, as
the case may be, from those in effect on the date hereof and consult with
the other prior to making any filing (or any amendment thereto), or
effecting any agreement, commitment, arrangement or consent with
governmental regulators, whether written or oral, formal or informal, with
respect thereto, and except as set forth in Section 6.1(q) of each of the
KU Energy Disclosure Schedule or the LG&E Energy Disclosure Schedule
neither party nor KU or LG&E will make any filing to change the regulated
rates of KU or LG&E, as the case may be, that would have a material adverse
effect on the benefits associated with the business combination provided
for herein.
(r) Third-Party Consents. KU Energy shall, and shall cause the KU Energy
Subsidiaries to, use all commercially reasonable efforts to obtain all KU
Energy Required Consents. KU Energy shall promptly notify LG&E Energy of
any failure or prospective failure to obtain any such consents and, if
requested by LG&E Energy, shall provide copies of all KU Energy Required
Consents obtained by KU Energy to LG&E Energy. LG&E Energy shall, and shall
cause the LG&E Energy Subsidiaries to, use all commercially reasonable
efforts to obtain all LG&E Energy Required Consents. LG&E Energy shall
promptly notify KU Energy of any failure or prospective failure to obtain
any such consents and, if requested by KU Energy, shall provide copies of
all LG&E Energy Required Consents obtained by LG&E Energy to KU Energy.
(s) No Breach, Etc. No party shall, nor shall any party permit any of its
Direct Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement, the LG&E Energy Stock Option Agreement or the KU Energy Stock
Option Agreement, as the case may be, or in any of its representations and
warranties set forth in this Agreement, the LG&E Energy Stock Option
Agreement or the KU Energy Stock Option Agreement, as the case may be,
being untrue on and as of the Closing Date.
(t) Tax Exempt Status. No party shall, nor shall any party permit any
Direct Subsidiary to, take any action that would likely jeopardize the
qualification of any outstanding revenue bonds of LG&E Energy, KU Energy or
of their Direct Subsidiaries which qualify on the date hereof under Section
142(a) of the Code as "exempt facility bonds" or as tax-exempt industrial
development bonds under Section 103(b)(4) of the Internal Revenue Code of
1954, as amended, prior to the Tax Reform Act of 1986.
(u) Transition Management. As soon as practicable after the date hereof,
the parties shall create a special transition management task force (the
"Task Force"), the two co-chairmen of which shall be Victor A. Staffieri,
or another individual designated by LG&E Energy, and O.M. Goodlett, or
another individual designated by KU Energy. The Task Force shall examine
various alternatives regarding the manner in which to best organize and
manage the business of the Company after the Effective Time, subject to
applicable law. The co-chairmen will have joint decision-making authority
regarding the Task Force. Each party will appoint an equal number of
representatives to the Task Force, who shall have (subject to the joint
direction of the co-chairmen) responsibility for the day-to-day activities
and operations of the Task Force.
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(v) Tax Matters. Except as set forth in Section 6.1(v) of the KU Energy
Disclosure Schedule or the LG&E Energy Disclosure Schedule, no party shall
make or rescind any material express or deemed election relating to taxes,
settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ending December 31, 1996,
except as may be required by applicable law.
(w) Discharge of Liabilities. No party shall, nor shall any party permit
any of its Direct Subsidiaries to, pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice (which includes the payment of final and unappealable judgments
and the refinancing of existing indebtedness for borrowed money either at
its stated maturity or at a lower cost of funds) or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of such party included in such party's reports filed with
the SEC, or incurred in the ordinary course of business consistent with
past practice or, pursuant to Section 6.1(h) or as disclosed in Section
6.1(h) of the LG&E Energy Disclosure Schedule or KU Energy Disclosure
Schedule or as part of or pursuant to any settlement of any rate filings
before the public utility commission of any state or the FERC pending on
the date of this Agreement.
(x) Contracts. No party shall, except in the ordinary course of business
consistent with past practice, modify, amend, terminate, renew or fail to
use reasonable business efforts to renew any material contract or agreement
to which such party or any Direct Subsidiary of such party is a party, or
waive, release or assign any material rights or claims.
(y) Insurance. Each party shall, and shall cause its Direct Subsidiaries
to, maintain with financially responsible insurance companies insurance in
such amounts and against such risks and losses as are customary for
companies engaged in the electric and gas utility industry and employing
methods of generating electric power and fuel sources similar to those
methods employed and fuels used by such party or its Direct Subsidiaries.
(z) Permits. Each party shall, and shall cause its Direct Subsidiaries
to, use reasonable efforts to maintain in effect all existing governmental
permits pursuant to which such party or its Direct Subsidiaries operate.
(aa) Limitation on Investments in Joint Ventures and Unrestricted
Subsidiaries. From and after the date hereof and except as set forth in
Section 6.1(aa) of the KU Energy Disclosure Schedule or the LG&E Energy
Disclosure Schedule, (i) KU Energy will not make, and will not permit any
KU Energy Subsidiary to make, any additional investments in, or loans or
capital contributions to, or to undertake any guarantees or other
obligations with respect to, any KU Energy Joint Venture or KU Energy
Unrestricted Subsidiary in excess of $50 million (which amount shall be in
addition to the amounts budgeted for capital expenditures and acquisitions
as set forth in Sections 6.1(e) and 6.1(f) of the KU Energy Disclosure
Schedule and amounts permitted by Section 6.1(e)); and (ii) LG&E Energy
will not make, and will not permit any LG&E Energy Subsidiary to make, any
additional investments in, or loans or capital contributions to, or to
undertake any, guarantees or other obligations with respect to, any LG&E
Energy Joint Venture or LG&E Energy Unrestricted Subsidiary in excess of
$50 million (which amount shall be in addition to the amounts budgeted for
capital expenditures and acquisitions as set forth in Sections 6.1(e) and
6.1(f) of the LG&E Energy Disclosure Schedule and amounts permitted by
Section 6.1(e)).
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1. Access to Information. Upon reasonable notice, each party
shall, and shall cause its Direct Subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors and other representatives of the other (collectively,
"Representatives") reasonable access, during
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normal business hours throughout the period prior to the Effective Time, to
all of its properties, books, contracts, commitments and records (including,
but not limited to, Tax Returns and environmental or worker health and safety
audits, reports, studies and investigations, whether draft or final, relating
to the party, its Direct Subsidiaries or any property currently or formerly
owned, leased or operated by the party or its Direct Subsidiaries) and, during
such period, each party shall, and shall cause its Direct Subsidiaries to,
furnish promptly to the other (i) access to each report, schedule and other
document filed or received by it or any of its Direct Subsidiaries pursuant to
the requirements of federal or state securities laws or filed with or sent to
the SEC, the FERC, the Department of Justice, the Federal Trade Commission,
the Kentucky Public Service Commission and Virginia State Corporation
Commission or any other federal or state regulatory agency or commission, and
(ii) access to all information concerning themselves, their subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for
any other reason related to the transactions contemplated by this Agreement.
Each party shall provide access to those premises, documents, reports and
information described above of subsidiaries of such party that are not Direct
Subsidiaries to the extent such party has or is able to obtain such access.
Each party shall, and shall cause its subsidiaries and Representatives to,
hold in strict confidence all Information (as defined in the Confidentiality
Agreement) concerning the other parties furnished to it in connection with the
transactions contemplated by this Agreement in accordance with the
Confidentiality Agreement, dated as of October 30, 1996, between KU Energy and
LG&E Energy, as it may be amended from time to time (the "Confidentiality
Agreement").
Section 7.2. Joint Proxy Statement and Registration Statement.
(a) Preparation and Filing. The parties will prepare and file with the
SEC as soon as reasonably practicable after the date hereof the
Registration Statement and the Proxy Statement (together, the "Joint
Proxy/Registration Statement"). The parties hereto shall each use
reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such
filing. Each party hereto shall also take such action as may be reasonably
required to cause the shares of LG&E Energy Common Stock issuable in
connection with the Merger to be registered or to obtain an exemption from
registration under applicable state "blue sky" or securities laws;
provided, however, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process, in any jurisdiction where it will not be, following the
Merger, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for inclusion
in the Joint Proxy/Registration Statement. The parties shall use reasonable
efforts to cause the shares of LG&E Energy Common Stock issuable in the
Merger to be approved for listing on the NYSE upon official notice of
issuance. The information provided by any party hereto for use in the Joint
Proxy/Registration Statement shall be true and correct in all material
respects without omission of any material fact which is required to make
such information not false or misleading. No representation, covenant or
agreement is made by or on behalf of any party hereto with respect to
information supplied by any other party for inclusion in the Joint
Proxy/Registration Statement.
(b) Letter of KU Energy's Accountants. KU Energy shall use its best
efforts to cause to be delivered to LG&E Energy a letter of Arthur Andersen
LLP dated a date within two business days before the effective date of the
Joint Proxy/Registration Statement, and addressed to LG&E Energy, in form
and substance reasonably satisfactory to LG&E Energy and customary in scope
and substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4 and
proxy statements similar to the Joint Proxy/Registration Statement.
(c) Letter of LG&E Energy's Accountants. LG&E Energy shall use its best
efforts to cause to be delivered to KU Energy a letter of Arthur Andersen
LLP, dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to KU Energy, in form and
substance reasonably satisfactory to KU Energy and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4 and
proxy statements similar to the Joint Proxy/Registration Statement.
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(d) Fairness Opinions. It shall be a condition to the mailing of the
Joint Proxy/Registration Statement to the shareholders of KU Energy and
LG&E Energy that (i) KU Energy shall have received an opinion from Goldman,
Sachs & Co., dated the date of the Joint Proxy/Registration Statement, to
the effect that, as of the date thereof, the Exchange Ratio is fair to the
holders of KU Energy Common Stock and (ii) LG&E Energy shall have received
an opinion from The Blackstone Group L.P., dated the date of the Joint
Proxy/Registration Statement, to the effect that, as of the date thereof,
the Exchange Ratio is fair, from a financial point of view, to the holders
of LG&E Energy Common Stock.
Section 7.3. Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any
notifications required to be filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the rules and
regulations promulgated thereunder with respect to the transactions
contemplated hereby and will respond promptly to any requests for
additional information made by either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation,
to effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals, waivers and authorizations of all
Governmental Authorities and all other persons necessary or advisable to
consummate the transactions contemplated by this Agreement, including,
without limitation, the KU Energy Required Statutory Approvals and the LG&E
Energy Required Statutory Approvals. LG&E Energy shall have the right to
review and approve in advance all characterizations of the information
relating to LG&E Energy, on the one hand, and KU Energy shall have the
right to review and approve in advance all characterizations of the
information relating to KU Energy, on the other hand, in either case which
appear in any filing made in connection with the LG&E Energy Required
Statutory Approvals and the KU Energy Required Statutory Approvals sought
in connection with this Agreement, the LG&E Energy Stock Option Agreement
or the KU Energy Stock Option Agreement. LG&E Energy and KU Energy shall
each consult with the other with respect to the obtaining of all such
necessary or advisable permits, consents, approvals, waivers and
authorizations of Governmental Authorities.
Section 7.4. Shareholder Approval.
(a) Approval of LG&E Energy Shareholders. Subject to the provisions of
Section 7.4(c) and Section 7.4(d), LG&E Energy shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly
call, give notice of, convene and hold a meeting of its shareholders (the
"LG&E Energy Meeting") for the purpose of securing the LG&E Energy
Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy/Registration Statement in accordance with applicable federal and
state law and with its amended and restated articles of incorporation and
by laws, (iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of this Agreement and the
transactions contemplated hereby and (iv) cooperate and consult with KU
Energy with respect to each of the foregoing matters.
(b) Approval of KU Energy Shareholders. Subject to the provisions of
Section 7.4(c) and Section 7.4(d), KU Energy shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly
call, give notice of, convene and hold a meeting of its shareholders (the
"KU Energy Meeting") for the purpose of securing the KU Energy
Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy/Registration Statement in accordance with applicable federal and
state law and with its amended and restated articles of incorporation and
bylaws, (iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of this Agreement and the
transactions contemplated hereby and (iv) cooperate and consult with LG&E
Energy with respect to each of the foregoing matters.
(c) Meeting Date. The LG&E Energy Meeting for the purpose of securing the
LG&E Energy Shareholders' Approval and the KU Energy Meeting for the
purpose of securing the KU Energy
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Shareholders' Approval shall be held on such dates as KU Energy and LG&E
Energy shall mutually determine.
(d) Fairness Opinions Not Withdrawn. It shall be a condition to the
obligation of LG&E Energy to hold the LG&E Energy Meeting that the opinion
of The Blackstone Group L.P., referred to in Section 7.2(d), shall not have
been withdrawn, and it shall be a condition to the obligation of KU Energy
to hold the KU Energy Meeting that the opinion of Goldman, Sachs & Co.,
referred to in Section 7.2(d), shall not have been withdrawn.
Section 7.5. Directors' and Officers' Indemnification.
(a) Indemnification. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, the Company shall, to the fullest extent not prohibited by
applicable law, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, an officer, director or employee of any of the parties
hereto and their respective subsidiaries (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against (i) all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence,
amounts paid in settlement, arising out of actions or omissions occurring
at or prior to the Effective Time (and whether asserted or claimed prior
to, at or after the Effective Time) that are, in whole or in part, based on
or arising out of the fact that such person is or was a director, officer
or employee of such party or its subsidiary ("Indemnified Liabilities"),
and (ii) all Indemnified Liabilities to the extent they are based on or
arise out of or pertain to the transactions contemplated by this Agreement.
In the event of any such loss, expense, claim, damage or liability (whether
or not arising before the Effective Time), (i) the Company shall pay the
reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to the Company,
promptly after statements therefor are received and otherwise advance to
such Indemnified Party upon request reimbursement of documented expenses
reasonably incurred, (ii) the Company will cooperate in the defense of any
such matter, and (iii) any determination required to be made with respect
to whether an Indemnified Party's conduct complies with the standards set
forth under applicable law and the articles of incorporation or bylaws
shall be made by independent counsel mutually acceptable to the Company and
the Indemnified Party; provided, however, that the Company shall not be
liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld or delayed). The Indemnified
Parties as a group may retain only one law firm (other than local counsel)
with respect to each related matter except to the extent there is, in the
sole opinion of counsel to an Indemnified Party, under applicable standards
of professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties in which case each Indemnified Party with a conflicting
position on a significant issue shall be entitled to separate counsel. In
the event any Indemnified Party is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in
such action, the Company shall reimburse such Indemnified Party for all of
its expenses in bringing and pursuing such action. Each Indemnified Party
shall be entitled to the advancement of expenses to the full extent
contemplated in this Section 7.5(a) in connection with any such action.
(b) Insurance. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect either the policies of
directors' and officers' liability insurance maintained by KU Energy or
LG&E Energy, depending on which such policies offer the most favorable
coverage, for the benefit of those persons who are currently covered by
such policies; provided, however, that the Company shall not be required to
expend in any year an amount in excess of 200% of the annual aggregate
premiums currently paid by KU Energy and LG&E Energy for such insurance;
and provided, further, that if the annual premiums of such insurance
coverage exceed such amount, the Company shall be obligated to obtain a
policy with the best coverage available, in the reasonable judgment of the
Board of Directors of the Company, for a cost not exceeding such amount.
(c) Successors. In the event the Company or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such
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consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provisions shall be made so that the successors and assigns of the Company
shall assume the obligations set forth in this Section 7.5.
(d) Survival of Indemnification. To the fullest extent not prohibited by
law, from and after the Effective Time, all rights to indemnification as of
the date hereof in favor of the employees, agents, directors and officers
of KU Energy and its subsidiaries or LG&E Energy and its subsidiaries with
respect to their activities as such prior to the Effective Time, as
provided in their respective articles of incorporation and bylaws in effect
on the date hereof, or otherwise in effect on the date hereof, shall
survive the Merger and shall continue in full force and effect for a period
of not less than six years from the Effective Time, provided that in the
event any claim or claims are asserted or made within such six-year period,
all such rights to indemnification in respect of such claim or claims shall
continue until the final disposition thereof.
(e) Benefit. The provisions of this Section 7.5 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her representatives.
Section 7.6. Disclosure Schedules. On the date hereof, (i) LG&E Energy has
delivered to KU Energy a schedule (the "LG&E Energy Disclosure Schedule"),
accompanied by a certificate signed by the chief financial officer of LG&E
Energy stating the LG&E Energy Disclosure Schedule is being delivered pursuant
to this Section 7.6(i) and (ii) KU Energy has delivered to LG&E Energy a
schedule (the "KU Energy Disclosure Schedule"), accompanied by a certificate
signed by the chief financial officer of KU Energy stating the KU Energy
Disclosure Schedule is being delivered pursuant to this Section 7.6(ii). The
KU Energy Disclosure Schedule and the LG&E Energy Disclosure Schedule are
collectively referred to herein as the "Disclosure Schedules". The Disclosure
Schedules constitute an integral part of this Agreement and modify the
respective representations, warranties, covenants or agreements of the parties
hereto contained herein to the extent that such representations, warranties,
covenants or agreements expressly refer to the Disclosure Schedules. Anything
to the contrary contained herein or in the Disclosure Schedules
notwithstanding, any and all statements, representations, warranties or
disclosures set forth in the Disclosure Schedules shall be deemed to have been
made on and as of the date hereof.
Section 7.7. Public Announcements. Subject to each party's disclosure
obligations imposed by law or any applicable national securities exchange, (a)
KU Energy and LG&E Energy will cooperate with each other in the development
and distribution of all news releases and other public information disclosures
with respect to this Agreement or any of the transactions contemplated hereby
and shall not issue any public announcement or statement with respect hereto
or thereto without providing the other party the opportunity to review and
comment upon such announcement or statement, and (b) the initial press release
or releases of LG&E Energy and KU Energy announcing the execution of this
Agreement shall each be approved by the other party hereto prior to their
issuance.
Section 7.8. Rule 145 Affiliates. Within 30 days after the date of this
Agreement, KU Energy shall identify in a letter to LG&E Energy, and LG&E
Energy shall identify in a letter to KU Energy all persons who are, and to
such person's best knowledge who will be at the Closing Date, "affiliates" of
KU Energy and LG&E Energy, respectively, as such term is used in Rule 145
under the Securities Act (or otherwise under applicable SEC accounting
releases with respect to pooling-of-interests accounting treatment). Each of
KU Energy and LG&E Energy shall use all reasonable efforts to cause their
respective affiliates (including any person who may be deemed to have become
an affiliate after the date of the letter referred to in the prior sentence)
to deliver to the Company on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit C-1 (in the case of KU Energy's
affiliates) or Exhibit C-2 (in the case of LG&E Energy's affiliates) (each, an
"Affiliate Agreement").
Section 7.9. Employee Agreements and Workforce Matters.
(a) Certain Employee Agreements. Subject to Section 7.10, Section 7.14
and Section 7.15, the Company and its subsidiaries shall honor and perform,
without modification, all contracts, agreements,
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collective bargaining agreements and commitments of KU Energy or LG&E
Energy prior to the date hereof (or as established or amended in accordance
with or permitted by this Agreement), including, but not limited to the KU
Energy Plans, the KU Energy Employment Arrangements, the LG&E Energy Plans
and the LG&E Energy Employment Arrangements, which apply to any current or
former employee, or current or former director of the parties hereto or any
of their subsidiaries; provided, however, that this undertaking is not
intended to prevent the Company from enforcing such contracts, agreements,
collective bargaining agreements and commitments in accordance with their
terms, including, without limitation, any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective
bargaining agreement or commitment.
(b) Workforce Matters. Subject to applicable collective bargaining
agreements, for a period of three years following the Effective Time, any
reductions in workforce in respect of employees of the Company and its
subsidiaries shall be made on a fair and equitable basis, in light of the
circumstances and the objectives to be achieved, giving consideration to
previous work history, job experience, qualifications, and business needs
without regard to whether employment prior to the Effective Time was with
KU Energy or its subsidiaries or LG&E Energy or its subsidiaries, and any
employees whose employment is terminated or jobs are eliminated by the
Company or any of its subsidiaries during such period shall be entitled to
participate on a fair and equitable basis in the job opportunity and
employment placement programs offered by the Company or any of its
subsidiaries. Any workforce reductions carried out following the Effective
Time by the Company and its subsidiaries shall be done in accordance with
all applicable collective bargaining agreements, and all laws and
regulations governing the employment relationship and termination thereof
including, without limitation, the Worker Adjustment and Retraining
Notification Act and regulations promulgated thereunder, and any comparable
state or local law.
Section 7.10. Employee Benefit Plans. Each of the LG&E Energy Plans and KU
Energy Plans and LG&E Energy Employment Arrangements and KU Energy Employment
Arrangements, in effect on the date hereof (or as amended or established in
accordance with or as permitted by this Agreement) shall be maintained in
effect, except as provided in Section 7.11 with respect to the employees,
former employees, directors or former directors of LG&E Energy and any of its
subsidiaries and of KU Energy and any of its subsidiaries, respectively, who
are covered by such plans or arrangements immediately prior to the Effective
Time until the Company determines otherwise on or after the Effective Time and
the Company shall assume as of the Effective Time each KU Energy Plan or KU
Energy Employment Arrangement maintained by KU Energy immediately prior to the
Effective Time and perform such plan or arrangement in the same manner and to
the same extent that KU Energy would be required to perform thereunder;
provided, however, that nothing herein contained, other than the provisions of
Section 6.1(i), shall limit any reserved right contained in any such LG&E
Energy Benefit Plan or LG&E Energy Employment Arrangement or KU Energy Benefit
Plan or KU Energy Employment Arrangement to amend, modify, suspend, revoke or
terminate any such plan or arrangement. Without limiting the foregoing, each
participant in any LG&E Energy Benefit Plan or KU Energy Benefit Plan shall
receive credit for purposes of eligibility to participate, vesting and
eligibility to receive benefits (but specifically excluding for benefit
accrual purposes) under any benefit plan of the Company or any of its
subsidiaries or affiliates for service credited for the corresponding purpose
under any such benefit plan; provided, however, that such crediting of service
shall not operate to cause any such plan or arrangement to fail to comply with
the applicable provisions of the Code and ERISA. LG&E Energy and KU Energy
will cooperate on and after the date hereof to develop appropriate employee
benefit plans, programs and arrangements, including but not limited to,
executive and incentive compensation, stock option and supplemental executive
retirement plans, for employees and directors of the Company and its
subsidiaries from and after the Effective Time. However, no provision
contained in this Section 7.10 shall be deemed to constitute an employment
contract between the Company and any individual, or a waiver of the Company's
right to discharge any employee at any time, with or without cause.
Section 7.11. Stock Option and Other Stock Plans. With respect to each
employee benefit plan, program or arrangement under which KU Energy Common
Stock is required to be used for purposes of the payment of benefits, grant of
awards or exercise of options (each, a "Stock Plan"), (i) LG&E Energy and KU
Energy shall
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take such action as may be necessary so that, after the Effective Time, such
Stock Plan shall provide for the issuance or purchase in the open market only
of Company Common Stock rather than KU Energy Common Stock and otherwise to
amend such Stock Plans to reflect this Agreement and the Merger, and (ii) the
Company shall (w) take all corporate action necessary or appropriate to obtain
shareholder approval with respect to such Stock Plan to the extent such
approval is required for purposes of the Code or other applicable law, or, to
the extent the Company deems it desirable, to enable such Stock Plan to comply
with Rule 16b-3 promulgated under the Exchange Act, (x) reserve for issuance
under such Stock Plan or otherwise provide a sufficient number of shares of
Company Common Stock for delivery upon payment of benefits, grants of awards
or exercise of options under such Stock Plan, (y) as soon as practicable after
the Effective Time, file one or more registration statements under the
Securities Act with respect to the shares of Company Common Stock subject to
such Stock Plan to the extent such filing is required under applicable law and
use its best efforts to maintain the effectiveness of such registration
statement(s) (and the current status of the prospectuses contained therein or
related thereto) so long as such benefits, grants or awards remain payable or
such options remain outstanding, as the case may be and (z) cause such shares
of Company Common Stock subject to such Stock Plan to be listed for trading on
the NYSE. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under (S) 16(a) of the Exchange Act,
the Company shall administer the Stock Plans, where applicable, in a manner
that complies with Rule 16b-3 under the Exchange Act. Unless otherwise agreed
to by the parties, each of LG&E Energy and KU Energy shall use its best
efforts to obtain any shareholder approvals that may be necessary for the
deduction of any compensation payable under any Stock Plan or other
compensation arrangement.
Section 7.12. No Solicitations. Each party hereto shall not, and shall cause
its Direct Subsidiaries not to, and shall not permit any of its
Representatives or subsidiaries that are not Direct Subsidiaries to directly
or indirectly: initiate, solicit or encourage, or take any action to
facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to, any Business Combination Proposal (as defined
below), or, in the event of an unsolicited Business Combination Proposal,
engage in negotiations or provide any information or data to any person
relating to any Business Combination Proposal; provided, however, that
notwithstanding any other provision hereof LG&E Energy or KU Energy may (i) at
any time prior to the time at which the LG&E Energy Shareholders' Approval, in
the case of LG&E Energy, or the KU Energy Shareholders' Approval, in the case
of KU Energy, has been obtained, engage in discussions or negotiations with a
third party and may furnish such third party information concerning itself and
its business, properties and assets if, and only to the extent that, (A)(x)
such third party shall first have made an unsolicited Business Combination
Proposal to LG&E Energy or KU Energy, respectively, and (y) the Board of
Directors of LG&E Energy or KU Energy, as the case may be, shall have
determined in good faith, based upon the written advice of outside counsel,
that such action is required by its fiduciary duties under applicable law and
(B) prior to furnishing such information to or entering into negotiations with
such third party, LG&E Energy or KU Energy, as the case may be, (x) provides
prompt notice to LG&E Energy or KU Energy, as the case may be, to the effect
that it is furnishing information to or entering into discussions or
negotiations with such third party and (y) receives from such third party an
executed confidentiality agreement in reasonably customary form on terms not
materially more favorable to such third party than the terms contained in the
Confidentiality Agreement and (ii) comply with Rule 14e-2 promulgated under
the Exchange Act with regard to a tender or exchange offer. Each party hereto
shall notify the other party orally and in writing of any such inquiries,
offers or proposals (including, without limitation, the terms and conditions
of any such proposal and the identity of the person making it), within 24
hours of the receipt thereof, shall keep the other party informed of the
status and details of any such inquiry, offer or proposal, and shall give the
other party five day's advance notice of any agreement to be entered into with
or any information to be supplied to any person making such inquiry, offer or
proposal. Each party hereto shall immediately cease and cause to be terminated
all existing discussions and negotiations, if any, with any parties conducted
heretofore with respect to any Business Combination Proposal. As used in this
Section 7.12, "Business Combination Proposal" shall mean any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving any party to this Agreement or any of its material
Direct Subsidiaries, or any proposal or offer (in each case, whether or not in
writing and whether or not delivered to the stockholders of a party generally)
to acquire in any manner, directly or indirectly, a substantial equity
interest in or a substantial portion
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of the assets of any party to this Agreement or any of its material
subsidiaries, other than pursuant to the transactions contemplated by this
Agreement.
Section 7.13. Company and Subsidiary Board of Directors.
(a) At the Effective Time, the Board of Directors of LG&E Energy shall be
expanded and reconstituted to include fifteen directors, eight of whom
shall be selected by LG&E Energy prior to the Effective Time and seven of
whom shall be selected by KU Energy prior to the Effective Time and each of
whom, in each such case, shall be designated to serve among the existing
classes of the Company's directors as equally as possible.
(b) Immediately following the Effective Time, there shall be only four
committees of the Board of Directors of the Company: an Audit Committee, a
Nominating and Governance Committee, a Compensation Committee and a Long
Range Planning Committee. The Chairmen of the Audit and Compensation
Committees shall be designated by LG&E Energy prior to the Effective Time
and the Chairmen of the Nominating and Governance Committee and the Long
Range Planning Committee shall be designated by KU Energy prior to the
Effective Time. At the Effective Time, the Audit Committee shall consist of
ten members, five of whom shall be designated by LG&E Energy prior to the
Effective Time and five of whom shall be designated by KU Energy prior to
the Effective Time. At the Effective Time, the Nominating and Governance
Committee shall consist of eight members, four of whom shall be designated
by LG&E Energy prior to the Effective Time and four of whom shall be
designated by KU Energy prior to the Effective Time. At the Effective Time,
the Compensation Committee shall consist of seven members, four of whom
shall be designated by LG&E Energy prior to the Effective Time and three of
whom shall be designated by KU Energy prior to the Effective Time. At the
Effective Time, the Long Range Planning Committee shall consist of nine
members, five of whom shall be designated by LG&E Energy prior to the
Effective Time and four of whom shall be designated by KU Energy prior to
the Effective Time. From and after the Effective Time, no other committees
of the Board of Directors of the Company shall be established, except for
such special or other committees as the Board of Directors of the Company
may deem advisable to establish from time to time.
(c) At the Effective Time, (i) the Board of Directors of LG&E shall be
expanded and reconstituted to consist of those persons serving on the Board
of Directors of LG&E immediately prior to the Effective Time and those
persons selected by KU Energy to serve on the Board of Directors of the
Company pursuant to Section 7.13(a) and (ii) the Board of Directors of KU
shall consist of those persons serving on the Board of Directors of KU
immediately prior to the Effective Time and those persons selected by LG&E
Energy to serve on the Board of Directors of the Company pursuant to
Section 7.13(a). All persons serving on the Board of Directors of LG&E or
KU immediately after the Effective Time shall serve on such Board of
Directors until expiration of their term of election or their resignation
or removal.
Section 7.14. Company Officers. At the Effective Time, Roger W. Hale shall
be the Chairman of the Board and Chief Executive Officer of the Company and
each of KU and LG&E pursuant to an Employment Agreement dated the date hereof
between Roger W. Hale and LG&E Energy, attached hereto as Exhibit D and
Michael R. Whitley shall be the Vice Chairman of the Board of Directors and
President and Chief Operating Officer of the Company and Vice Chairman and
Chief Operating Officer of each of KU and LG&E, pursuant to an Employment
Agreement dated the date hereof between Michael R. Whitley and KU Energy (as
predecessor to LG&E Energy) attached hereto as Exhibit E.
Section 7.15. Post-Merger Operations. KU Energy and LG&E Energy contemplate
that the Company shall conduct its operations in accordance with the
following:
(a) Corporate Presence. The principal corporate office of the Company and
LG&E shall be located in Louisville, Kentucky; and KU shall maintain its
corporate headquarters in Lexington, Kentucky and a substantial presence
throughout its service territory in order to conduct the state-wide
operations of KU.
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(b) Utility Subsidiaries. KU shall continue its separate corporate
existence, operating under the name "KU Utilities Company" and LG&E shall
continue its separate corporate existence, operating under the name
"Louisville Gas and Electric Company".
(c) Charities. After the Effective Time, the Company shall provide
charitable contributions and community support within the service areas of
LG&E and KU at levels substantially comparable to the levels of charitable
contributions and community support provided by the parties and their
respective subsidiaries within such service areas within the two-year
period immediately prior to the Effective Time.
(d) Company Name. The Company's name shall be LG&E Energy Corp.
Section 7.16. Expenses. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/Registration
Statement, as well as the filing fee relating thereto, shall be shared equally
by KU Energy and LG&E Energy.
Section 7.17. Further Assurances. Each party will, and will cause its Direct
Subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof. The parties
expressly acknowledge and agree that, although it is their current intention
to effect a business combination among themselves in the form contemplated by
this Agreement, it may be preferable to effectuate such a business combination
by means of an alternative structure in light of the conditions set forth in
Section 8.1(e), Section 8.2(e), and Section 8.3(e). Accordingly, if the only
conditions to the parties' obligations to consummate the Merger which are not
satisfied or waived are receipt of any one or more of the KU Energy Required
Consents, KU Energy Required Statutory Approvals, LG&E Energy Required
Consents or LG&E Energy Required Statutory Approvals, and the adoption of an
alternative structure (that otherwise substantially preserves for KU Energy
and LG&E Energy the economic benefits of the Merger) would result in such
conditions being satisfied or waived, then the parties shall use their
respective best efforts to effect a business combination among themselves by
means of a mutually agreed upon structure other than the Merger that so
preserves such benefits; provided that, prior to closing any such restructured
transaction, all material third-party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals
necessary for the effectuation of such alternative business combination shall
have been obtained and all other conditions to the parties' obligations to
consummate the Merger, as applied to such alternative business combination,
shall have been satisfied or waived.
Section 7.18. Charter and Bylaw Amendments. Prior to the mailing of the
Joint Proxy Statement/Prospectus, LG&E Energy and KU Energy shall take all
actions necessary so that (i) at or prior to the Effective Time, the articles
of incorporation of LG&E Energy shall be amended to increase the number of
authorized shares of LG&E Energy Common Stock to 300 million shares and
increase the number of authorized shares of Series A Preferred Stock to 2
million shares and (ii) at or prior to the Effective Time, the bylaws of LG&E
Energy shall be amended and restated so that, at the Effective Time, such
bylaws shall read in their entirety substantially in the form attached hereto
as Exhibit F.
ARTICLE VIII.
CONDITIONS
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such conditions may be
waived in writing pursuant to Section 9.5 by the joint action of the parties
hereto:
(a) Shareholder Approvals. The LG&E Energy Shareholders' Approval and the
KU Energy Shareholders' Approval shall have been obtained.
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(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and be
continuing in effect, and the Merger and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain
in effect.
(d) Listing of Shares. The shares of LG&E Energy Common Stock issuable in
the Merger pursuant to Article II shall have been approved for listing on
the NYSE upon official notice of issuance.
(e) Statutory Approvals. The KU Energy Required Statutory Approvals and
the LG&E Energy Required Statutory Approvals shall have been obtained at or
prior to the Effective Time, such approvals shall have become Final Orders
(as defined below), and such Final Orders shall not impose terms or
conditions which, in the aggregate, would have, or would be reasonably
likely to have, a material adverse effect on the business, assets,
financial condition or results of operations of LG&E or KU or the Company
and its prospective subsidiaries taken as a whole or which would be
materially inconsistent with the agreements of the parties contained
herein. A "Final Order" means action by the relevant regulatory authority
which has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law
before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied.
(f) Pooling. Each of KU Energy and LG&E Energy shall have received a
letter of its independent public accountants, dated the Closing Date, in
form and substance reasonably satisfactory, in each case, to KU Energy and
LG&E Energy, stating that the transactions effected pursuant to this
Agreement will qualify as a pooling of interests transaction under GAAP and
applicable SEC regulations.
(g) Dissenters' Rights. The number of KU Energy Dissenting Shares shall
not constitute more than 10% of the number of issued and outstanding shares
of KU Energy Common Stock and the number of LG&E Energy Dissenting Shares
shall not constitute more than 10% of the number of issued and outstanding
shares of LG&E Energy Common Stock.
Section 8.2. Conditions to Obligation of LG&E Energy to Effect the
Merger. The obligation of LG&E Energy to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by LG&E Energy in writing pursuant to
Section 9.5:
(a) Performance of Obligations of KU Energy. KU Energy (and/or its
appropriate subsidiaries) shall have performed its agreements and covenants
contained in Sections 6.1(b) and 6.1(c) and shall have performed in all
material respects its other agreements and covenants contained in or
contemplated by this Agreement and the KU Energy Stock Option Agreement
required to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
KU Energy set forth in this Agreement and the KU Energy Stock Option
Agreement shall be true and correct (i) on and as of the date hereof and
(ii) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of
a specific date or time other than the date hereof or the Closing Date
which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifications
contained therein) which, individually or in the aggregate, would not be
reasonably likely to result in a KU Energy Material Adverse Effect.
(c) Closing Certificates. LG&E Energy shall have received a certificate
signed by the chief financial officer of KU Energy, dated the Closing Date,
to the effect that, to the best of such officer's knowledge, the conditions
set forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
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(d) KU Energy Material Adverse Effect. No KU Energy Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance
which is reasonably likely to have a KU Energy Material Adverse Effect.
(e) KU Energy Required Consents. The KU Energy Required Consents the
failure of which to obtain would have a KU Energy Material Adverse Effect
shall have been obtained.
(f) Affiliate Agreements. The Company shall have received Affiliate
Agreements, duly executed by each "affiliate" of KU Energy, substantially
in the form of Exhibit C-1, as provided in Section 7.8.
(g) Tax Opinion. LG&E Energy shall have received an opinion of Simpson
Thacher & Bartlett satisfactory in form and substance to LG&E Energy, dated
as of the Closing Date, to the effect that the Merger will be treated as a
tax-free reorganization under Section 368(a) of the Code.
(h) No Trigger of KU Energy Rights. No event shall have occurred that has
or would result in the triggering of any right or entitlement of KU Energy
shareholders under the KU Energy Rights Agreement, including a
"Distribution Date", "Triggering Event" "Flip-in Event" or "Flip-over
Event" (as such terms are defined in the KU Energy Rights Agreement), or
will occur as a result of the consummation of the Merger, which has or
would have or be reasonably likely to result in a KU Energy Material
Adverse Effect or materially change the number of outstanding equity
securities of KU Energy or the Company, and the KU Energy Rights shall not
have become nonredeemable by any action of the KU Energy Board of
Directors.
Section 8.3. Conditions to Obligation of KU Energy to Effect the Merger. The
obligation of KU Energy to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by KU Energy in writing pursuant to Section 9.5:
(a) Performance of Obligations of LG&E Energy. LG&E Energy (and/or its
appropriate subsidiaries) shall have performed its agreements and covenants
contained in Sections 6.1(b) and 6.1(c) and shall have performed in all
material respects its other agreements and covenants contained in or
contemplated by this Agreement and the LG&E Energy Stock Option Agreement
required to be performed at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
LG&E Energy set forth in this Agreement and the LG&E Energy Stock Option
Agreement shall be true and correct (i) on and as of the date hereof and
(ii) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of
a specific date or time other than the date hereof or the Closing Date
which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifications
contained therein) which, individually or in the aggregate, would not be
reasonably likely to result in a LG&E Energy Material Adverse Effect.
(c) Closing Certificates. KU Energy shall have received a certificate
signed by the chief financial officer of LG&E Energy, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.3(a) and Section 8.3(b) have been
satisfied.
(d) LG&E Energy Material Adverse Effect. No LG&E Energy Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance
which is reasonably likely to have a LG&E Energy Material Adverse Effect.
(e) LG&E Energy Required Consents. The LG&E Energy Required Consents the
failure of which to obtain would have a LG&E Energy Material Adverse Effect
shall have been obtained.
(f) Affiliate Agreements. The Company shall have received Affiliate
Agreements, duly executed by each "affiliate" of LG&E Energy substantially
in the form of Exhibit C-2, as provided in Section 7.8.
(g) Tax Opinion. KU Energy shall have received an opinion of Jones, Day,
Reavis & Pogue satisfactory in form and substance to KU Energy, dated as of
the Closing Date, to the effect that the Merger will be treated as a tax-
free reorganization under Section 368(a) of the Code.
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(h) No Trigger of LG&E Energy Rights. No event shall have occurred that
has or would result in the triggering of any right or entitlement of LG&E
Energy shareholders under the LG&E Energy Rights Agreement, including a
"Distribution Date" or "Triggering Event" (as such terms are defined in the
LG&E Energy Rights Agreement) or a "Flip-in" or "Flip-over" event as
commonly described in such rights plans, or will occur as a result of
consummation of the Merger, which has or would have or be reasonably likely
to result in a LG&E Energy Material Adverse Effect or materially change the
number of outstanding equity securities of LG&E Energy or the Company, and
the LG&E Energy Rights shall not have become nonredeemable by any action of
the LG&E Energy Board of Directors.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination. This Agreement may be terminated at any time prior
to the Closing Date, whether before or (except as otherwise set forth below)
after approval by the shareholders of the respective parties hereto
contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of KU Energy and
LG&E Energy;
(b) by either LG&E Energy or KU Energy, by written notice to the other
party, if the Effective Time shall not have occurred on or before the
second anniversary of the date hereof (the "Initial Termination Date");
provided, however, that the right to terminate the Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date; and
provided, further, that if on the Initial Termination Date the conditions
to the Closing set forth in Sections 8.1(e), 8.2(e) and/or 8.3(e) shall not
have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Initial
Termination Date shall be extended to the thirty month anniversary of the
date hereof;
(c) by either LG&E Energy or KU Energy, by written notice to the other
party, if the LG&E Energy Shareholders' Approval shall not have been
obtained at a duly held LG&E Energy Meeting, including any adjournments
thereof, or the KU Energy Shareholders' Approval shall not have been
obtained at a duly held KU Energy Meeting, including any adjournments
thereof;
(d) by either LG&E Energy or KU Energy, if any state or federal law,
order, rule or regulation is adopted or issued, which has the effect, as
supported by the written advice of outside counsel for such party, of
prohibiting the Merger, or by either LG&E Energy or KU Energy if any court
of competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Merger, and such order, judgment or decree shall
have become final and nonappealable;
(e) by LG&E Energy, at any time prior to the time at which the LG&E
Energy Shareholders' Approval has been obtained, upon five days' prior
notice to KU Energy, if, as a result of a tender offer by a party other
than KU Energy or any of its affiliates or any written offer or proposal
with respect to a merger, sale of a material portion of its assets or other
business combination (each, a "Business Combination") by a party other than
KU Energy or any of its affiliates, the Board of Directors of LG&E Energy
determines in good faith that its fiduciary obligations under applicable
law require that such tender offer or other written offer or proposal be
accepted; provided, however, that (i) the Board of Directors of LG&E Energy
shall have received the written advice of outside counsel that,
notwithstanding a binding commitment to consummate an agreement of the
nature of this Agreement entered into in the proper exercise of their
applicable fiduciary duties, and notwithstanding all concessions which may
be offered by KU Energy in negotiations entered into pursuant to clause
(ii) below, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or other
written offer or proposal; and (ii) prior to any such termination, LG&E
Energy shall, and shall cause its respective financial and legal advisors
to, negotiate with KU Energy to make such adjustments in the terms and
conditions of this Agreement as would enable LG&E Energy to proceed with
the transactions contemplated herein on such adjusted terms;
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provided further that, notwithstanding anything in this Section 9.1(e) to
the contrary, LG&E Energy and KU Energy intend this Agreement to be an
exclusive agreement and, accordingly, nothing in this Agreement is intended
to constitute a solicitation of a Business Combination proposal, it being
acknowledged and agreed that any such proposal would interfere with the
strategic advantages and benefits that LG&E Energy and KU Energy expect to
derive from this Agreement and the transactions contemplated hereby;
(f) by KU Energy, at any time prior to the time at which the KU Energy
Shareholders' Approval has been obtained, upon five days' prior notice to
LG&E Energy, if, as a result of a tender offer by a party other than LG&E
Energy or any of its affiliates or any written offer or proposal with
respect to a Business Combination by a party other than LG&E Energy or any
of its affiliates, the Board of Directors of KU Energy determines in good
faith that its fiduciary obligations under applicable law require that such
tender offer or other written offer or proposal be accepted; provided,
however, that (i) the Board of Directors of KU Energy shall have received
the written advice of outside counsel that, notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary duties,
and notwithstanding all concessions which may be offered by LG&E Energy in
negotiations entered into pursuant to clause (ii) below, such fiduciary
duties would also require the directors to reconsider such commitment as a
result of such tender offer or other written offer or proposal; and (ii)
prior to any such termination, KU Energy shall, and shall cause its
respective financial and legal advisors to, negotiate with LG&E Energy to
make such adjustments in the terms and conditions of this Agreement as
would enable KU Energy to proceed with the transactions contemplated herein
on such adjusted terms; provided further that, notwithstanding anything in
this Section 9.1(f) to the contrary, LG&E Energy and KU Energy intend this
Agreement to be an exclusive agreement and, accordingly, nothing in this
Agreement is intended to constitute a solicitation of a Business
Combination proposal, it being acknowledged and agreed that any such
proposal would interfere with the strategic advantages and benefits that
LG&E Energy and KU Energy expect to derive from this Agreement and the
transactions contemplated hereby;
(g) by KU Energy, by written notice to LG&E Energy, if (i) there exist
inaccuracies of the representations and warranties of LG&E Energy made
herein as of the date hereof which inaccuracies, individually or in the
aggregate, would or would be reasonably likely to result in a LG&E Energy
Material Adverse Effect, and such inaccuracies shall not have been remedied
within 20 days after receipt by LG&E Energy of notice in writing from KU
Energy, specifying the nature of such inaccuracies and requesting that they
be remedied, (ii) LG&E Energy (and/or its appropriate subsidiaries) shall
not have performed and complied with its agreements and covenants contained
in Sections 6.1(b) and 6.1(c) or shall have failed to perform and comply
with, in all material respects, its other agreements and covenants
hereunder or under the LG&E Energy Stock Option Agreement and such failure
to perform or comply shall not have been remedied within 20 days after
receipt by LG&E Energy of notice in writing from KU Energy, specifying the
nature of such failure and requesting that it be remedied; or (iii) the
Board of Directors of LG&E Energy or any committee thereof (A) shall
withdraw or modify in any manner adverse to KU Energy its approval or
recommendation of this Agreement or the Merger, (B) shall fail to reaffirm
such approval or recommendation upon KU Energy's request, (C) shall approve
or recommend any acquisition of LG&E Energy or a material portion of its
assets or any tender offer for shares of capital stock of LG&E Energy, in
each case, by a party other than KU Energy or any of its affiliates or (D)
shall resolve to take any of the actions specified in clause (A), (B) or
(C);
(h) by LG&E Energy, by written notice to KU Energy, if (i) there exist
material inaccuracies of the representations and warranties of KU Energy
made herein as of the date hereof, which inaccuracies, individually or in
the aggregate, would or would be reasonably likely to result in a KU Energy
Material Adverse Effect, and such inaccuracies shall not have been remedied
within 20 days after receipt by KU Energy of notice in writing from LG&E
Energy, specifying the nature of such inaccuracies and requesting that they
be remedied, (ii) KU Energy (and/or its appropriate subsidiaries) shall not
have performed and complied with its agreements and covenants contained in
Sections 6.1(b) and 6.1(c) or shall have failed to perform and comply with,
in all material respects, its other agreements and covenants hereunder or
under the KU Energy Stock Option Agreement, and such failure to perform or
comply shall not have been
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remedied within 20 days after receipt by KU Energy of notice in writing
from LG&E Energy, specifying the nature of such failure and requesting that
it be remedied; or (iii) the Board of Directors of KU Energy or any
committee thereof (A) shall withdraw or modify in any manner adverse to
LG&E Energy its approval or recommendation of this Agreement or the Merger,
(B) shall fail to reaffirm such approval or recommendation upon LG&E
Energy's request, (C) shall approve or recommend any acquisition of KU
Energy or a material portion of its assets or any tender offer for the
shares of capital stock of KU Energy, in each case by a party other than
LG&E Energy or any of its affiliates or (D) shall resolve to take any of
the actions specified in clause (A), (B) or (C); or
(i) by either LG&E Energy or KU Energy, by written notice to the other
party, if (A) a third party acquires securities representing greater than
50% of the voting power of the outstanding voting securities of such other
party or (B) individuals who as of the date hereof constitute the board of
directors of such other party (together with any new directors whose
election by such board of directors or whose nomination for election by the
stockholders of such party was approved by a vote of a majority of the
directors of such party then still in office who are either directors as of
the date hereof or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the board of
directors of such party then in office.
Section 9.2. Effect of Termination. Subject to Section 10.1(b), in the event
of termination of this Agreement by either KU Energy or LG&E Energy pursuant
to Section 9.1 there shall be no liability on the part of either KU Energy or
LG&E Energy or their respective officers or directors hereunder, except that
Section 7.16 and Section 9.3, the agreement contained in the last sentence of
Section 7.1, Section 10.2, Section 10.4 and Section 10.8 shall survive the
termination.
Section 9.3. Termination Fee; Expenses.
(a) Termination Fee upon Breach or Withdrawal of Approval. If this
Agreement is terminated at such time that this Agreement is terminable
pursuant to one (but not both) of (x) Section 9.1(g)(i) or (ii) or (y)
Section 9.1(h)(i) or (ii), then: (i) the breaching party shall promptly
(but not later than five business days after receipt of notice from the
non-breaching party) pay to the non-breaching party in cash an amount equal
to all documented out-of-pocket expenses and fees incurred by the non-
breaching party (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 this Agreement) not in excess of
$10 million; provided, however, that, if this Agreement is terminated by a
party as a result of a willful breach by the other party, the non-breaching
party may pursue any remedies available to it at law or in equity and
shall, in addition to its out-of-pocket expenses (which shall be paid as
specified above and shall not be limited to $10 million), be entitled to
recover such additional amounts as such non-breaching party may be entitled
to receive at law or in equity; and (ii) if (x) at the time of the
breaching party's willful breach of this Agreement, there shall have been a
third-party tender offer for shares of, or a third party offer or proposal
with respect to a Business Combination involving, such party or any of its
affiliates which at the time of such termination shall not have been
rejected by such party and its board of directors and withdrawn by the
third party, and (y) within two and one-half years of any termination by
the non-breaching party, the breaching party or an affiliate thereof
becomes a subsidiary of such offeror or a subsidiary of an affiliate of
such offeror or accepts a written offer to consummate or consummates a
Business Combination with such offeror 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, will pay to the non-breaching party an
additional fee equal to $50 million in cash; provided that in no event
shall the additional termination fee provided for in Section 9.3(b) be
payable if the additional fee referred to in this Section 9.3(a)(ii) has
been paid.
(b) Additional Termination Fee. (i) If (A) this Agreement (w) is
terminated by LG&E Energy pursuant to Section 9.1(e), (x) is terminated by
KU Energy pursuant to Section 9.1(g)(iii), (y) is terminated
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<PAGE>
pursuant to Section 9.1(c) following a failure of the shareholders of LG&E
Energy to grant the necessary approvals described in Section 5.13 (provided
that the shareholders of KU Energy shall not also have failed to grant the
necessary approvals described in Section 4.13) or (z) is terminated as a
result of LG&E Energy's material breach of Section 7.4, and (B) at the time
of such termination or prior to the meeting of LG&E Energy's shareholders
there shall have been a third-party tender offer for shares of, or a third-
party offer or proposal with respect to a Business Combination involving,
LG&E Energy or any of its affiliates which at the time of such termination
or of the meeting of LG&E Energy's shareholders shall not have been (1)
rejected by LG&E Energy and its board of directors and (2) withdrawn by the
third-party, and (C) within two and one-half years of any such termination
described in clause (A) above, LG&E Energy or its affiliate which is the
subject of the tender offer or offer or proposal with respect to a Business
Combination (the "LG&E Energy Target Party") becomes a subsidiary of such
offeror or a subsidiary of an affiliate of such offeror or accepts a
written offer to consummate or consummates a Business Combination with such
offeror or affiliate thereof, then such LG&E Energy 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
LG&E Energy Target Party becoming such a subsidiary or of such Business
Combination, will pay to KU Energy a termination fee equal to $50 million
in cash plus the out-of-pocket fees and expenses incurred by KU Energy
(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 this Agreement).
(ii) If (A) this Agreement (w) is terminated by KU Energy pursuant to
Section 9.1(f), (x) is terminated by LG&E Energy pursuant to Section
9.1(h)(iii), (y) is terminated pursuant to Section 9.1(c) following a
failure of the shareholders of KU Energy to grant the necessary approvals
described in Section 4.13 (provided that the shareholders of LG&E Energy
shall not also have failed to grant the necessary approvals described in
Section 5.13) or (z) is terminated as a result of KU Energy's material
breach of Section 7.4, and (B) at the time of such termination or prior to
the meeting of KU Energy's shareholders there shall have been a third-party
tender offer for shares of, or a third-party offer or proposal with respect
to a Business Combination involving, KU Energy or any of its affiliates
which at the time of such termination or of the meeting of KU Energy's
shareholders shall not have been (1) rejected by KU Energy and its board of
directors and (2) withdrawn by the third-party, and (C) within two and one-
half years of any such termination described in clause (A) above, KU Energy
or its affiliate which is the subject of the tender offer or offer or
proposal with respect to a Business Combination (the "KU Energy Target
Party") becomes a subsidiary of such offeror or a subsidiary of an
affiliate of such offeror or accepts a written offer to consummate or
consummates a Business Combination with such offeror or affiliate thereof,
then such KU Energy 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 KU Energy Target Party
becoming such a subsidiary or of such Business Combination, will pay to
LG&E Energy a termination fee equal to $50 million in cash plus the out-of-
pocket fees and expenses incurred by LG&E Energy (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 this Agreement).
(c) Expenses. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due hereunder, the defaulting
party shall pay the costs and expenses (including legal fees and expenses)
in connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank,
N.A. (or its successor) from the date such fee was required to be paid.
(d) Limitation of Termination Fees. Notwithstanding anything herein to
the contrary, the aggregate amount payable to LG&E Energy and its
affiliates pursuant to Section 9.3(a), Section 9.3(b) and the terms
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<PAGE>
of the KU Energy Stock Option Agreement shall not exceed $70 million and
the aggregate amount payable to KU Energy and its affiliates pursuant to
Section 9.3(a), Section 9.3(b) and the terms of the LG&E Energy Stock
Option Agreement shall not exceed $70 million (including, in each case,
reimbursement for fees and expenses payable pursuant to this Section 9.3).
For purposes of this Section 9.3(d), the amount payable pursuant to the
terms of the KU Energy Stock Option Agreement or the LG&E Energy Stock
Option Agreement, as the case may be, shall be the amount paid pursuant to
Sections 7(a)(i) and 7(a)(ii) thereof.
Section 9.4. Amendment. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof
by the shareholders of KU Energy and LG&E Energy and prior to the Effective
Time, but after such approvals, no such amendment shall (i) alter or change
the amount or kind of shares, rights or any of the proceedings of the
treatment of shares under Article II, or (ii) alter or change any of the terms
and conditions of this Agreement if any of the alterations or changes, alone
or in the aggregate, would materially adversely affect the rights of holders
of KU Energy capital stock or LG&E Energy capital stock, except for
alterations or changes that could otherwise be adopted by the Board of
Directors of the Company, without the further approval of such shareholders,
as applicable. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 9.5. Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X.
GENERAL PROVISIONS
Section 10.1. Non-Survival; Effect of Representations and Warranties. (a)
All representations, warranties and agreements in this Agreement shall not
survive the Merger, except as otherwise provided in this Agreement and except
for the agreements contained in this Section 10.1 and in Article II, Section
6.1(n), Section 7.5, Section 7.9, Section 7.10, Section 7.11, Section 7.13,
Section 7.14, Section 7.15, Section 7.16, Section 7.17 and Section 10.7.
(b) No party may assert a claim for inaccuracy of any representation or
warranty contained in this Agreement (whether by direct claim or counterclaim)
except in connection with the termination of this Agreement pursuant to
Section 9.1(g)(i) or Section 9.1(h)(i) (or pursuant to any other subsection of
Section 9.1, if the terminating party would have been entitled to terminate
this Agreement pursuant to Section 9.1(g)(i) or Section 9.1(h)(i)).
Section 10.2. Brokers. KU Energy represents and warrants that, except for
Goldman, Sachs & Co. whose fees have been disclosed to LG&E Energy prior to
the date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
or the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of KU Energy. LG&E Energy represents and warrants that,
except for The Blackstone Group L.P., whose fees have been disclosed to KU
Energy prior to the date hereof, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of LG&E Energy.
Section 10.3. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which
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<PAGE>
is confirmed), or (iv) five days after being mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a)If to KU Energy, to:
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507
Attention: O.M. Goodlett
Telephone: (606)
367-1104
Telecopy: (606)
367-1199
with a copy to:
Robert A. Yolles, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Telephone: (312)
269-4145
Telecopy: (312)
782-8585
(b)If to LG&E Energy, to:
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Attention: Victor A. Staffieri
Telephone: (502)
627-3912
Telecopy: (502)
627-2155
with copies to:
Richard I. Beattie, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telephone: (212)
455-2635
Telecopy: (212)
455-2502
and
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
Attention: Peter D. Clarke, Esq.
Telephone: (312)
245-8685
Telecopy: (312)
644-3381
Section 10.4. Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof other than the Confidentiality Agreement (provided that Paragraph 7 of
the Confidentiality Agreement is superseded by the terms hereof and shall have
no further force or effect); (ii) shall be deemed and construed as, and is
intended to be, a "Definitive Agreement" within the meaning of paragraph 10 of
the Confidentiality Agreement; (iii) shall not be assigned by operation of law
or otherwise; and (iv) shall be governed by and construed in accordance with
the laws of the Commonwealth of Kentucky applicable to contracts executed in
and to be fully performed in such Commonwealth, without giving effect to its
conflicts of law, rules or principles and except to the extent the provisions
of this Agreement (including the documents or instruments referred to herein)
are expressly governed by or derive their authority from the KBCA.
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<PAGE>
Section 10.5. Interpretation. When a reference is made in this Agreement to
Articles, Sections or Exhibits, such reference shall be to a Section or
Exhibit of this Agreement, respectively, unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". Unless the context otherwise requires, the use of the
singular shall include the plural, the use of the masculine shall include the
feminine, and vice versa. As used in this Agreement, the antecedent of any
personal pronoun shall be deemed to be only the next preceding proper noun or
nouns, as appropriate for such pronoun. As used in this Agreement, any
reference to any law, rule or regulation shall be deemed to include a
reference to any amendments, revisions or successor provisions to such law,
rule or regulation.
Section 10.6. Counterparts; Effect. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 10.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Notwithstanding the foregoing and any other provision of this Agreement, and
in addition to any other required action of the Board of Directors of LG&E
Energy, (a) a majority of the directors (or their successors) serving on the
Board of Directors of the Company who are designated by KU Energy pursuant to
Section 7.13 shall be entitled during the three year period commencing at the
Effective Time (the "Three Year Period") to enforce the provisions of Section
7.9, Section 7.10, Section 7.11, Section 7.14 and Section 7.15 on behalf of
the KU Energy officers, directors and employees, as the case may be, and (b) a
majority of the directors (or their successors) serving on the Board of
Directors of the Company who are designated by LG&E Energy pursuant to Section
7.13 shall be entitled during the Three Year Period to enforce the provisions
of Section 7.9, Section 7.10, Section 7.11, Section 7.14 and Section 7.15 on
behalf of the LG&E Energy officers, directors and employees, as the case may
be. Such directors' rights and remedies under the preceding sentence are
cumulative and are in addition to any other rights and remedies they may have
at law or in equity, but in no event shall this Section 10.7 be deemed to
impose any additional duties on any such directors. The Company shall pay, at
the time they are incurred, all costs, fees and expenses of such directors
incurred in connection with the assertion of any rights on behalf of the
persons set forth above pursuant to this Section 10.7.
Section 10.8. Waiver of Jury Trial and Certain Damages. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (i) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (ii) except with
respect to Section 9.3, which shall not be limited in any way, any right it
may have to receive damages from any other party based on any theory of
liability for any special, indirect, consequential (including lost profits) or
punitive damages.
Section 10.9. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the Commonwealth of Kentucky or in Kentucky state
court, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
Commonwealth of Kentucky or any Kentucky state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal or state court sitting in the Commonwealth of Kentucky.
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<PAGE>
IN WITNESS WHEREOF, LG&E Energy Corp. and KU Energy Corporation have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
LG&E Energy Corp.
By: /s/ Roger W. Hale
-----------------
Name: Roger W. Hale
Title: Chairman, President and Chief
Executive Officer
Attest:
/s/ John R. McCall
- -------------------------------------
Secretary
KU Energy Corporation
By: /s/ Michael R. Whitley
----------------------
Name: Michael R. Whitley
Title: Chairman, President and Chief
Executive Officer
Attest:
/s/ George S. Brooks II
- -------------------------------------
Secretary
A-48
<PAGE>
EXHIBIT A TO MERGER AGREEMENT
FORM OF KU ENERGY
STOCK OPTION AGREEMENT
SEE ANNEX C TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-49
<PAGE>
EXHIBIT B TO MERGER AGREEMENT
FORM OF LG&E ENERGY
STOCK OPTION AGREEMENT
SEE ANNEX B TO THE
JOINT PROXY STATEMENT/PROSPECTUS
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<PAGE>
EXHIBIT C-1 TO MERGER AGREEMENT
KU ENERGY CORPORATION AFFILIATE AGREEMENT
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of KU Energy Corporation, a Kentucky corporation ("KU Energy"), as
the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series Releases 130 and 135, as amended, of the Commission.
Pursuant to the terms of the Agreement and Plan of Merger dated as of May 20,
1997 (the "Agreement"), between LG&E Energy Corp., a Kentucky corporation
("LG&E Energy"), and KU Energy, KU Energy will be merged with and into LG&E
Energy (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, without par
value, of LG&E Energy ("LG&E Energy Common Stock") in exchange for shares
owned by me of Common Stock, no par value, of KU Energy ("KU Energy Common
Stock"). The LG&E Energy Common Stock together with the associated purchase
rights (the "LG&E Energy Rights") received in exchange for shares of LG&E
Energy Common Stock are referred to herein collectively as the "LG&E Energy
Securities".
I represent, warrant and covenant to LG&E Energy and KU Energy that in the
event I receive any LG&E Energy Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the LG&E
Energy Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed its
requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of LG&E Energy Securities, to the extent I
felt necessary, with my counsel or counsel for KU Energy.
C. I have been advised that the issuance of LG&E Energy Securities to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger was submitted for a vote of
the stockholders of KU Energy, (a) I may be deemed to have been an
affiliate of KU Energy and (b) the distribution by me of the LG&E Energy
Securities has not been registered under the Act, I may not sell, transfer
or otherwise dispose of LG&E Energy Securities issued to me in the Merger
unless (i) such sale, transfer or other disposition has been registered
under the Act, (ii) such sale, transfer or other disposition is made in
conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to LG&E Energy, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
D. I understand that, except as provided in the Agreement in Section
7.11, LG&E Energy is under no obligation to register the sale, transfer or
other disposition of the LG&E Energy Securities by me or on my behalf under
the Act or to take any other action necessary in order to make compliance
with an exemption from such registration available.
E. I also understand that stop transfer instructions will be given to
LG&E Energy's transfer agents with respect to the LG&E Energy Securities
and that there will be placed on the certificates for the LG&E Energy
Securities issued to me, or any substitutions therefor, a legend stating in
substance:
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<PAGE>
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated
, 199 between the registered holder hereof and LG&E
Energy, a copy of which agreement is on file at the principal offices
of LG&E Energy."
F. I also understand that unless the transfer by me of my LG&E Energy
Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, LG&E Energy reserves the right
to put the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. The shares have been acquired
by the holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933
and may not be sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements of the
Securities Act of 1933."
It is understood and agreed that the legend set forth in paragraph E or F
above, as the case may be, shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to
LG&E Energy a copy of a letter from the staff of the Commission, or an opinion
of counsel in form and substance reasonably satisfactory to LG&E Energy, to
the effect that such legend is not required for purposes of the Act.
I further represent to and covenant with LG&E Energy and KU Energy that I
have not, within the 30 days prior to the Effective Time (as defined in the
Agreement), sold, transferred or otherwise disposed of any shares of the
capital stock of KU Energy or LG&E Energy held by me and that I will not sell,
transfer or otherwise dispose of any shares of LG&E Energy Securities received
by me in the Merger or other shares of the capital stock of LG&E Energy owned
at the Effective Time until after such time as results covering at least 30
days of combined operations of KU Energy and LG&E Energy have been published
by LG&E Energy, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the Commission
on Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which
includes the combined results of operations.
By its acceptance hereof, LG&E Energy agrees, for a period of two years
after the Effective Time (as defined in the Agreement), that it, as the
surviving corporation, will file on a timely basis all reports required to be
filed by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, so that the public information provisions of Rule 144(c) under the
Act are satisfied and the resale provisions of Rules 145(d)(1) and (2) under
the Act are therefore available to me in the event I desire to transfer any
LG&E Energy Securities issued to me in the Merger.
By signing this letter, without limiting or abrogating my agreements set
forth above, I do not admit that I am an "affiliate" of KU Energy within the
meaning of the Act or the Rules and Regulations, and I do not waive any right
I may have to object to any assertion that I am such an affiliate.
Very truly yours,
-------------------------------------
Name:
Accepted this day of
, 199 , by
KU Energy Corporation
By: _________________________________
Name: Michael R. Whitley
Title:Chairman and Chief Executive
Officer
LG&E Energy Corp.
By: ________________________________
Name: Roger W. Hale
Title:Chairman and Chief Executive
Officer
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<PAGE>
EXHIBIT C-2 TO MERGER AGREEMENT
LG&E ENERGY CORP. AFFILIATE AGREEMENT
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of LG&E Energy Corp., a Kentucky corporation ("LG&E Energy"), as
the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series Releases 130 and 135, as amended, of the Commission.
Pursuant to the terms of the Agreement and Plan of Merger dated as of May 20,
1997 (the "Agreement"), between LG&E Energy and KU Energy Corporation, a
Kentucky corporation ("KU Energy"), KU Energy will be merged with and into
LG&E Energy (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, without par
value, of LG&E Energy ("LG&E Energy Common Stock") in exchange for shares
owned by me of Common Stock, no par value, of KU Energy ("KU Energy Common
Stock"). The LG&E Energy Common Stock together with the associated purchase
rights (the "LG&E Energy Rights") received in exchange for shares of LG&E
Energy Common Stock are referred to herein collectively as the "LG&E Energy
Securities".
I represent, warrant and covenant to LG&E Energy and KU Energy that in the
event I receive any LG&E Energy Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the LG&E
Energy Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed its
requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of LG&E Energy Securities, to the extent I
felt necessary, with my counsel or counsel for LG&E Energy.
C. I have been advised that the issuance of LG&E Energy Securities to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger was submitted for a vote of
the stockholders of KU Energy, (a) I may be deemed to have been an
affiliate of LG&E Energy and (b) the distribution by me of the LG&E Energy
Securities has not been registered under the Act, I may not sell, transfer
or otherwise dispose of LG&E Energy Securities issued to me in the Merger
unless (i) such sale, transfer or other disposition has been registered
under the Act, (ii) such sale, transfer or other disposition is made in
conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to LG&E Energy, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
D. I understand that, except as provided in the Agreement in Section
7.11, LG&E Energy is under no obligation to register the sale, transfer or
other disposition of the LG&E Energy Securities by me or on my behalf under
the Act or to take any other action necessary in order to make compliance
with an exemption from such registration available.
E. I also understand that stop transfer instructions will be given to
LG&E Energy's transfer agents with respect to the LG&E Energy Securities
and that there will be placed on the certificates for the LG&E Energy
Securities issued to me, or any substitutions therefor, a legend stating in
substance:
A-53
<PAGE>
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated
, 199 between the registered holder hereof and LG&E
Energy, a copy of which agreement is on file at the principal offices
of LG&E Energy."
F. I also understand that unless the transfer by me of my LG&E Energy
Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, LG&E Energy reserves the right
to put the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. The shares have been acquired
by the holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933
and may not be sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements of the
Securities Act of 1933."
It is understood and agreed that the legend set forth in paragraph E or F
above, as the case may be, shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to
LG&E Energy a copy of a letter from the staff of the Commission, or an opinion
of counsel in form and substance reasonably satisfactory to LG&E Energy, to
the effect that such legend is not required for purposes of the Act.
I further represent to and covenant with LG&E Energy and KU Energy that I
have not, within the 30 days prior to the Effective Time (as defined in the
Agreement), sold, transferred or otherwise disposed of any shares of the
capital stock of LG&E Energy or KU Energy held by me and that I will not sell,
transfer or otherwise dispose of any shares of LG&E Energy Securities received
by me in the Merger or other shares of the capital stock of LG&E Energy owned
at the Effective Time until after such time as results covering at least 30
days of combined operations of KU Energy and LG&E Energy have been published
by LG&E Energy, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the Commission
on Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which
includes the combined results of operations.
By its acceptance hereof, LG&E Energy agrees, for a period of two years
after the Effective Time (as defined in the Agreement), that it, as the
surviving corporation, will file on a timely basis all reports required to be
filed by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, so that the public information provisions of Rule 144(c) under the
Act are satisfied and the resale provisions of Rules 145(d)(1) and (2) under
the Act are therefore available to me in the event I desire to transfer any
LG&E Energy Securities issued to me in the Merger.
By signing this letter, without limiting or abrogating my agreements set
forth above, I do not admit that I am an "affiliate" of KU Energy within the
meaning of the Act or the Rules and Regulations, and I do not waive any right
I may have to object to any assertion that I am such an affiliate.
Very truly yours,
-------------------------------------
Name:
Accepted this day of
, 199 , by
LG&E Energy Corp.
By: ________________________________
Name: Roger W. Hale
Title:Chairman and Chief
Executive Officer
KU Energy Corporation
By: _________________________________
Name: Michael R. Whitley
Title:Chairman and Chief
Executive Officer
A-54
<PAGE>
EXHIBIT D TO MERGER AGREEMENT
FORM OF EMPLOYMENT AGREEMENT
FOR CHAIRMAN OF THE BOARD AND CEO
SEE ANNEX D TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-55
<PAGE>
EXHIBIT E TO MERGER AGREEMENT
FORM OF EMPLOYMENT AGREEMENT
FOR VICE CHAIRMAN OF THE BOARD,
PRESIDENT AND COO
SEE ANNEX E TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-56
<PAGE>
EXHIBIT F TO MERGER AGREEMENT
FORM OF BYLAWS OF
LG&E ENERGY CORP.
SEE ANNEX I TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-57
<PAGE>
ANNEX B
LG&E ENERGY CORP. STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 20, 1997 by and between KU Energy
Corporation, a Kentucky corporation ("KU Energy"), and LG&E Energy Corp., a
Kentucky corporation ("LG&E Energy").
WHEREAS, concurrently with the execution and delivery of this Agreement, KU
Energy and LG&E Energy are entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
merger of KU Energy with and into LG&E Energy (the "Merger"); and
WHEREAS, as a condition to KU Energy's willingness to enter into the Merger
Agreement, KU Energy has requested that LG&E Energy agree, and LG&E Energy has
so agreed, to grant to KU Energy an option with respect to certain shares of
LG&E Energy's common stock, on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, to induce KU Energy to enter into the Merger Agreement, and
in consideration of the mutual covenants and agreements set forth herein and
in the Merger Agreement, the parties hereto agree as follows:
1. Grant of Option. LG&E Energy hereby grants KU Energy an irrevocable
option (the "LG&E Energy Option") to purchase up to 13,230,490 shares, subject
to adjustment as provided in Section 11 (such shares being referred to herein
as the "LG&E Energy Shares") of common stock, without par value, of LG&E
Energy (the "LG&E Energy Common Stock") (being 19.9% of the number of shares
of LG&E Energy Common Stock outstanding on the date hereof), together with the
associated purchase rights (the "LG&E Energy Rights"), issued pursuant to the
LG&E Energy Rights Agreement referred to in Section 5.19 of the Merger
Agreement (the "LG&E Energy Rights Agreement"), in the manner set forth below
at a price (the "Exercise Price") per LG&E Energy Share of $24.45 (which is
equal to the Fair Market Value (as defined below) of a LG&E Energy Share on
the date hereof), payable at KU Energy's option, (a) in cash or (b) subject to
the receipt of the approvals of any Governmental Authority required for LG&E
Energy to acquire the KU Energy Shares (as defined below) from KU Energy, and
for KU Energy to issue the KU Energy Shares to LG&E Energy, which approvals
LG&E Energy and KU Energy shall use their respective best efforts to obtain,
in shares of common stock, without par value, of KU Energy (the "KU Energy
Shares"), in either case in accordance with Section 4 hereof. Notwithstanding
the foregoing, in no event shall the number of LG&E Energy Shares for which
the LG&E Energy Option is exercisable exceed 19.9% of the number of issued and
outstanding shares of LG&E Energy Common Stock. As used herein, the "Fair
Market Value" of any share shall be the average of the daily closing sales
price for such share on the New York Stock Exchange (the "NYSE") during the 10
NYSE trading days prior to the fifth NYSE trading day preceding the date such
Fair Market Value is to be determined. Capitalized terms used herein but not
defined herein shall have the meanings set forth in the Merger Agreement.
2. Exercise of Option. The LG&E Energy Option may be exercised by KU Energy,
in whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by KU Energy under circumstances which could
entitle KU Energy to termination fees under either Section 9.3(a) of the
Merger Agreement (provided that the events specified in Section 9.3(a)(ii)(x)
of the Merger Agreement shall have occurred, although the events specified in
Section 9.3.(a)(ii)(y) thereof need not have occurred) or Section 9.3(b) of
the Merger Agreement (regardless of whether the Merger Agreement is actually
terminated or whether there occurs a closing of any Business Combination
involving a LG&E Energy Target Party or a closing by which a LG&E Energy
Target Party becomes a subsidiary), any such event by which the Merger
Agreement becomes so terminable by KU Energy being referred to herein as a
"Trigger Event." LG&E Energy shall notify KU Energy promptly in writing of the
occurrence of any Trigger Event, it being understood that the giving of such
notice by LG&E Energy shall not be a condition to the right of KU Energy to
exercise the LG&E Energy Option. In the
B-1
<PAGE>
event KU Energy wishes to exercise the LG&E Energy Option, KU Energy shall
deliver to LG&E Energy a written notice (an "Exercise Notice") specifying the
total number of LG&E Energy Shares it wishes to purchase. If at the time of
issuance of any LG&E Energy Shares pursuant to an exercise of all or part of
the LG&E Energy Option hereunder, LG&E Energy shall not have redeemed the LG&E
Energy Rights, or shall have issued any similar securities, then each LG&E
Energy Share issued pursuant to such exercise shall also represent LG&E Energy
Rights or new rights with terms substantially the same as and at least as
favorable to KU Energy as are provided under the LG&E Energy Rights Agreement
or any similar agreement then in effect. Each closing of a purchase of LG&E
Energy Shares (a "Closing") shall occur at a place, on a date and at a time
designated by KU Energy in an Exercise Notice delivered at least two business
days prior to the date of the Closing. The LG&E Energy Option shall terminate
upon the earlier of: (i) the Effective Time; (ii) the termination of the
Merger Agreement pursuant to Section 9.1 thereof (other than upon or during
the continuance of a Trigger Event); or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a
Trigger Event (or if, at the expiration of such 180 day period the LG&E Energy
Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, 10 business days after such impediment to exercise
shall have been removed or shall have become final and not subject to appeal,
but in no event under this clause (iii) later than the third anniversary of
the date hereof). Notwithstanding the foregoing, the LG&E Energy Option may
not be exercised if KU Energy is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement. Upon
the giving by KU Energy to LG&E Energy of the Exercise Notice and the tender
of the applicable aggregate Exercise Price, KU Energy shall be deemed to be
the holder of record of the LG&E Energy Shares issuable upon such exercise,
notwithstanding that the stock transfer books of LG&E Energy shall then be
closed or that certificates representing such LG&E Energy Shares shall not
then be actually delivered to KU Energy.
3. Conditions to Closing. The obligation of LG&E Energy to issue the LG&E
Energy Shares to KU Energy hereunder is subject to the conditions, which
(other than the conditions described in clauses (i), (iii) and (iv) below) may
be waived by LG&E Energy in its sole discretion, that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the LG&E Energy
Shares hereunder shall have expired or have been terminated; (ii) the LG&E
Energy Shares, and any KU Energy Shares which are issued in payment of the
Exercise Price, shall have been approved for listing on the NYSE upon official
notice of issuance; (iii) all consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any federal, state or
local administrative agency or commission or other federal state or local
Governmental Authority, if any, required in connection with the issuance of
the LG&E Energy Shares or the acquisition of such LG&E Energy Shares by KU
Energy hereunder shall have been obtained or made, as the case may be,
including, without limitation, the approval of, if applicable, the issuance of
KU Energy Shares to LG&E Energy and the acquisition by LG&E Energy of the KU
Energy Shares constituting the Exercise Price hereunder and approval of the
SEC under the 1935 Act of the acquisition of the LG&E Energy Shares by KU
Energy; and (iv) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
4. Closing. At any Closing, (a) LG&E Energy will deliver to KU Energy or its
designee a single certificate in definitive form representing the number of
the LG&E Energy Shares designated by KU Energy in its Exercise Notice, such
certificate to be registered in the name of KU Energy and to bear the legend
set forth in Section 12 and (b) KU Energy will deliver to LG&E Energy the
aggregate Exercise Price for the LG&E Energy Shares so designated and being
purchased by (i) wire transfer of immediately available funds or certified
check or bank check or (ii) subject to the condition in Section 1(b), a
certificate or certificates representing the number of KU Energy Shares being
issued by KU Energy in consideration thereof, as the case may be. For the
purposes of this Agreement, the number of KU Energy Shares to be delivered to
LG&E Energy shall be equal to the quotient obtained by dividing (i) the
product of (x) the number of LG&E Energy Shares with respect to which the LG&E
Energy Option is being exercised and (y) the Exercise Price by (ii) the Fair
Market Value of the KU Energy Shares on the date immediately preceding the
date the Exercise Notice is delivered to LG&E Energy.
B-2
<PAGE>
LG&E Energy shall pay all expenses, and any and all United States federal,
state and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this Section 4
in the name of KU Energy or such of its designees as shall have obtained
appropriate regulatory approval.
5. Representations and Warranties of LG&E Energy. LG&E Energy represents and
warrants to KU Energy that (a) LG&E Energy is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by LG&E Energy and the consummation by LG&E Energy
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of LG&E Energy and no other corporate
proceedings on the part of LG&E Energy are necessary to authorize this
Agreement or any of the transactions contemplated hereby, (c) LG&E Energy has
taken all necessary corporate or other action (including the approval of the
Board of Directors of LG&E Energy) to render inapplicable to this Agreement
and the Merger Agreement and the transactions contemplated hereby and thereby,
the provisions of the BCA referred to in Section 5.15 of the Merger Agreement
and the LG&E Energy Rights Agreement, (d) this Agreement has been duly
executed and delivered by LG&E Energy, constitutes a valid and binding
obligation of LG&E Energy and, assuming this Agreement constitutes a valid and
binding obligation of KU Energy, is enforceable against LG&E Energy in
accordance with its terms, (e) LG&E Energy has taken all necessary corporate
action to authorize and reserve for issuance and to permit it to issue, upon
exercise of the LG&E Energy Option in accordance with its terms, and at all
times from the date hereof through the expiration of the LG&E Energy Option
will have reserved, 13,230,490 authorized and unissued LG&E Energy Shares,
such amount being subject to adjustment as provided in Section 11, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable, (f) upon
delivery of the LG&E Energy Shares to KU Energy upon the exercise of the LG&E
Energy Option in accordance with its terms, KU Energy will acquire the LG&E
Energy Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (g) except as described in
Section 5.4(b) or (c) of the Merger Agreement and subject to the satisfaction
of the conditions set forth in Section 3 hereof, the execution and delivery of
this Agreement by LG&E Energy does not, and the consummation by LG&E Energy of
the transactions contemplated hereby will not, violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or lapse of time, or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security interest
or other encumbrance on assets (any such conflict, violation, default, right
of termination, cancellation or acceleration, loss or creation, a "Violation")
of LG&E Energy or any of its subsidiaries, pursuant to, (A) any provision of
the Amended and Restated Articles of Incorporation or bylaws of LG&E Energy,
(B) any provisions of any loan or credit agreement, note, mortgage, indenture,
lease, LG&E Energy benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license or (C) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to LG&E Energy or its
properties or assets, which Violation, in the case of each of clauses (B) and
(C), could reasonably be expected to have a material adverse effect on LG&E
Energy and its subsidiaries taken as a whole, (h) except as described in
Section 5.4(c) of the Merger Agreement or Section 1(b) or Section 3 hereof,
the execution and delivery of this Agreement by LG&E Energy does not, and the
performance of this Agreement by LG&E Energy will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, (i) none of LG&E Energy, any of its affiliates or
anyone acting on its or their behalf has issued, sold or offered any security
of LG&E Energy to any person under circumstances that would cause the issuance
and sale of the LG&E Energy Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect on
the date hereof and, assuming the representations of KU Energy contained in
Section 6(h) hereof are true and correct, the issuance, sale and delivery of
the LG&E Energy Shares hereunder would be exempt from the registration and
prospectus delivery requirements of the Securities Act, as in effect on the
date hereof (and LG&E Energy shall not take any action which would cause the
issuance, sale and delivery of the LG&E Energy Shares hereunder not to be
exempt from such requirements), and (j) any KU Energy Shares acquired pursuant
to this Agreement will be acquired for LG&E Energy's own account, for
investment purposes
B-3
<PAGE>
only and will not be acquired by LG&E Energy with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
6. Representations and Warranties of KU Energy. KU Energy represents and
warrants to LG&E Energy that (a) KU Energy is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by KU Energy and the consummation by KU Energy of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of KU Energy and no other corporate
proceedings on the part of KU Energy are necessary to authorize this Agreement
or any of the transactions contemplated hereby, (c) this Agreement has been
duly executed and delivered by KU Energy and constitutes a valid and binding
obligation of KU Energy, and, assuming this Agreement constitutes a valid and
binding obligation of LG&E Energy, is enforceable against KU Energy in
accordance with its terms, (d) prior to any delivery of KU Energy Shares in
consideration of the purchase of LG&E Energy Shares pursuant hereto, KU Energy
will have taken all necessary corporate action to authorize for issuance and
to permit it to issue such KU Energy Shares all of which, upon their issuance
and delivery in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, and to render inapplicable to the
receipt by LG&E Energy of the KU Energy Shares the provisions of the BCA
referred to in Section 4.15 of the Merger Agreement and the KU Energy Rights
Agreement referred to in Section 4.19 of the Merger Agreement, (e) upon any
delivery of such KU Energy Shares to LG&E Energy in consideration of the
purchase of LG&E Energy Shares pursuant hereto, LG&E Energy will acquire the
KU Energy Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever, (f) except as described in
Section 4.4(b) of the Merger Agreement and subject to the satisfaction of the
conditions set forth in Section 3 hereof, the execution and delivery of this
Agreement by KU Energy does not, and the consummation by KU Energy of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or lapse of time, or both) under, or result in any Violation by KU
Energy or any of its subsidiaries, pursuant to (A) any provision of the
Restated Articles of Incorporation or bylaws of KU Energy, (B) any provisions
of any loan or credit agreement, note, mortgage, indenture, lease, KU Energy
benefit plan or other agreement, obligation, instrument, permit, concession,
franchise, license or (C) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to KU Energy or its properties or
assets, which Violation, in the case of each of clauses (B) and (C), would
have a material adverse effect on KU Energy and its subsidiaries taken as a
whole, (g) except as described in Section 4.4(c) of the Merger Agreement or
Section 1(b) or Section 3 hereof, the execution and delivery of this Agreement
by KU Energy does not, and the consummation by KU Energy of the transactions
contemplated hereby will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority and
(h) any LG&E Energy Shares acquired upon exercise of the LG&E Energy Option
will be acquired for KU Energy's own account, for investment purposes only and
will not be, and the LG&E Energy Option is not being, acquired by KU Energy
with a view to the public distribution thereof in violation of any applicable
provision of the Securities Act.
7. Certain Repurchases.
(a) KU Energy Put. At the request of KU Energy by written notice at any
time during which the LG&E Energy Option is exercisable pursuant to Section
2 (the "Repurchase Period"), LG&E Energy (or any successor entity thereof)
shall repurchase from KU Energy all or any portion of the LG&E Energy
Option, at the price set forth in subparagraph (i) below, or, at the
request of KU Energy by written notice at any time prior to May 20, 1999
(provided that such date shall be extended to November 20, 1999 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 9.1(b) of the Merger Agreement has
been extended to November 20, 1999), LG&E Energy (or any successor entity
thereof) shall repurchase from KU Energy all or any portion of the LG&E
Energy Shares purchased by KU Energy pursuant to the LG&E Energy Option, at
the price set forth in subparagraph (ii) below:
(i) the difference between (x) the "Market/Offer Price" for shares of
LG&E Energy Common Stock as of the date KU Energy gives notice of its
intent to exercise its rights under this Section 7
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<PAGE>
(defined as the higher of (A) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with
respect to a Business Combination which was made prior to such date and
not terminated or withdrawn as of such date (the "Offer Price") and (B)
the Fair Market Value of LG&E Energy Common Stock as of such date (the
"Market Price")) and the (y) Exercise Price, multiplied by the number
of LG&E Energy Shares purchasable pursuant to the LG&E Energy Option
(or portion thereof with respect to which KU Energy is exercising its
rights under this Section 7), but only if the Market/Offer Price is
greater than the Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by KU
Energy per LG&E Energy Share acquired pursuant to the LG&E Energy
Option and (B) the difference between the Market/Offer Price and the
Exercise Price, but only if the Market/Offer Price is greater than the
Exercise Price, and (y) the number of LG&E Energy Shares so to be
repurchased pursuant to this Section 7. For purposes of this clause
(ii), the Offer Price shall be the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination
offer during the Repurchase Period prior to the delivery by KU Energy
of a notice of repurchase.
(b) Redelivery of KU Energy Shares. If KU Energy elected to purchase LG&E
Energy Shares pursuant to the exercise of the LG&E Energy Option by the
issuance and delivery of KU Energy Shares, then LG&E Energy shall, if so
requested by KU Energy, in fulfillment of its obligation pursuant to clause
(A) of Section 7(a)(ii)(x) (that is, with respect to the Exercise Price
only and without limitation to its obligation to pay additional
consideration under clause (B) of Section 7(a)(ii)(x)), redeliver the
certificate for such KU Energy Shares to KU Energy, free and clear of all
liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if less than all of the LG&E Energy
Shares purchased by KU Energy pursuant to the LG&E Energy Option are to be
repurchased pursuant to this Section 7, then KU Energy shall issue to LG&E
Energy a new certificate representing those KU Energy Shares which are not
due to be redelivered to KU Energy pursuant to this Section 7 as they
constituted payment of the Exercise Price for the LG&E Energy Shares not
being repurchased.
(c) Payment and Redelivery of LG&E Energy Option or Shares. In the event
KU Energy exercises its rights under this Section 7, LG&E Energy shall,
within 10 business days thereafter, pay the required amount to KU Energy in
immediately available funds and KU Energy shall surrender to LG&E Energy
the LG&E Energy Option or the certificates evidencing the LG&E Energy
Shares purchased by KU Energy pursuant thereto, and KU Energy shall warrant
that it owns the LG&E Energy Option or such shares and that the LG&E Energy
Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
(d) KU Energy Call. If KU Energy has elected to purchase LG&E Energy
Shares pursuant to the exercise of LG&E Energy Option by the issuance and
delivery of KU Energy Shares, notwithstanding that KU Energy may no longer
hold any such LG&E Energy Shares or that KU Energy elects not to exercise
its other rights under this Section 7, KU Energy may require, at any time
or from time to time prior to May 20, 1999 (provided that such date shall
be extended to November 20, 1999 under the circumstances where the date
after which either party may terminate the Merger Agreement pursuant to
Section 9.1(b) of the Merger Agreement has been extended to November 20,
1999), LG&E Energy sell to KU Energy any such KU Energy Shares at the price
attributed to such KU Energy Shares pursuant to Section 4 plus interest at
the rate to 7% per annum on such amount from the Closing Date relating to
the exchange of such KU Energy Shares pursuant to Section 4 to the closing
date under this Section 7(d) less any dividends on such KU Energy Shares
paid during such period or declared and payable to stockholders of record
on a date during such period.
8. Voting of Shares. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement, including any KU Energy Shares issued pursuant to Section
1(b) ("Restricted Shares") or otherwise beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities
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Exchange Act of 1934, as amended the ("Exchange Act")) by such party on each
matter submitted to a vote of shareholders of such other party for and against
such matter in the same proportion as the vote of all other shareholders of
such other party are voted (whether by proxy or otherwise) for and against
such matter.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date, neither party
shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or
(ii) in accordance with Section 9(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger Agreement, a
party shall be permitted to sell any Restricted Shares beneficially owned
by it if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended, or otherwise determined to be fair to and in
the best interests of the shareholders of the other party, by a majority of
the members of the Board of Directors of such other party, which majority
shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer.
10. Registration Rights. Following the termination of the Merger Agreement,
each party hereto (a "Designated Holder") may by written notice (the
"Registration Notice") to the other party (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering in which the Designated Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their best efforts to prevent any person (including
any Group (as used in Rule 13d-5 under the Exchange Act)) and its affiliates
from purchasing through such offering Restricted Shares representing more than
1% of the outstanding shares of common stock of the Registrant on a fully
diluted basis (a "Permitted Offering"). The Registration Notice shall include
a certificate executed by the Designated Holder and its proposed managing
underwriter, which underwriter shall be an investment banking firm of
nationally recognized standing (the "Manager"), stating that (i) they have a
good faith intention to commence promptly a Permitted Offering and (ii) the
Manager in good faith believes that, based on the then prevailing market
conditions, it will be able to sell the Registrable Securities at a per share
price equal to at least 80% of the then Fair Market Value of such shares. The
Registrant (and/or any person designated by the Registrant) shall thereupon
have the option exercisable by written notice delivered to the Designated
Holder within 10 business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable Securities
proposed to be so sold for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities to be so purchased by the
Registrant and (ii) the then Fair Market Value of such shares. Any such
purchase of Registrable Securities by the Registrant (or its designee)
hereunder shall take place at a closing to be held at the principal executive
offices of the Registrant or at the offices of its counsel at any reasonable
date and time designated by the Registrant and/or such designee in such notice
within 20 business days after delivery of such notice. Any payment for the
shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 10 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be entitled to more than
an aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any period of time (not to exceed 40 days after such request in the case of
clause (A) below or 90 days in the case of clauses (B) and (C) below) when (A)
the Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the opinion of counsel to the Registrant, such information would have to be
disclosed if a registration statement were filed at that time; (B) the
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration
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statement and such financial statements are not yet available for inclusion in
such registration statement; or (C) the Registrant determines, in its
reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the Registrant
or any of its affiliates. The Registrant shall use its reasonable best efforts
to cause any Registrable Securities registered pursuant to this Section 10 to
be qualified for sale under the securities or Blue-Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
provided, however, that the Registrant shall not be required to qualify to do
business in, or to consent to general service of process in, any jurisdiction
by reason of this provision.
The registration rights set forth in this Section 10 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement
all material facts required to be disclosed with respect to a registration
thereunder.
A registration effected under this Section 10 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as are
customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such registration,
the parties agree (i) to indemnify each other and the underwriters in the
customary manner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering and (iii) to take all
further actions which shall be reasonably necessary to effect such
registration and sale (including, if the Manager deems it necessary,
participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this Section
10 only if and to the extent the Manager determines that such inclusion will
not adversely affect the prospects for success of such offering.
11. Adjustment Upon Changes in Capitalization. Without limitation to any
restriction on LG&E Energy contained in this Agreement or in the Merger
Agreement, in the event of any change in LG&E Energy Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the LG&E Energy Option, and the purchase price per share
provided in Section 1, shall be adjusted appropriately to restore to KU Energy
its rights hereunder, including the right to purchase from LG&E Energy (or its
successors) shares of LG&E Energy Common Stock representing 19.9% of the
outstanding LG&E Energy Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
12. Restrictive Legends. Each certificate representing shares of LG&E Energy
Common Stock issued to KU Energy hereunder, and KU Energy Shares, if any,
delivered to LG&E Energy at a Closing, shall include a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF MAY 20, 1997, A COPY OF WHICH
MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if KU Energy or
LG&E Energy, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the Securities and Exchange Commission, or
an opinion of counsel, in form and substance satisfactory to the other
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<PAGE>
party, to the effect that such legend is not required for purposes of the
Securities Act; (ii) the reference to the provisions of this Agreement in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance with
the provisions of this Agreement and in circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may
be required by law, Certificates representing shares sold in a registered
public offering pursuant to Section 10 shall not be required to bear the
legend forth in this Section 12.
13. Binding Effect; No Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, expressed or implied, is intended to confer upon any person other
than the parties hereto and their respective permitted assigns any rights or
remedies of any nature whatsoever by reason of this Agreement. Any Restricted
Shares sold by a party in compliance with the provisions of Section 10 shall,
upon consummation of such sale, be free of the restrictions imposed with
respect to such shares by this Agreement; unless and until such party shall
repurchase or otherwise become the beneficial owner of such shares, and any
transferee of such shares shall not be entitled to the registration rights of
such party.
14. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an
adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
15. Entire Agreement. This Agreement, the Confidentiality Agreement and the
Merger Agreement (including the exhibits and schedules thereto) constitute the
entire agreement among the parties with respect to the subject matter, hereof
and thereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof and thereof.
16. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof. If for any reason any such court
or regulatory agency determines that KU Energy is not permitted to acquire, or
LG&E Energy is not permitted to repurchase pursuant to Section 7, the full
number of shares of LG&E Energy Common Stock provided in Section 1 hereof (as
the same may be adjusted), it is the express intention of LG&E Energy to allow
KU Energy to acquire or to require LG&E Energy to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
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18. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent by
reputable overnight courier service, or (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
A.If to KU Energy Corporation, to:
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507
Attention: O.M. Goodlett
Telephone: (606) 367-1104
Telecopy: (606) 367-1199
and a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attention: Robert A. Yolles, Esq.
Telephone: (312) 269-4145
Telecopy: (312) 782-8585
B.If to LG&E Energy Corp., to:
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Attention: Victor A. Staffieri
Telephone: (502) 627-3912
Telecopy: (502) 627-2155
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard I. Beattie, Esq.
Telephone: (212) 455-2635
Telecopy: (212) 455-2502
and
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
Attention: Peter D. Clarke, Esq.
Telephone: (312) 245-8685
Telecopy: (312) 644-3381
19. Governing Law; Choice of Forum. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky
applicable to agreements made and to be performed entirely within such
Commonwealth and without regard to its choice of law principles. Each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of
any federal court located in the Commonwealth of Kentucky or any Kentucky
state court in the event any dispute arises out of this Agreement or any of
the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal
B-9
<PAGE>
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the
Commonwealth of Kentucky or a Kentucky state court.
20. Interpretation. When a reference is made in this Agreement to a Section
such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but both of which, taken together,
shall constitute one and the same instrument.
22. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
23. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
24. Extension of Time Periods. The time periods for exercise of certain
rights under Sections 2, 6 and 7 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and for the expiration of all statutory waiting periods; and (ii) to the
extent necessary to avoid any liability under Section 16(b) of the Exchange
Act by reason of such exercise.
25. Replacement of LG&E Energy Option. Upon receipt by LG&E Energy of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, LG&E Energy will execute and
deliver a new Agreement of like tenor and date.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
LG&E Energy Corp.
/s/ Roger W. Hale
By: _________________________________
Name: Roger W. Hale
Title: Chairman, President and Chief
Executive Officer
KU Energy Corporation
/s/ Michael R. Whitley
By: _________________________________
Name: Michael R. Whitley
Title: Chairman, President and Chief
Executive Officer
B-11
<PAGE>
ANNEX C
KU ENERGY CORPORATION STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 20, 1997 by and between KU Energy
Corporation, a Kentucky corporation ("KU Energy"), and LG&E Energy Corp., a
Kentucky corporation ("LG&E Energy").
WHEREAS, concurrently with the execution and delivery of this Agreement, KU
Energy and LG&E Energy are entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
merger of KU Energy with and into LG&E Energy (the "Merger"); and
WHEREAS, as a condition to LG&E Energy's willingness to enter into the
Merger Agreement, LG&E Energy has requested that KU Energy agree, and KU
Energy has so agreed, to grant to LG&E Energy an option with respect to
certain shares of KU Energy's common stock, on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, to induce LG&E Energy to enter into the Merger Agreement,
and in consideration of the mutual covenants and agreements set forth herein
and in the Merger Agreement, the parties hereto agree as follows:
1. Grant of Option. KU Energy hereby grants LG&E Energy an irrevocable
option (the "KU Energy Option") to purchase up to 7,525,757 shares, subject to
adjustment as provided in Section 11 (such shares being referred to herein as
the "KU Energy Shares") of common stock, without par value, of KU Energy (the
"KU Energy Common Stock") (being 19.9% of the number of shares of KU Energy
Common Stock outstanding on the date hereof), together with the associated
purchase rights (the "KU Energy Rights"), issued pursuant to the KU Energy
Rights Agreement referred to in Section 4.19 of the Merger Agreement (the "KU
Energy Rights Agreement") in the manner set forth below at a price (the
"Exercise Price") per KU Energy share of $40.8315 (which is equal to the
product of (x) the Fair Market Value (as defined below) of a share of common
stock, without par value, of LG&E Energy (such shares being referred to herein
as the "LG&E Energy Shares") on the date hereof and (y) the Exchange Ratio),
payable, at LG&E Energy's option, (a) in cash or (b) subject to the receipt of
approvals of any Governmental Authority required for KU Energy to acquire LG&E
Energy Shares from LG&E Energy, and for LG&E Energy to issue the LG&E Energy
Shares to KU Energy, which approvals KU Energy and LG&E Energy shall use their
respective best efforts to obtain, in LG&E Energy Shares, in either case in
accordance with Section 4 hereof. Notwithstanding the foregoing, in no event
shall the number of KU Energy Shares for which the KU Energy Option is
exercisable exceed 19.9% of the number of issued and outstanding shares of KU
Energy Common Stock. As used herein, the "Fair Market Value" of any share
shall be the average of the daily closing sales price for such share on the
New York Stock Exchange (the "NYSE") during the 10 NYSE trading days prior to
the fifth NYSE trading day preceding the date such Fair Market Value is to be
determined. Capitalized terms used herein but not defined herein shall have
the meanings set forth in the Merger Agreement.
2. Exercise of Option. The KU Energy option may be exercised by LG&E Energy,
in whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by LG&E Energy under circumstances which could
entitle LG&E Energy to termination fees under either Section 9.3(a) of the
Merger Agreement (provided that the events specified in Section 9.3(a)(ii)(x)
of the Merger Agreement shall have occurred, although the events specified in
Section 9.3(a)(ii)(y) thereof need not have occurred) or Section 9.3(b) of the
Merger Agreement (regardless of whether the Merger Agreement is actually
terminated or whether there occurs a closing of any Business Combination
involving a KU Energy Target Party or a closing by which a KU Energy Target
Party becomes a subsidiary), any such event by which the Merger Agreement
becomes so terminable by LG&E Energy being referred to herein as a "Trigger
Event." KU Energy shall notify LG&E Energy promptly in writing of the
occurrence of any Trigger Event, it being understood that the giving of such
notice by KU Energy shall not be a condition to the right of LG&E Energy to
exercise the KU Energy Option.
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<PAGE>
In the event LG&E Energy wishes to exercise the KU Energy Option, LG&E Energy
shall deliver to KU Energy a written notice (an "Exercise Notice") specifying
the total number of KU Energy Shares it wishes to purchase. If at the time of
issuance of any KU Energy Shares pursuant to an exercise of all or part of the
KU Energy Option hereunder, KU Energy shall not have redeemed the KU Energy
Rights, or shall have issued any similar securities, then each KU Energy Share
issued pursuant to such exercise shall also represent KU Energy Rights or new
rights with terms substantially the same as and at least as favorable to LG&E
Energy as are provided under the KU Energy Rights Agreement or any similar
agreement then in effect. Each closing of a purchase of KU Energy Shares (a
"Closing") shall occur at a place, on a date and at a time designated by LG&E
Energy in an Exercise Notice delivered at least two business days prior to the
date of the Closing. The KU Energy Option shall terminate upon the earlier of:
(i) the Effective Time; (ii) the termination of the Merger Agreement pursuant
to Section 9.1 thereof (other than upon or during the continuance of a Trigger
Event); or (iii) 180 days following any termination of the Merger Agreement
upon or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period the KU Energy Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, 10 business days after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal, but in no event under this clause (iii) later than
the third anniversary of the date hereof). Notwithstanding the foregoing, the
KU Energy Option may not be exercised if LG&E Energy is in material breach of
any of its material representations or warranties, or in material breach of
any of its covenants or agreements, contained in this Agreement or in the
Merger Agreement. Upon the giving by LG&E Energy to KU Energy of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, LG&E Energy
shall be deemed to be the holder of record of the KU Energy Shares issuable
upon such exercise, notwithstanding that the stock transfer books of KU Energy
shall then be closed or that certificates representing such KU Energy Shares
shall not then be actually delivered to LG&E Energy.
3. Conditions to Closing. The obligation of KU Energy to issue the KU Energy
Shares to LG&E Energy hereunder is subject to the conditions, which (other
than the conditions described in clauses (i), (iii) and (iv) below) may be
waived by KU Energy in its sole discretion, that (i) all waiting periods, if
any, under the HSR Act, applicable to the issuance of the KU Energy Shares
hereunder shall have expired or have been terminated; (ii) the KU Energy
Shares, and any LG&E Energy Shares which are issued in payment of the Exercise
Price, shall have been approved for listing on the NYSE upon official notice
of issuance; (iii) all consents, approvals, orders or authorizations of or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal state or local
Governmental Authority, if any, required in connection with the issuance of
the KU Energy Shares or the acquisition of such KU Energy Shares by LG&E
Energy hereunder shall have been obtained or made, as the case may be,
including, without limitation, the approval of, if applicable, the issuance of
the LG&E Energy Shares to KU Energy and the acquisition by KU Energy of the
LG&E Energy shares constituting the Exercise Price hereunder, and approval of
the SEC under the 1935 Act of the acquisition of the KU Energy Shares by LG&E
Energy; and (iv) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
4. Closing. At any Closing, (a) KU Energy will deliver to LG&E Energy or its
designee a single certificate in definitive form representing the number of KU
Energy Shares designated by LG&E Energy in its Exercise Notice, such
certificate to be registered in the name of LG&E Energy and to bear the legend
set forth in Section 12 and (b) LG&E Energy will deliver to KU Energy the
aggregate Exercise Price for the KU Energy Shares so designated and being
purchased by (i) wire transfer of immediately available funds or certified
check or bank check or (ii) subject to the condition in Section 1(b), a
certificate or certificates representing the number of LG&E Energy Shares
being issued by LG&E Energy in consideration thereof, as the case may be. For
the purposes of this Agreement, the number of LG&E Energy Shares to be
delivered to KU Energy shall be equal to the quotient obtained by dividing (i)
the product of (x) the number of KU Energy Shares with respect to which the KU
Energy Option is being exercised and (y) the Exercise Price by (ii) the Fair
Market Value of the LG&E Energy Shares of the date immediately preceding the
date the Exercise Notice is delivered to KU Energy. KU Energy shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 4 in the name of LG&E
Energy or such designee of LG&E Energy as shall have obtained appropriate
regulatory approval.
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<PAGE>
5. Representations and Warranties of KU Energy. KU Energy represents and
warrants to LG&E Energy that (a) KU Energy is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by KU Energy and the consummation by KU Energy of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of KU Energy and no other corporate
proceedings on the part of KU Energy are necessary to authorize this Agreement
or any of the transactions contemplated hereby, (c) KU Energy has taken all
necessary corporate or other action (including the approval of the Board of
Directors of KU Energy) to render inapplicable to this Agreement and the
Merger Agreement and the transactions contemplated hereby and thereby, the
provisions of the BCA referred to in Section 4.15 of the Merger Agreement and
the KU Energy Rights Agreement, (d) this Agreement has been duly executed and
delivered by KU Energy, constitutes a valid and binding obligation of KU
Energy and, assuming this Agreement constitutes a valid and binding obligation
of LG&E Energy, is enforceable against KU Energy in accordance with its terms,
(e) KU Energy has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the KU Energy
Option in accordance with its terms, and at all times from the date hereof
through the expiration of the KU Energy Option will have reserved, 7,525,757
authorized and unissued KU Energy Shares, such amount being subject to
adjustment as provided in Section 11, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, (f) upon delivery of the KU Energy
Shares to LG&E Energy upon the exercise of the KU Energy Option in accordance
with its terms, LG&E Energy will acquire the KU Energy shares free and clear
of all claims, liens, charges, encumbrances and security interests of any
nature whatsoever, (g) except as described in Section 4.4(b) or (c) of the
Merger Agreement and subject to the satisfaction of the conditions set forth
in Section 3 hereof, the execution and delivery of this Agreement by KU Energy
does not, and the consummation by KU Energy of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any
provision of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of KU Energy or any of its
subsidiaries, pursuant to, (A) any provision of the Amended and Restated
Articles of Incorporation or bylaws of KU Energy, (B) any provisions of any
loan or credit agreement, note, mortgage, indenture, lease, KU Energy benefit
plan or other agreement, obligation, instrument, permit, concession,
franchise, license or (C) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to KU Energy or its properties or
assets, which Violation, in the case of each of clauses (B) and (C), could
reasonably be expected to have a material adverse effect on KU Energy and its
subsidiaries taken as a whole, (h) except as described in Section 4.4(c) of
the Merger Agreement or Section 1(b) or Section 3 hereof, the execution and
delivery of this Agreement by KU Energy does not, and the performance of this
Agreement by KU Energy will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority,
(i) none of KU Energy, any of its affiliates or anyone acting on its or their
behalf has issued, sold or offered any security of KU Energy to any person
under circumstances that would cause the issuance and sale of the KU Energy
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and,
assuming the representations of LG&E Energy contained in Section 6(h) hereof
are true and correct, the issuance, sale and delivery of the KU Energy Shares
hereunder would be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof (and KU
Energy shall not take any action which would cause the issuance, sale and
delivery of the KU Energy Shares hereunder not to be exempt from such
requirements), and (j) any LG&E Energy Shares acquired pursuant to this
Agreement will be acquired for KU Energy's own account, for investment
purposes only and will not be acquired by KU Energy with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
6. Representations and Warranties of LG&E Energy. LG&E Energy represents and
warrants to KU Energy that (a) LG&E Energy is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and has the corporate power and authority to enter into this
Agreement
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and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by LG&E Energy and the consummation by LG&E Energy of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of LG&E Energy and no other corporate proceedings
on the part of LG&E Energy are necessary to authorize this Agreement or any of
the transactions contemplated hereby, (c) this Agreement has been duly
executed and delivered by LG&E Energy and constitutes a valid and binding
obligation of LG&E Energy, and, assuming this Agreement constitutes a valid
and binding obligation of KU Energy, is enforceable against LG&E Energy in
accordance with its terms, (d) prior to any delivery of LG&E Energy Shares in
consideration of the purchase of KU Energy Shares pursuant hereto, LG&E Energy
will have taken all necessary corporate action to authorize for issuance and
to permit it to issue such LG&E Energy Shares all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, and to render inapplicable to
the receipt by KU Energy of the LG&E Energy Shares the provisions of the BCA
referred to in Section 5.15 of the Merger Agreement and the LG&E Energy Rights
Agreement referred to in Section 5.19 of the Merger Agreement, (e) upon any
delivery of such LG&E Energy Shares to KU Energy in consideration of the
purchase of KU Energy Shares pursuant hereto, KU Energy will acquire the LG&E
Energy Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) except as described in
Section 5.4(b) of the Merger Agreement and subject to the satisfaction of the
conditions set forth in Section 3 hereof, the execution and delivery of this
Agreement by LG&E Energy does not, and the consummation by LG&E Energy of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or lapse of time, or both) under, or result in any Violation by LG&E
Energy or any of its subsidiaries, pursuant to (A) any provision of the
Articles of Incorporation or bylaws of LG&E Energy (B) any provisions of any
loan or credit agreement, note, mortgage, indenture, lease, LG&E Energy
benefit plan or other agreement, obligation, instrument, permit, concession
franchise, license or (C) any judgment order, decree, statute, law, ordinance,
rule or regulation applicable to LG&E Energy or its properties or assets which
Violation, in the case of each of clauses (B) and (C), would have a material
adverse effect on LG&E Energy and its subsidiaries taken as a whole, (g)
except as described in Section 5.4(c) of the Merger Agreement or Section 1(b)
or Section 3 hereof the execution and delivery of this Agreement by LG&E
Energy does not, and the consummation by LG&E Energy of the transactions
contemplated hereby will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority and
(h) any KU Energy Shares acquired upon exercise of the KU Energy Option will
be acquired for LG&E Energy's own account, for investment purposes only and
will not be, and the KU Energy Option is not being, acquired by LG&E Energy
with a view to the public distribution thereof in violation of any applicable
provision of the Securities Act.
7. Certain Repurchases.
(a) LG&E Energy Put. At the request of LG&E Energy by written notice at
any time during which the KU Energy Option is exercisable pursuant to
Section 2 (the "Repurchase Period"), KU Energy (or any successor entity
thereof) shall repurchase from LG&E Energy all or any portion of the KU
Energy Option, at the price set forth in subparagraph (i) below, or, at the
request of LG&E Energy by written notice at any time prior to May 20, 1999
(provided that such date shall be extended to November 20, 1999 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 9.1(b) of the Merger Agreement has
been extended to November 20, 1999), KU Energy (or any successor entity
thereof) shall repurchase from LG&E Energy all or any portion of the KU
Energy Shares purchased by LG&E Energy pursuant to the KU Energy Option, at
the price set forth in subparagraph (ii) below:
(i) the difference between (x) the "Market/Offer Price" for shares of
KU Energy Common Stock as of the date LG&E Energy gives notice of its
intent to exercise its rights under this Section 7 (defined as the
higher of (A) the price per share offered as of such date pursuant to
any tender or exchange offer or other offer with respect to a Business
Combination which was made prior to such date and not terminated or
withdrawn as of such date (the "Offer Price") and (B) the Fair Market
Value of KU Energy Common Stock as of such date (the "Market Price"))
and the (y) Exercise Price, multiplied by the number of KU Energy
Shares purchasable pursuant to the KU Energy Option (or portion thereof
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with respect to which LG&E Energy is exercising its rights under this
Section 7), but only if the Market/Offer Price is greater than the
Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by
LG&E Energy per KU Energy Share acquired pursuant to the KU Energy
Option and (B) the difference between the Market/Offer Price and the
Exercise Price, but only if the Market/Offer Price is greater than the
Exercise Price, and (y) the number of KU Energy Shares so to be
repurchased pursuant to this Section 7. For purposes of this clause
(ii), the Offer Price shall be the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination
offer during the Repurchase Period prior to the delivery by LG&E Energy
of a notice of repurchase.
(b) Redelivery of LG&E Energy Shares. If LG&E Energy elected to purchase
KU Energy Shares pursuant to the exercise of the KU Energy Option by the
issuance and delivery of LG&E Energy Shares, then KU Energy shall, if so
requested by LG&E Energy, in fulfillment of its obligation pursuant to
clause (A) of Section 7(a)(ii)(x) (that is, with respect to the Exercise
Price only and without limitation to its obligation to pay additional
consideration under clause (B) of Section 7(a)(ii)(x)), redeliver the
certificate for such LG&E Energy Shares to LG&E Energy free and clear of
all liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever, provided, however, that if less than all of the KU Energy
Shares purchased by LG&E Energy pursuant to the KU Energy Option are to be
repurchased pursuant to this Section 7, then LG&E Energy shall issue to KU
Energy a new certificate representing those LG&E Energy Shares which are
not due to be redelivered to LG&E Energy pursuant to this Section 7 as they
constituted payment of the Exercise Price for the KU Energy Shares not
being repurchased.
(c) Payment and Redelivery of KU Energy Option or Shares. In the event
LG&E Energy exercises its rights under this Section 7, KU Energy shall,
within 10 business days thereafter, pay the required amount to LG&E Energy
in immediately available funds and LG&E Energy shall surrender to KU Energy
the KU Energy Option or the certificates evidencing the KU Energy Shares
purchased by LG&E Energy pursuant thereto, and LG&E Energy shall warrant
that it owns the KU Energy Option or such shares and that the KU Energy
Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
(d) LG&E Energy Call. If LG&E Energy has elected to purchase KU Energy
Shares pursuant to the exercise of the KU Energy Option by the issuance and
delivery of LG&E Energy Shares, notwithstanding that LG&E Energy may no
longer hold any such KU Energy Shares or that LG&E Energy elects not to
exercise its other rights under this Section 7, LG&E Energy may require, at
any time or from time to time prior to May 20, 1999 (provided that such
date shall be extended to November 20, 1999 under the circumstances where
the date after which either party may terminate the Merger Agreement
pursuant to Section 9.1(b) of the Merger Agreement has been extended to
November 20, 1999), KU Energy to sell to LG&E Energy any such LG&E Energy
Shares at the price attributed to such LG&E Energy Shares pursuant to
Section 4 plus interest at the rate of 7% per annum on such amount from the
Closing Date relating to the exchange of such LG&E Energy Shares pursuant
to Section 4 to the closing date under this Section 7(d) less any dividends
on such LG&E Energy Shares paid during such period or declared and payable
to stockholders of record on a date during such period.
8. Voting of Shares. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement, including any LG&E Energy Shares issued pursuant to Section
1(b) ("Restricted Shares") or otherwise beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date, neither party
shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted
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Shares beneficially owned by such party, other than (i) pursuant to Section
7, or (ii) in accordance with Section 9(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger Agreement, a
party shall be permitted to sell any Restricted Shares beneficially owned
by it if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended, or otherwise determined to be fair to and in
the best interests of the shareholders of the other party, by a majority of
the members of the Board of Directors of such other party, which majority
shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer.
10. Registration Rights. Following the termination of the Merger Agreement,
each party hereto (a "Designated Holder") may by written notice (the
"Registration Notice") to the other party (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering in which the Designated Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their best efforts to prevent any person (including
any Group (as used in Rule 13d-5 under the Exchange Act)) and its affiliates
from purchasing through such offering Restricted Shares representing more than
1% of the outstanding shares of common stock of the Registrant on a fully
diluted basis (a "Permitted Offering"). The Registration Notice shall include
a certificate executed by the Designated Holder and its proposed managing
underwriter, which underwriter shall be an investment banking firm of
nationally recognized standing (the "Manager"), stating that (i) they have a
good faith intention to commence promptly a Permitted Offering and (ii) the
Manager in good faith believes that, based on the then prevailing market
conditions, it will be able to sell the Registrable Securities at a per share
price equal to at least 80% of the then Fair Market Value of such shares. The
Registrant (and/or any person designated by the Registrant) shall thereupon
have the option exercisable by written notice delivered to the Designated
Holder within 10 business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable Securities
proposed to be so sold for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities to be so purchased by the
Registrant and (ii) the then Fair Market Value of such shares. Any such
purchase of Registrable Securities by the Registrant (or its designee)
hereunder shall take place at a closing to be held at the principal executive
offices of the Registrant or at the offices of its counsel at any reasonable
date and time designated by the Registrant and/or such designee in such notice
within 20 business days after delivery of such notice. Any payment for the
shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 10 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be entitled to more than
an aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any period of time (not to exceed 40 days after such request in the case of
clause (A) below or 90 days in the case of clauses (B) and (C) below) when (A)
the Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the opinion of counsel to the Registrant, such information would have to be
disclosed if a registration statement were filed at that time; (B) the
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates. The Registrant
shall use its reasonable best efforts to cause any Registrable Securities
registered pursuant to this Section 10 to be qualified for sale under the
securities or Blue-Sky laws of such jurisdictions as the Designated Holder may
reasonably request and shall continue such registration or qualification in
effect in such jurisdiction; provided, however, that the Registrant shall not
be required to qualify to do business in, or to consent to general service of
process in, any jurisdiction by reason of this provision.
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The registration rights set forth in this Section 10 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement
all material facts required to be disclosed with respect to a registration
thereunder.
A registration effected under this Section 10 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as are
customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such registration,
the parties agree (i) to indemnify each other and the underwriters in the
customary manner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering and (iii) to take all
further actions which shall be reasonably necessary to effect such
registration and sale (including, if the Manager deems it necessary,
participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this Section
10 only if and to the extent the Manager determines that such inclusion will
not adversely affect the prospects for success of such offering.
11. Adjustment Upon Changes in Capitalization. Without limitation to any
restriction on KU Energy contained in this Agreement or in the Merger
Agreement, in the event of any change in KU Energy Common Stock by reason of
stock dividends, splitups, mergers, (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the KU Energy Option, and the
purchase price per share provided in Section 1, shall be adjusted
appropriately to restore to LG&E Energy its rights hereunder, including the
right to purchase from KU Energy (or its successors) shares of KU Energy
Common Stock representing 19.9% of the outstanding KU Energy Common Stock for
the aggregate Exercise Price calculated as of the date of this Agreement as
provided in Section 1.
12. Restrictive Legends. Each certificate representing shares of KU Energy
Common Stock issued to LG&E Energy hereunder, and LG&E Energy Shares, if any,
delivered to KU Energy at a Closing, shall include a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF MAY 20, 1997, A COPY OF WHICH
MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if LG&E Energy or KU Energy,
as the case may be, shall have delivered to the other party a copy of a letter
from the staff of the Securities and Exchange Commission, or an opinion of
counsel, in form and substance satisfactory to the other party, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and in circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. Binding Effect; No Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as
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expressly provided for in this Agreement, neither this Agreement nor the
rights or the obligations of either party hereto are assignable, except by
operation of law, or with the written consent of the other party. Nothing
contained in this Agreement, expressed or implied, is intended to confer upon
any person other than the parties hereto and their respective permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 10 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until such party shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall not be entitled to the
registration rights of such party.
14. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an
adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
15. Entire Agreement. This Agreement, the Confidentiality Agreement and the
Merger Agreement (including the exhibits and schedules thereto) constitute the
entire agreement among the parties with respect to the subject matter hereof
and thereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof and thereof.
16. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof. If for any reason any such court
or regulatory agency determines that LG&E Energy is not permitted to acquire,
or KU Energy is not permitted to repurchase pursuant to Section 7, the full
number of shares of KU Energy Common Stock provided in Section 1 hereof (as
the same may be adjusted), it is the express intention of KU Energy to allow
LG&E Energy to acquire or to require KU Energy to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
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18. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent by
reputable overnight courier service, or (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
A.If to KU Energy Corporation, to:
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507
Attention:O.M. Goodlett
Telephone:(606) 367-1104
Telecopy:(606) 367-1199
and a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attention:Robert A. Yolles, Esq.
Telephone:(312) 269-4145
Telecopy:(312) 782-8585
B.If to LG&E Energy Corp., to:
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Attention:Victor A. Staffieri
Telephone:(502) 627-3912
Telecopy:(502) 627-2155
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention:Richard I. Beattie, Esq.
Telephone:(212) 455-2635
Telecopy:(212) 455-2502
and
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
Attention:Peter D. Clarke, Esq.
Telephone:(312) 245-8685
Telecopy:(312) 644-3381
19. Governing Law; Choice of Forum. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky
applicable to agreements made and to be performed entirely within such
Commonwealth and without regard to its choice of law principles. Each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of
any federal court located in the Commonwealth of Kentucky or any Kentucky
state court in the event any dispute arises out of this Agreement or any of
the
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transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring
any action relating to this Agreement or any of the transactions contemplated
by this Agreement in any court other than a federal court sitting in the
Commonwealth of Kentucky or a Kentucky state court.
20. Interpretation. When a reference is made in this Agreement to a Section
such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but both of which, taken together,
shall constitute one and the same instrument.
22. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
23. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
24. Extension of Time Periods. The time periods for exercise of certain
rights under Sections 2, 6 and 7 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and for the expiration of all statutory waiting periods; and (ii) to the
extent necessary to avoid any liability under Section 16(b) of the Exchange
Act by reason of such exercise.
25. Replacement of KU Energy Option. Upon receipt by KU Energy of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, KU Energy will execute and deliver a new Agreement of
like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
LG&E Energy Corp.
/s/ Roger W. Hale
By: _________________________________
Name: Roger W. Hale
Title:Chairman, President and
Chief Executive Officer
KU Energy Corporation
/s/ Michael R. Whitley
By: _________________________________
Name: Michael R. Whitley
Title:Chairman, President and
Chief Executive Officer
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ANNEX D
EMPLOYMENT AGREEMENT
AGREEMENT, made May 20, 1997, by and between LG&E Energy Corp., a Kentucky
corporation (the "Company") and Roger W. Hale ("Executive").
RECITALS
WHEREAS, LG&E Energy and KU Energy Corporation, a Kentucky corporation ("KU
Energy"), have executed a merger agreement (the "Merger Agreement") which
contemplates the merger of KU Energy with and into LG&E Energy (the "Merger"),
which will become effective at the Effective Time (as defined in the Merger
Agreement);
WHEREAS, in order to induce Executive to serve, on and after the Effective
Time, as the Chairman and Chief Executive Officer of the Company and as
Chairman and Chief Executive Officer of Kentucky Utilities Company and
Louisville Gas and Electric Company (the "Utility Subsidiaries"), the Company
desires to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement; and
WHEREAS, Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth;
NOW THEREFORE, it is hereby agreed by and between the parties as follows:
1. Employment.
1.1. Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as its Chairman and Chief
Executive Officer and as the Chairman and Chief Executive Officer of the
Utility Subsidiaries. Executive shall report directly to the Board of
Directors of the Company (the "Board") and the Board of Directors of the
Utility Subsidiaries.
1.2. Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as the Chairman and Chief Executive Officer of the Company
and the Chairman and Chief Executive Officer of the Utility Subsidiaries
commencing at the Effective Time, and agrees to devote his full working time
and efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection therewith.
Executive shall perform such duties and exercise such powers, commensurate
with his position, as the Chairman and Chief Executive Officer of the Company
and as the Chairman and Chief Executive Officer of the Utility Subsidiaries,
as the Board and the Board of Directors of the Utility Subsidiaries shall from
time to time delegate to him on such terms and conditions and subject to such
restrictions as the Board and such Boards of Directors may reasonably from
time to time impose. In addition, the Company shall use its best efforts to
secure Executive's election as a director of the Company and Executive agrees
to serve in such capacity.
1.3. Nothing in this Agreement shall preclude Executive from (a) engaging in
charitable and community affairs so long as, in the reasonable determination
of the Board, such activities do not interfere with his duties and
responsibilities hereunder, (b) managing any passive investment made by him in
publicly traded equity securities or other property (provided that no such
investment may exceed 1% of the equity of any entity, without the prior
approval of the Board) or (c) serving, subject to the prior approval of the
Board, as a member of boards of directors or as a trustee of any other
corporation, association or entity.
1.4. The Executive will perform his services at the Company's headquarters.
1.5. As Chairman of the Board, Executive will serve as Chairman and preside
at all annual and special meetings of the stockholders of the Company at which
he is present and will serve as Chairman and preside at all regular and
special meetings of the Board.
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2. Term of Employment. Executive's term of employment under this Agreement
shall commence at the Effective Time and, subject to the terms hereof, shall
terminate on the earlier of the fifth anniversary of the Closing Date (the
"Termination Date" and the term is the "Initial Term") or (ii) termination of
Executive's employment pursuant to this Agreement; provided, however, that
this Agreement shall be automatically renewed for additional one-year terms at
the end of any term unless the Company or Executive provides 3-months prior
written notice before the end of the Initial Term or any renewal term (the
"Renewal Term")(if the Agreement is so renewed then the Termination Date shall
become the date upon which the most recent Renewal Term ends); provided,
further, that any termination of employment by Executive (other than for
death, Permanent Disability or Good Reason) may only be made upon 90 days
prior written notice to the Company and any termination of employment by
Executive for Good Reason may only be made upon 15 days prior written notice
to the Company. Any termination of Executive's employment by the Company shall
be made by delivery to Executive of a copy of a resolution duly adopted by a
majority vote of the entire Board at a meeting of the Board called and held
for the purpose (after 30 days prior written notice to Executive and
reasonable opportunity for Executive to be heard before the Board prior to
such vote), (i) if the termination is for Cause (as defined in Section 6.4),
finding that, in the reasonable judgment of such Board, Executive was guilty
of conduct constituting Cause and specifying the particulars thereof, or (ii)
if the termination is without Cause, terminating Executive's employment.
3. Compensation.
3.1. Salary. The Company shall pay Executive a base salary ("Base Salary")
of not less than $675,000. The Base Salary shall be payable in accordance with
the ordinary payroll practices of the Company. The Base Salary shall be
reviewed by the Compensation Committee of the Board (the "Compensation
Committee") as of January 1 of each year during the term of this Agreement and
may be increased in the discretion of the Compensation Committee and, as so
increased, shall constitute "Base Salary" hereunder (the Compensation
Committee shall not be able to decrease the Base Salary).
3.2. Annual Bonus. In addition to his Base Salary, Executive shall be
eligible to participate in any annual incentive plan or program maintained by
the Company in which other senior executives of the Company participate (the
"Bonus Plan"). Such participation shall be on terms commensurate with
Executive's position and level of responsibility. The Executive's target bonus
under the Bonus Plan shall be not less than 60% of the Base Salary. Except as
set forth in the preceding sentence, nothing in this Section 3.2 will
guarantee to the Executive any specific amount of incentive compensation, or
prevent the Compensation Committee from establishing performance goals and
compensation targets applicable only to the Executive.
3.3. Compensation Plans and Programs. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company
(e.g., long-term incentive and stock option plans) in which other senior
executives of the Company participate on terms commensurate with his position
and level of responsibility. Executive's participation in the Company's long-
term incentive program will be at an annual level of not less than 110% of the
Base Salary. Such long-term compensation shall be in the following form: two-
thirds of the long-term incentives shall consist of long-term performance
units/shares, and one-third shall consist of non-qualified stock options with
an exercise price equal to not more than the market value as of the date of
the grant. The number of the performance units/shares shall be determined by
dividing the long-term incentive compensation to be delivered in performance
units/shares (not less than 73.33% of the Base Salary) by an amount equal to
the fair market value of a share of the Company's common stock as of the date
of the grant of the performance units/shares adjusted by discounting to
reflect future payment at the end of the performance period based on the
methodology recommended by the Company's independent outside compensation
consultant for use under the Company's long-term incentive program. The number
of shares subject to the options shall be determined by dividing the long-term
incentive compensation to be delivered in options (not less than 36.67% of the
Base Salary) by the estimated then current value of an option using the
modified Black-Scholes Option Pricing methodology used under the Company's
long-term incentive program as recommended by the
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Company's independent outside compensation consultant. Except as set forth
above, nothing in this Section 3.3 will guarantee to the Executive any
specific level or amount of long-term incentive compensation, or prevent the
Compensation Committee from establishing performance goals and compensation
targets applicable only to the Executive.
3.4. Other Compensation. Nothing in this Section 3 will preclude the
Compensation Committee from authorizing such additional compensation to the
Executive, in cash or in property, as the Compensation Committee may determine
in its sole discretion to be appropriate.
4. Employee Benefits.
4.1. Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
(commensurate with his positions and level of responsibility in the Company
and to the extent permitted under any employee benefit plan) in accordance
with the terms thereof, which the Company makes available to its senior
executives; provided, however, that the amount of Executive's term life
insurance (the "Life Insurance") shall be not less than $2,000,000, the
premiums for such insurance shall be paid by the Company until Executive
reaches age 75 regardless of Executive's employment status, and the amount of
any long term disability coverage shall be no less favorable than what
Executive received from LG&E Energy immediately prior to the Effective Time.
The Company shall also pay Executive an additional payment such that, after
payment by Executive of all taxes imposed as a result of the life insurance
benefit, the Executive retains an amount equal to the taxes imposed upon the
Executive as a result of the life insurance benefit.
4.2. Vacation and Fringe Benefits. Executive shall be eligible to
participate in the Company's vacation plan. In addition, Executive shall be
entitled to the perquisites and other fringe benefits made available to senior
executives of the Company, commensurate with his position and level of
responsibility with the Company. Executive shall also receive the additional
perquisites listed on Exhibit A hereto.
4.3. Retirement Benefits.
(a) Pension Benefits. The Company shall provide the Executive with a
pension benefit based on his combined service with the Company and his
prior employers. The total benefit paid to the Executive from the Company
and his Prior Employers (as defined below) shall not be less than a benefit
equal to the product of (i) and (ii), reduced by (iii) where --
(i) shall be the annual average of the Executive's cash compensation
for the preceding three years (base salary plus short-term incentive
pay);
(ii) shall be a percent based on service at retirement equivalent to
2 percent for each of the first 20 years of service plus 1.5 percent
for each of the next ten years of service plus 1.0 percent for each of
any remaining years of service completed prior to age 65; and
(iii) shall be the Executive's primary Social Security benefit
payable at age 65.
The Company shall provide a benefit to the Executive that shall not be less
than the benefit calculated in accordance with the formula described above,
less any pension benefits provided to the Executive from the Executive's Prior
Employers, whether from qualified plans or SERPs. The Company-provided portion
shall be paid, to the maximum extent possible, from the Retirement Income Plan
for the Employees of LG&E Energy Who Are Not Members of a Bargaining Unit.
Subject to the terms of the final paragraph of this Section 4.3, the
Executive may elect to commence payment of his pension benefit as early as age
50. If the Executive retires before attaining age 65, the pension
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benefit shall be reduced in accordance with the following factors to reflect
Executive's age at the date his benefits commence.
<TABLE>
<CAPTION>
Age Percentage Payable
--- ------------------
<S> <C>
62-65 One Hundred Percent
61 Ninety-Seven Percent
60 Ninety-Four Percent
59 Ninety-One Percent
58 Eighty-Eight Percent
57 Eighty-Five Percent
56 Eighty-Two Percent
55 Seventy-Nine Percent
54 Seventy-Three Percent
53 Sixty-Seven Percent
52 Sixty-One Percent
51 Fifty-Five Percent
50 Forty-Nine Percent
</TABLE>
In applying these reductions the net benefit from the Company will be
determined first and then those reductions will be applied to the net amount.
For purposes of this paragraph 4.3, "Prior Employers" shall mean BellSouth
Corporation and AT&T Corporation.
Notwithstanding the above, if Executive resigns for other than Good Reason
and elects early retirement prior to age 55, Executive shall not be entitled
to receive the prescribed early retirement benefits if Executive shall accept
a senior executive position with a publicly-traded company or its subsidiary
within one year of his election of early retirement under this Section 4.3.
Should such event occur, Executive shall notify the Company and return any
retirement benefits so received. Executive thereafter shall be entitled to
receive retirement benefits at age 55, consistent with the reduction factors
set forth above, but shall receive no credit for years of service between the
time of resignation from the Company and age 55.
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such
duties and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. Termination of Employment.
6.1. Termination Not for Cause or for Good Reason. (a) The Company may
terminate Executive's employment at any time for any reason, in accordance
with the procedures set forth in Section 2 hereof. If Executive's employment
is terminated by the Company other than for Cause (as defined in Section 6.4
hereof) and other than as a result of Executive's Permanent Disability (as
defined in Section 6.2 hereof) or Retirement (as defined in the Company's
qualified pension plans) or if Executive terminates his employment for Good
Reason (as defined in Section 6.1(c) hereof) prior to the Termination Date,
Executive shall receive such payments, if any, under applicable plans or
programs, including but not limited to those referred to in Section 3.3
hereof, to which he is entitled pursuant to the terms of such plans or
programs. In addition, Executive shall be entitled to a payment (the
"Termination Payment") equal to his annual salary and target annual bonus
pursuant to the Bonus Plan for, at Executive's option, either (i) two years,
or (ii) the remainder of the term then in effect (the greater of (i) or (ii)
being the "Continuation Period"), discounted to present value (using the IRS
applicable federal rate in effect under section 1274(d) of the Internal
Revenue Code of 1986, as amended (the "Code"), at the time of termination).
Executive shall also be entitled to receive a cash lump sum payment in
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respect of accrued but unused vacation days (the "Vacation Payment") and to
compensation earned but not yet paid (including any deferred bonus payments
pursuant to the Bonus Plan) (the "Compensation Payment"), and to continued
coverage for the Continuation Period under any employee medical and life
insurance plans in accordance with the respective terms thereof. Also,
Executive shall receive the target bonus under the Bonus Plan in respect of
the fiscal year in which his termination occurs, prorated by a fraction, the
numerator of which is the number of days of the fiscal year until his
termination and the denominator of which is 365. In addition, all of
Executive's stock options shall become exercisable and all restrictions
pertaining to restricted stock or other equity awards shall lapse. Also, the
Company shall cashout any other long term incentive award granted Executive at
the target level, pro-rated for Executive's actual period of service and the
Continuation Period during the relevant performance periods, discounted to
present value using the same methodology as for the Termination Payment, and
the Executive shall continue to receive the Life Insurance. The Company shall
also provide Executive with the perquisites and benefits provided in Section
4.2 for the Continuation Period and shall provide additional years of service
credit equal to the Continuation Period (rounded up to the nearest whole
number of years) under the qualified and nonqualified defined benefit
retirement plans of the Company in which the Executive participates at the
time of termination (including the arrangement provided in Section 4.3
hereof); provided, however, that in the case of a qualified defined benefit
retirement plan, the present value, discounted in the same manner as the
Termination Payment, of the additional benefit Executive would have accrued if
he had been credited for all purposes with the additional years of service
under such plan will be paid in a lump sum in cash (the "Qualified Plan
Payment"); and provided, further, that benefit payments under any nonqualified
defined benefit retirement plan will not commence to be paid until the end of
the Continuation Period. Furthermore, if any Company payment either pursuant
to this Agreement or otherwise is subject to an excise tax pursuant to Section
4999 of the Code (the "Excise Tax"), then the Company shall pay Executive an
additional amount (the "Gross-Up Payment") such that, after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Taxes imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the original payment triggering the Excise Tax.
(b) The Vacation Payment, the Compensation Payment, the Qualified Plan
Payment, the Termination Payment and any other payments due Executive pursuant
to Section 6(a) shall be paid by the Company to Executive within 20 days after
the termination of Executive's employment by check payable to the order of
Executive or by wire transfer to an account specified by Executive.
(c) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's consent, and other than in connection with a
termination of employment by reason of Executive's death, Permanent Disability
or Retirement):
(i) any material breach by the Company of any provision of this
Agreement, that is not corrected within 30 days after written notice of
such breach;
(ii) the failure to assume this Agreement by any successor to the
Company;
(iii) the failure to appoint Executive to, or the removal of the
Executive from, the position of Chief Executive Officer of the Company or
the position of Chairman and Chief Executive Officer of the Utility
Subsidiaries;
(iv) the failure to elect Executive to, or the removal of the Executive
from, the Board, the Boards of Directors of the Utility Subsidiaries or the
position of Chairman of the Board or Chairman of the Utility Subsidiaries;
(v) any reduction in the Executive's duties or responsibilities which
Executive deems significant without the Executive's written consent; or
(vi) notification by the Company that this Agreement will not be renewed.
6.2. Permanent Disability. If the Executive becomes totally and permanently
disabled (as defined in the Company's Long-Term Disability Benefit Plan
applicable to senior executive officers as in effect at the time
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Executive's disability is incurred) ("Permanent Disability"), the Company or
Executive may terminate Executive's employment on written notice thereof, and
Executive shall receive or commence receiving:
(i) 22 weeks after Executive has incurred a Permanent Disability, a
benefit equal to: a) 60 percent of the Base Salary, less b) 100% of the
Social Security disability benefit and c) any amounts payable pursuant to
the terms of a disability insurance policy or similar arrangement which the
Company maintains during the term hereof; where such benefit shall continue
until the Executive attains age 65;
(ii) as soon as practicable, the target bonus under the Bonus Plan in
respect of the fiscal year in which his termination occurs, prorated by a
fraction, the numerator of which is the number of days of the fiscal year
until termination and the denominator of which is 365;
(iii) as soon as practicable, the Vacation Payment and the Compensation
Payment; and
(iv) as soon as practicable, such payments under applicable plans or
programs, including but not limited to those referred to in Section 3.3
hereof, to which he is entitled pursuant to the terms of such plans or
programs.
In addition, after Executive has incurred a Permanent Disability, he shall
continue to receive the Life Insurance and shall be entitled to a payment (the
"Disability Payment"), as soon as practicable, equal to his target annual
bonus pursuant to the Bonus Plan for, at Executive's option, either (i) two
years, or (ii) the remainder of the term then in effect (the greater of (i) or
(ii) being the "Continuation Period"), discounted to present value (using the
IRS applicable federal rate in effect under section 1274(d) of the Internal
Revenue Code of 1986, as amended (the "Code"), at the time of termination).
The Company shall also provide additional years of service credit equal to the
Continuation Period (rounded up to the nearest whole number of years) under
the qualified and nonqualified defined benefit retirement plans of the Company
in which the Executive participates at the time of termination (including the
arrangement provided in Section 4.3 hereof); provided, however, that in the
case of a qualified defined benefit retirement plan, the present value,
discounted in the same manner as the Disability Payment, of the additional
benefit Executive would have accrued if he had been credited for all purposes
with the additional years of service under such plan will be paid in a lump
sum in cash (the "Qualified Plan Payment") as soon as practicable following
Executive's Permanent Disability; and provided, further, that benefit payments
under any nonqualified defined benefit retirement plan will not commence to be
paid until the end of the Continuation Period. In addition, all of Executive's
stock options shall become exercisable and all restrictions pertaining to
restricted stock or other equity awards shall lapse.
6.3. Death. In the event of Executive's death during the term of his
employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving, as soon as practicable:
(i) the target bonus under the Bonus Plan in respect of the fiscal year
in which his death occurs, prorated by a fraction, the numerator of which
is the number of days of the fiscal year until his death and the
denominator of which is 365;
(ii) any death benefits provided under the employee benefit programs,
plans and practices referred to in Sections 3.3, 4.1 and 4.3, including the
Life Insurance, in accordance with their terms; provided, however, that the
amounts payable under the long-term incentive compensation plans or
programs referred to in Section 3.3 in respect of the fiscal year or
performance cycles, as the case may be, in which his death occurs shall not
be less than the target bonus or target award for such fiscal year or
performance cycles, prorated for the number of days in the fiscal year or
each performance cycle until death;
(iii) the Vacation Payment and the Compensation Payment; and
(iv) such payments under applicable plans or programs, including but not
limited to those referred to in Section 3.3 hereof, to which Executive's
estate or designated beneficiaries are entitled pursuant to the terms of
such plans or programs.
In addition, all of Executive's stock options shall become exercisable and all
restrictions pertaining to restricted stock or other equity awards shall
lapse.
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6.4. Voluntary Termination by Executive; Discharge for Cause. (a) The
Company shall have the right to terminate the employment of Executive for
Cause. In the event that Executive's employment is terminated by the Company
for Cause, as hereinafter defined, or by Executive other than for Good Reason
or other than as a result of the Executive's Permanent Disability or death,
prior to the Termination Date, Executive shall be entitled to receive the
Compensation Payment and the Vacation Payment. After the termination of
Executive's employment under this Section 6.4, the obligations of the Company
under this Agreement to make any further payments, or provide any benefits
specified in this Agreement (other than the Life Insurance, the benefits
provided in Section 4.3 or the benefits provided in this Section 6.4), to
Executive shall thereupon cease and terminate and Executive's rights to any
payments or benefits under any Company plans or programs shall be determined
pursuant to the terms of such plans or programs; provided, however, that,
except in the event that Executive's employment is terminated by the Company
for Cause, the amounts payable to Executive under the Bonus Plan referred to
in Section 3.2 and under the long-term incentive compensation plans or
programs referred to in Section 3.3 in respect of the fiscal year or
performance cycles, as the case may be, in which his termination occurs, shall
not be less than the target bonus or target award for such fiscal year or
performance cycles, prorated by the number of days in the fiscal year or each
performance cycle until termination.
(b) As used herein, the term "Cause" shall be limited to (i) Executive's
conviction by a court of competent jurisdiction for the commission of a felony
(other than derivative of an environmental violation) or (ii) Executive's
willful and continuous failure, other than by reason of Permanent Disability
or death, to perform assigned duties after written notice of such failure.
6.5. Nonduplication of Benefits. To the extent, and only to the extent, a
payment or benefit that is paid or provided under this Section 6 would also be
paid or provided under the terms of the applicable plan, program or
arrangement, such applicable plan, program or arrangement will be deemed to
have been satisfied by the payment made or benefit provided under this
Agreement.
7. Mitigation of Damages. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder and no amounts earned by Executive, whether from self-employment, as
a common-law employee or otherwise, shall reduce the amount of any Termination
Payment otherwise payable to him; provided, however, that the Executive's
coverage under the Company's welfare benefit plans for the Continuation Period
as provided in Section 6.1(a) will be reduced to the extent that the Executive
becomes covered under any comparable employee benefit plan made available by
another employer and covering the same type of benefits. The Executive will
report to the Company any such benefits he actually receives.
8. Notices. All notices or communications hereunder shall be in writing,
addressed to the Company:
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
All notices or communications hereunder to Executive shall be addressed to the
Executive at the address listed for Executive in the Company's personnel files
or such other address as the Executive may, in writing, choose. Any such
notice or communication shall be delivered by hand or by courier or sent
certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after
the actual date of mailing shall constitute the time at which notice was
given.
9. Separability; Legal Fees. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect. The Company shall reimburse Executive's
legal fees and expenses in connection with any dispute under this Agreement,
without regard to which party prevails.
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10. Assignment. This contract shall be binding upon and inure to the benefit
of the heirs and representatives of Executive and the assigns and successors
of the Company, but neither this Agreement nor any rights or obligations
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate succession)
or by the Company, except that the Company may assign this Agreement to any
successor (whether by merger, purchase or otherwise) to all or substantially
all of the stock, assets or businesses of the Company, if such successor
expressly agrees to assume the obligations of the Company hereunder.
11. Amendment; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, approved by the Company and
signed by the Executive and the Company. Failure on the part of either party
to complain of any action or omission, breach or default on the part of the
other party, no matter how long the same may continue, will never be deemed to
be a waiver of any rights or remedies hereunder, at law or in equity. The
Executive or the Company may waive compliance by the other party with any
provision of this Agreement that such other party was or is obligated to
comply with or perform only through an executed writing; provided, however,
that such waiver will not operate as a waiver of, or estoppel with respect to,
any other or subsequent failure.
12. Beneficiaries; References. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death, and may change such election, in either case by
giving the Company written notice thereof. In the event of Executive's death
or a judicial determination of his incompetence, reference in this Agreement
to Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
13. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. Without
limiting the generality of the foregoing, the provisions of Sections 6 and 17
hereunder shall remain in effect as long as necessary to give effect thereto,
notwithstanding the expiration of the term of this Agreement. The provisions
of this Section 13 are in addition to the survivorship provisions of any other
section of this Agreement.
14. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the Commonwealth of Kentucky, without
reference to rules relating to conflicts of law.
15. Effectiveness; Effect on Prior Agreements. This Agreement shall become
effective at the Effective Time and shall have no force or effect prior
thereto. At the Effective Time this Agreement shall contain the entire
understanding between the parties hereto and supersede in all respects any
prior or other agreement or understanding between the Company and Executive
other than the Change in Control Agreement dated March 4, 1993 (the "CIC
Agreement"). In the event that upon a termination of employment, the Executive
is entitled to benefits pursuant to both the CIC Agreement and this Agreement,
then Executive shall receive the greater of: (i) the benefits provided in this
Agreement or (ii) the benefits provided pursuant to the CIC Agreement. In the
event that (i) the Merger Agreement is terminated for any reason prior to the
Effective Time or (ii) the Executive's employment with the Company is
terminated prior to the Effective Time, this Agreement shall be null and void.
16. Withholding. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
17. Post Termination Assistance. The Executive agrees that after his
employment with the Company has terminated he will provide, upon reasonable
notice, such information and assistance to the Company as may reasonably be
requested by the Company in connection with any litigation in which it or any
of its affiliates is or may become a party; provided, however, that the
Company agrees to reimburse the Executive on an after-tax basis for any
related out-of-pocket expenses, including travel expenses.
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18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
19. Headings and Section References. The headings used in this Agreement are
intended for convenience or reference only and will not in any manner amplify,
limit, modify or otherwise be used in the construction or interpretation of
any provision of this Agreement. All section references are to sections of
this Agreement, unless otherwise noted.
LG&E Energy Corp.
/s/ John R. McCall /s/ Roger W. Hale
By___________________________________ ---------------------------------
Name:JOHN R. McCALL ROGER W. HALE
Title:Executive Vice President,
General Counsel and Corporate
Secretary
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EXHIBIT A
Additional Perquisites
(a) a Company provided automobile and all related operating, maintenance and
insurance expenses paid by the Company;
(b) Company paid initiation fees and dues at a luncheon club and a country
club;
(c) the preparation of Executive's income tax returns by the Company's
independent accounting firm;
(d) the Company shall pay reasonable costs incurred for annual financial
planning services for the Executive by the independent financial planner
of the Executive's choice; and
(e) the Company shall pay the costs of an annual physical exam for Executive
by the physician of Executive's choice.
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ANNEX E
EMPLOYMENT AGREEMENT
AGREEMENT, made May 20,1997, by and between KU Energy Corporation, a
Kentucky corporation (the "Company" or "KU Energy") and Michael R. Whitley
("Executive").
RECITALS
WHEREAS, Executive is currently serving as Chairman of the Board, President
and Chief Executive Officer of the Company;
WHEREAS, KU Energy and LG&E Energy Corp. ("LG&E Energy") have executed a
merger agreement (the "Merger Agreement") which contemplates the merger of KU
Energy with and into LG&E Energy (the "Merger"), which will become effective
at the Effective Time (as defined in the Merger Agreement);
WHEREAS, as contemplated by the Merger Agreement, LG&E Energy will be the
surviving entity in the Merger and, as such, will succeed to the rights and
obligations of the Company hereunder;
WHEREAS, in order to induce Executive to serve, on and after the Effective
Time, as the Vice Chairman of the Board of Directors of LG&E Energy (as the
surviving entity in the Merger and as successor to the Company at the
Effective Time), the President and Chief Operating Officer of LG&E Energy and
the Vice Chairman and Chief Operating Officer of Kentucky Utilities Company
and Louisville Gas and Electric Company (each a "Utility Subsidiary"), the
Company desires, from and after the Effective Time, to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement; and
WHEREAS, Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, it is agreed by and between the parties as follows:
1. Employment.
1.1. Subject to the terms and conditions of this Agreement, from and after
the Effective Time, the Company agrees to employ Executive as its Vice
Chairman, President and Chief Operating Officer and to cause each Utility
Subsidiary to employ Executive as its Vice Chairman and Chief Operating
Officer. Executive shall report to the Chief Executive Officer of the Company
and the Chief Executive Officer of each Utility Subsidiary. In addition, the
Company shall use its best efforts to secure Executive's election as a
director of the Company and shall cause the election of Executive as a
director of each Utility Subsidiary; and Executive agrees to serve in such
capacities.
1.2. Subject to the terms and conditions of this Agreement, Executive
accepts employment as the Vice Chairman, President and Chief Operating Officer
of the Company and as the Vice Chairman and Chief Operating Officer of each
Utility Subsidiary commencing at the Effective Time, and agrees to devote his
full working time and efforts, to the best of his ability, experience and
talent, to the performance of services, duties and responsibilities in
connection therewith. Executive shall perform those duties and exercise those
powers as are commensurate with his position as Vice Chairman, President and
Chief Operating Officer of the Company and Vice Chairman and Chief Operating
Officer of each Utility Subsidiary.
1.3. Nothing in this Agreement shall preclude Executive from engaging in
charitable and community affairs or serving as a director or trustee of any
other corporation, association or entity or managing any investment made by
him, so long as such activities do not significantly interfere with his duties
and responsibilities hereunder.
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1.4. Executive will perform his services at LG&E Energy's headquarters,
although Executive may remain at KU Energy's existing headquarters for a
reasonable period following the Effective Time.
2. Term of Employment. Executive's term of employment under this Agreement
shall commence at the Effective Time and, subject to the terms hereof, shall
terminate on the earlier of (i) the fifth anniversary of the Effective Time
(the "Termination Date," which date shall be the last day of the "Initial
Term") or (ii) termination of Executive's employment pursuant to this
Agreement; provided, however, that this Agreement shall be automatically
renewed for additional one-year terms at the end of any term (the Initial Term
or any hereinafter described Renewal Term) unless the Company or Executive
provides 90 days prior written notice to the contrary before the end of the
Initial Term or any renewal term (the "Renewal Term") (if the Agreement is so
renewed, then the Termination Date shall become the date upon which the most
recent Renewal Term ends); provided, further, that any termination of
employment by Executive (other than for death, Permanent Disability or Good
Reason) may only be made upon 90 days prior written notice to the Company and
any termination of employment by Executive for Good Reason may only be made
upon 15 days prior written notice to the Company. Any termination of
Executive's employment by the Company shall be made by delivery to Executive
of a copy of a resolution duly adopted by a majority vote of the entire Board
of Directors of the Company (the "Board") at a meeting of the Board called and
held for the purpose (after 30 days prior written notice to Executive and
reasonable opportunity for Executive to be heard before the Board prior to
such vote), (i) if the termination is for Cause (as defined in Section 6.4),
finding that, in the reasonable judgment of the Board, Executive was guilty of
conduct constituting Cause and specifying the particulars thereof or (ii) if
the termination is without Cause, terminating Executive's employment.
3. Compensation.
3.1. Salary. The Company shall pay Executive a base salary ("Base Salary")
at an annual rate of not less than $575,000. Base Salary shall be payable in
accordance with the ordinary payroll practices of the Company. The Base Salary
may be increased in the discretion of the Compensation Committee of the Board
and, as so increased, shall constitute "Base Salary" hereunder. Base Salary
shall not be decreased.
3.2. Annual Bonus. In addition to his Base Salary, Executive shall be
eligible to participate in all annual incentive plans or programs maintained
by the Company in which other senior executives of the Company participate
(the "Bonus Plan"). Such participation shall be on terms commensurate with
Executive's position and level of responsibility. The Executive's target bonus
under the Bonus Plan shall be at an annual level of not less than 55% of the
Base Salary.
3.3. Other Compensation Plans and Programs. Executive shall be eligible to
participate in all other compensation plans or programs maintained by the
Company (e.g., long-term incentive and stock option plans) in which other
senior executives of the Company participate on terms commensurate with his
position and level of responsibility. Executive's participation in the
Company's long-term incentive program will be at an annual level of not less
than 70% of the Base Salary. Such long-term incentive compensation shall be in
the following form: 60% of the long-term incentive compensation shall be
delivered in the form of long-term performance units/shares and the remaining
40% of the long-term incentive compensation shall be delivered in the form of
non-qualified stock options with an exercise price equal to not more than the
market value as of the date of the grant. The number of the performance
units/shares shall be determined by dividing the long-term incentive
compensation to be delivered in performance unit/shares (not less than 42% of
Base Salary) by an amount equal to the fair market value of a share of the
Company's common stock as of the date of grant of the performance unit/shares
adjusted by discounting to reflect future payment at the end of the
performance period based on the methodology recommended by the Company's
independent outside compensation consultant for use under the Company's long-
term incentive program. The number of shares subject to options will be
determined by dividing the long-term incentive compensation to be delivered in
options (not less than 28% of the Base Salary) by the estimated then current
value of an option using the modified Black-Scholes Option Pricing methodology
used under the Company's long-term incentive program as recommended by the
Company's independent outside
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compensation consultant. Except as set forth above, nothing in this Section
3.3 will guarantee to Executive any specific level or amount of long-term
incentive compensation, or prevent the Compensation Committee of the Board
from establishing performance goals and compensation targets applicable only
to Executive.
3.4. Relocation Expenses. Within a reasonable period following the Effective
Time, Executive will relocate to the general area of the Company's
headquarters. The Company (i) will reimburse Executive for all of his
relocation costs, (ii) will assure that Executive suffers no financial loss on
the sale of Executive's existing residence (including the value of loss of tax
deferrals that may occur if Executive does not reinvest all of the proceeds of
the sale of such residence in accordance with the provisions of Section 1034
of the Internal Revenue Code of 1986, as amended (the "Code")), and (iii) will
pay Executive a gross-up payment for the additional income and employment
taxes payable by the Executive as a result of payments under this Section 3.4.
4. Employment Benefits.
4.1. Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive with coverage under all employee pension and welfare benefit
programs, plans and practices (commensurate with his positions and level of
responsibility in the Company) in accordance with the terms thereof, which the
Company makes available to its senior executives; provided, however, that,
regardless of Executive's employment status under this Agreement or otherwise
and in addition to the term life insurance coverage to which he is otherwise
entitled under applicable plans, programs, and practices either before or
after termination of employment, the Company shall provide Executive, until
Executive reaches age 65, term life insurance coverage (on terms no less
favorable than the term life insurance coverage available to Executive
immediately prior to the Effective Time) in the amount of $2,000,000, and the
premiums for such insurance shall be paid by the Company; and provided
further, that the long term disability coverage provided shall be no less
favorable than what Executive received immediately prior to the Effective
Time; and, provided, further, that the retiree medical and life insurance
coverage or benefits to which Executive and, upon his death, his surviving
dependents or beneficiaries shall be entitled following his termination of
employment shall be no less favorable than what Executive or his surviving
dependents or beneficiaries would have been entitled under the terms of LG&E
Energy/Louisville Gas and Electric Company medical and life insurance plans as
in effect immediately prior to the Effective Time and based on the assumption
that Executive had met all eligibility requirements for such retiree coverage.
The Company shall also annually pay Executive an additional payment such that,
after payment by Executive of all taxes imposed as a result of the life or
medical insurance coverage described in this Section 4.1, Executive retains an
amount equal to the taxes imposed upon Executive as a result of the life or
medical insurance coverage. To the extent the amount of any benefit under any
Company-sponsored employee benefit plan, policy, program or arrangement,
including those referred to below in Sections 4.2 and 4.3, is based on
service, service with KU Energy or any affiliate of KU Energy will be counted;
provided, however, that such crediting will not operate to the extent (i) it
would cause any plan to violate the provisions of applicable law or (ii) it
would permit Executive to receive duplicate benefits under multiple plans of
the same type in respect of service. In addition, the Company shall provide
Executive with (i) sick leave benefits equivalent to those available to
Executive under KU Energy's/Kentucky Utilities Company's sick leave plan in
existence immediately prior to the Effective Time (including without
limitation any accumulated, unused sick leave) such that Executive's
employment may not be terminated by the Company by reason of disability until
such sick leave benefits have been exhausted and (ii) the additional benefit
service under its qualified defined benefit retirement plan based on
accumulated, unused sick leave on terms no less favorable than those provided
in Kentucky Utilities Company's qualified defined benefit retirement plan
immediately prior to the Effective Time.
4.2. Vacation and Fringe Benefits. Executive shall be eligible to
participate in the Company's vacation plan and Executive shall be entitled to
the perquisites and other fringe benefits made available to senior executives
of the Company, commensurate with his position and level of responsibility
with the Company. Without limiting the foregoing, the Company shall provide
Executive with the following during the period of Executive's employment: (a)
an automobile and all related operating, maintenance and insurance expenses,
(b) initiation fees and dues at a luncheon club and a country club selected by
Executive, (c) the cost of preparation
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of Executive's income tax returns by an accountant or accounting firm selected
by Executive, (d) the costs for annual financial planning provided by an
independent financial advisor chosen by Executive and (e) the costs of an
annual physical exam for Executive by the physician of Executive's choice.
4.3. Supplemental Retirement Plan. Executive shall be eligible to
participate in the Company's supplemental retirement plan in which other
senior executives of the Company participate on terms commensurate with his
position and level of responsibility. The benefit to which he is entitled
under such supplemental retirement plan, however, shall be no less than what
he would have received had he continued to participate in Kentucky Utilities
Company Supplemental Security Plan (the "KU Energy SSP") as in effect
immediately prior to the Effective Time (but applied without regard to any
provision in the KU Energy SSP relating to forfeiture upon termination for
cause as defined in the KU Energy SSP). In addition, the early retirement
benefit provided to Executive under the Company's supplemental retirement plan
will be determined in each instance where it is necessary to determine any
reduction to reflect Executive's age in accordance with the following table
based on Executive's age at commencement of benefits:
<TABLE>
<CAPTION>
Age at
Benefit
Commencement Percentage Payable
------------ ------------------
<S> <C>
62-65 100%
61 97%
60 94%
59 91%
58 88%
57 85%
56 82%
55 79%
</TABLE>
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such
duties and responsibilities. The Company will reimburse promptly Executive for
all such expenses.
6. Termination of Employment.
6.1. Termination Not for Cause or Termination for Good Reason. (a) The
Company may terminate Executive's employment at any time for any reason, in
accordance with the procedures set forth in Section 2 hereof. If prior to the
Termination Date Executive's employment is terminated by the Company other
than for Cause (as defined in Section 6.4 hereof) and other than as a result
of Executive's Permanent Disability (as defined in Section 6.2 hereof) or if
Executive terminates his employment for Good Reason (as defined in Section
6.1(c) hereof) prior to the Termination Date, Executive shall receive:
(i) such payments and coverage, if any, under applicable plans, programs
or practices, including but not limited to those referred to in Sections
3.2, 3.3, 4.1 and 4.3 hereof, to which he is entitled pursuant to the terms
of such plans, programs or practices as required to be modified with
respect to Executive by this Agreement;
(ii) a cash lump sum payment (the "Termination Payment") equal to his
annual Base Salary and target annual bonus pursuant to the Bonus Plan for
the greater of (A) two years or (B) the full and partial years in the
remainder of the Initial or Renewal Term then in effect (the greater of (A)
or (B) being the "Continuation Period"), discounted to present value (using
the IRS applicable federal rate in effect under Section 1274(d) of the
Code, at the time of termination);
(iii) a cash lump sum payment in respect of accrued but unused vacation
days (the "Vacation Payment") and compensation earned but not yet paid
(including any deferred bonus payments pursuant to the Bonus Plan) (the
"Compensation Payment");
(iv) term life insurance coverage as provided in Section 4.1;
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(v) the perquisites and fringe benefits as provided in Section 4.2 for
the balance of the Continuation Period;
(vi) additional years of service credit equal to the Continuation Period
(rounded up to the nearest whole number of years) under the qualified and
nonqualified defined benefit retirement plans of the Company in which
Executive participates at the time of termination; provided, however, that
in the case of a qualified defined benefit retirement plan, the present
value, determined as provided in subsection (ii) above, of the additional
benefit Executive would have accrued if he had been credited for all
purposes with the additional years of service under such plan will be paid
in a lump sum in cash (the "Qualified Plan Payment"); and provided,
further, that benefit payments under any nonqualified defined benefit
retirement plan will not commence to be paid until the end of the
Continuation Period; and
(vii) a cash lump sum payment (the "Incentive Compensation Payment")
equal to the sum of (A) Executive's target Bonus Plan awards in accordance
with Section 3.2 granted in respect of the fiscal year in which termination
occurs prorated for the number of days in the fiscal year until termination
occurs and (B) Executive's target long-term incentive compensation awards
(other than stock options) granted in accordance with Section 3.3 prior to
termination that are then outstanding prorated in the case of each award
for the number of days in the relevant performance cycle until the end of
the Continuation Period and discounted to present value (using the IRS
applicable federal rate in effect under Section 1274(d) of the Code, at the
time of termination).
In addition, all of Executive's stock options shall become exercisable and all
restrictions pertaining to restricted stock or other equity awards shall
lapse.
(b) The Vacation Payment, the Compensation Payment, the Termination Payment,
the Incentive Compensation Payment and the Qualified Plan Payment due
Executive pursuant to Section 6.1(a) shall be paid by the Company to Executive
within 20 days after the termination of Executive's employment.
(c) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's written consent, and other than in connection
with a termination of employment by reason of Executive's death or Permanent
Disability):
(i) any material breach by the Company of any provision of this
Agreement, that is not corrected within 30 days after written notice from
Executive of such breach;
(ii) the failure to assume this Agreement by any successor to the
Company;
(iii) the failure to elect Executive to, or the removal of Executive
from, the Board, the Board of Directors of each Utility Subsidiary or the
position of Vice Chairman of the Company or of each Utility Subsidiary;
(iv) the failure to appoint Executive to, or the removal of the Executive
from, the position of President and Chief Operating Officer of the Company
or Chief Operating Officer of each Utility Subsidiary;
(v) any reduction in the Executive's duties or responsibilities which the
Executive deems significant without the Executive's written consent;
(vi) notification by the Company that this Agreement will not be renewed
at the end of the Initial Term or any Renewal Term; or
(vii) a termination of employment by Executive within 30 days following
the one-year anniversary of the Effective Time for any reason;
provided, however, that in the event of any termination for Good Reason
pursuant to (vii) above, the Termination Payment and other benefits hereunder
shall be calculated using a Continuation Period of three years (rather than
for the remainder of the Initial Term).
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<PAGE>
6.2. Permanent Disability. If the Executive becomes totally and permanently
disabled (as defined in the Company's Long-Term Disability Benefit Plan
applicable to senior executive officers as in effect at the time Executive's
disability is incurred) ("Permanent Disability"), the Company may terminate
Executive's employment (but not before Executive's sick leave benefits have
been exhausted as provided in Section 4.1) or Executive may terminate his
employment, in either case on written notice thereof, and Executive shall
receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of all disability insurance
policies or similar arrangements which the Company maintains during the
term hereof;
(ii) the Vacation Payment and the Compensation Payment;
(iii) such payments and coverage under applicable plans, programs or
practices, including but not limited to those referred to in Sections 3.2,
3.3, 4.1 and 4.3 hereof, to which he is entitled pursuant to the terms of
such plans, programs or practices as required to be modified with respect
to Executive by this Agreement;
(iv) the term life insurance coverage as provided in Section 4.1;
(v) additional years of service credit equal to the Continuation Period
(rounded up to the nearest whole number of years) under the qualified and
nonqualified defined benefit retirement plans of the Company in which
Executive participates at the time of termination to the extent not already
required to be credited thereunder; provided, however, that in the case of
a qualified defined benefit retirement plan, the present value, determined
as provided in Section 6.1(a)(ii), of the additional benefit Executive
would have accrued if he had been credited for all purposes with the
additional years of service under such plan will be paid in a lump sum in
cash (the "Qualified Plan Payment"); and provided, further, that benefit
payments under any nonqualified defined benefit retirement plan will not
commence to be paid until the end of the Continuation Period or, if later,
the date Executive elects retirement thereunder; and
(vi) a lump sum cash payment (the "Disability Payment") equal to the sum
of (A) Executive's target Bonus Plan awards in accordance with Section 3.2
granted in respect of the fiscal year in which termination occurs prorated
for the number of days in the fiscal year until termination occurs and (B)
an amount equal to his target annual bonus pursuant to the Bonus Plan for
the full and partial years in the Continuation Period discounted to present
value (using the IRS applicable federal rate in effect under Section
1274(d) of the Code, at the time of termination).
In addition, all of Executive's stock options shall become exercisable and all
restrictions pertaining to restricted stock or other equity awards shall
lapse. The Vacation Payment, the Compensation Payment, the Disability Payment
and the Qualified Plan Payment due Executive shall be paid by the Company to
Executive within 20 days after the termination of Executive's employment.
6.3. Death. In the event of Executive's death during the term of his
employment hereunder, Executive's estate, designated beneficiaries or
surviving dependents, as the case may be, shall receive or commence receiving,
as soon as practicable:
(i) any death benefits or survivor benefits or coverage provided under
the employee benefit programs, plans and practices referred to in Sections
3.2, 3.3, 4.1 and 4.3 hereof, in accordance with their terms as required to
be modified with respect to Executive by this Agreement, including the term
life insurance coverage as provided in Section 4.1; provided, however, that
the amounts payable under the Bonus Plan referred to in Section 3.2 and
under the long-term incentive compensation plans or programs referred to in
Section 3.3 in respect of the fiscal year or performance cycles, as the
case may be, in which his death occurs shall not be less than the target
bonus or target award for such fiscal year or performance cycles, prorated
for the number of days in the fiscal year or each performance cycle until
death; and
(ii) the Vacation Payment and the Compensation Payment.
In addition, all of Executive's stock options shall become exercisable and all
restrictions pertaining to restricted stock or other equity awards shall
lapse. The Vacation Payment and the Compensation Payment due shall be paid by
the Company within 20 days after the termination of Executive's employment by
reason of death.
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<PAGE>
6.4. Voluntary Termination by Executive; Discharge for Cause; Termination as
of Termination Date. (a) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's employment is
terminated by the Company for Cause, or by Executive other than for Good
Reason or other than as a result of Executive's Permanent Disability or death,
prior to the Termination Date or by either the Company or Executive as of the
Termination Date in accordance with the notice procedures set forth in Section
2, Executive shall be entitled to receive the Compensation Payment, the
Vacation Payment, and the term life insurance coverage provided by Section
4.1. Except for such payments and coverage, after the termination of
Executive's employment under this Section 6.4, the obligations of the Company
under this Agreement to make any further payments, or provide any benefits
specified herein, to Executive shall thereupon cease and terminate; provided,
however, that Executive's rights to any payments or benefits under any Company
plans, programs or practices, including but not limited to those referred to
in Sections 3.2, 3.3, 4.1 and 4.3, shall be determined pursuant to the terms
of such plans, programs or practices as required to be modified with respect
to Executive by this Agreement, except that Executive shall be entitled to a
supplemental retirement plan benefit in accordance with Section 4.3
notwithstanding the reason (including termination by the Company for Cause)
Executive's employment is terminated; and provided, further, except in the
event that Executive's employment is terminated by the Company for Cause, the
amounts payable to Executive under the Bonus Plan referred to in Section 3.2
and under the long-term incentive compensation plans or programs referred to
in Section 3.3 in respect of the fiscal year or performance cycles, as the
case may be, in which his termination occurs, shall not be less than the
target bonus or target award for such fiscal year or performance cycles,
prorated for the number of days in the fiscal year or each performance cycle
until termination.
(b) As used herein, the term "Cause" shall be limited to (i) Executive's
conviction by a court of competent jurisdiction for the commission of a felony
(other than derivative of an environmental violation) or (ii) Executive's
willful and continuous failure, other than by reason of Permanent Disability
or death, to perform assigned duties commensurate with his position after
written notice of such failure.
6.5. Nonduplication of Benefits. To the extent, and only to the extent, a
payment or benefit that is paid or provided under this Section 6 would also be
paid or provided under the terms of the applicable plan, program or
arrangement, such applicable plan, program or arrangement will be deemed to
have been satisfied by the payment made or benefit provided under this
Agreement.
7. Certain Additional Payments by the Company. Anything in this Agreement to
the contrary notwithstanding, if it is determined that any payment or
distribution by the Company to or for the benefit of Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise 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 rights, or the lapse or
termination of any restriction on or the vesting or exercisability of any of
the foregoing (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code (or any successor provision thereto) by reason of
being "contingent on a change in ownership or control" of KU Energy or the
Company, 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 such excise tax (such tax or taxes,
together with any such interest and penalties, are hereafter collectively
referred to as the "Excise Tax"), then the Executive will be entitled to
receive an additional payment or payments (a "Gross-Up Payment") 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 Payments. All
determinations made or required to be made under this Section 7 will be made,
and all actions required to be taken in order to carry out the provisions of
this Section 7 shall be taken, in a manner consistent with the document
entitled "Senior Executive Excise Tax Gross-Up Payment" dated as of the date
hereof, on file with the Secretary of the Company.
8. Mitigation of Damages. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder and no amounts earned by Executive, whether from self-employment, as
a common-law employee or otherwise, shall reduce the amount of any Termination
Payment otherwise payable to him.
E-7
<PAGE>
9. Notices. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
To Executive:
Michael R. Whitley
709 Turf Court
Lexington, Kentucky 40502
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after
the actual date of mailing shall constitute the time at which notice was
given.
10. Separability; Legal Fees. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect. The Company shall reimburse Executive
and be responsible for all of Executive's legal fees and related fees and
expenses in connection with any dispute under this Agreement, without regard
to which party prevails.
11. Assignment. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company (including LG&E Energy as the surviving entity in
the Merger and as successor to the Company at the Effective Time), but neither
this Agreement nor any rights or obligations hereunder shall be assignable or
otherwise subject to hypothecation by Executive (except by will or by
operation of the laws of intestate succession) or by the Company (except
pursuant to the Merger), except that the Company may assign this Agreement to
any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
12. Amendment; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, approved by the Company and
signed by Executive and the Company. Failure on the part of either party to
complain of any action or omission, breach or default on the part of the other
party, no matter how long the same may continue, will never be deemed to be a
waiver of any rights or remedies hereunder, at law or in equity.
13. Beneficiaries; References. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death, and may change such election, in either case by
giving the Company written notice thereof. In the event of Executive's death
or a judicial determination of his incompetence, reference in this Agreement
to Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
14. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. Without
limiting the generality of the foregoing, the provisions of Sections 6, 7 and
10 hereunder shall remain in effect as long as necessary to give effect
thereto, notwithstanding the expiration of the term of this Agreement. The
provisions of this Section 14 are in addition to the survivorship provisions
of any other section of this Agreement.
15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the Commonwealth of Kentucky, without
reference to rules relating to conflicts of law.
E-8
<PAGE>
16. Effectiveness; Effect on Prior Agreements. This Agreement shall become
effective at the Effective Time and shall have no force or effect prior
thereto. At the Effective Time, this Agreement shall contain the entire
understanding between the parties hereto and supersede in all respects any
prior or other agreement or understanding between the Company and Executive
other than the KU Energy SSP, which shall be amended as to the Executive so
that the Merger will not constitute a "Change in Control" pursuant to the KU
Energy SSP. In the event that (i) the Merger Agreement is terminated for any
reason prior to the Effective Time, or (ii) Executive's employment with KU
Energy is terminated at any time prior to the Effective Time, this Agreement
shall be null and void and the KU Energy SSP shall not be amended.
17. Miscellaneous. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original. The headings used in
this Agreement are intended for convenience or reference only and will not in
any manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
KU Energy Corporation
By: /s/ O.M. Goodlett
--------------------------------
Name: O. M. Goodlett
Title: Senior Vice President
/s/ Michael R. Whitley
-------------------------------------
MICHAEL R. WHITLEY
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<PAGE>
ANNEX F
THE BLACKSTONE GROUP
August 22, 1997
Board of Directors
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Gentlemen and Madame:
We understand that LG&E Energy Corp. ("LG&E") and KU Energy Corporation
("KU") have entered into an Agreement and Plan of Merger (the "Agreement")
dated as of May 20, 1997, which provides for, among other things, the merger
of KU with and into LG&E (the "Merger"). Pursuant to the Agreement, LG&E will
be the surviving corporation and each issued and outstanding share of common
stock, without par value, of KU ("KU Common Stock"), other than those shares
held in treasury, by subsidiaries of KU, by LG&E or by subsidiaries of LG&E,
or for which dissenters' rights have been perfected, will be converted into
the right to receive 1.67 shares (the "Exchange Ratio") of the common stock,
without par value, of LG&E ("LG&E Common Stock"). It is also our understanding
that LG&E and KU have entered into Stock Option Agreements, each dated as of
May 20, 1997 (the "Option Agreements"), pursuant to which LG&E and KU have
each granted the other an option to acquire, upon the terms and conditions set
forth in the respective Option Agreements, LG&E Common Stock or KU Common
Stock (collectively, the "Options"), as the case may be. The terms and
conditions of the Merger and the Options are fully set forth in the Merger
Agreement and Option Agreements, respectively.
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of LG&E Common Stock from a financial point of view.
In arriving at the opinion set forth below we have reviewed, among other
things, certain publicly available information concerning the business,
financial condition and operations of LG&E and KU which we believe to be
relevant to our inquiry, and certain internal financial analyses, estimates
and forecasts relating to LG&E and KU prepared by, and furnished to us by, the
respective managements of LG&E and KU, including estimates of certain
operating efficiencies and synergies expected to be achieved as a result of
the Merger, that were prepared by the managements of LG&E and KU, with the
assistance of a third-party consultant with respect to an estimate of
potential cost savings; held discussions with members of management of LG&E
and KU concerning their respective businesses, operating environments,
prospects and strategic objectives; reviewed the historical market prices and
trading activity for LG&E Common Stock and KU Common Stock, compared certain
financial and stock market information for LG&E and KU with similar
information for certain other companies the securities of which are publicly
traded, and reviewed the financial terms of certain recent business
combinations in the electric utility industry; considered the pro forma
financial effect of the Merger on LG&E; participated in discussions among
representatives of LG&E and KU and their respective financial and legal
advisors; reviewed the Merger Agreement and Option Agreements; reviewed the
Registration Statement, including the Joint Proxy Statement/Prospectus; and
performed such other studies and analyses, and took into account such other
matters, as we deemed appropriate.
In arriving at our opinion, we have relied without independent verification
upon the accuracy and completeness of all of the financial and other
information reviewed by us that was publicly available, that was supplied or
otherwise made available to us by LG&E and KU or that was otherwise reviewed
by us. Without limiting the generality of the foregoing, we have assumed that
the financial forecasts and the estimates prepared
F-1
<PAGE>
by LG&E and KU and provided to us, including without limitation, the estimates
of operating efficiencies and synergies that would result from the combination
of LG&E and KU, have been reasonably determined on a basis reflecting the best
currently available judgments and estimates of LG&E and KU, and that such
forecasts and such estimates will be realized in the amounts and at the times
contemplated thereby. In addition, we have not conducted a physical inspection
of the properties and facilities of LG&E or KU, nor have we made an
independent evaluation or appraisal of the assets and liabilities of LG&E or
KU. We have assumed that the Merger contemplated by the Agreement will be
accounted for as a pooling-of-interests under generally accepted accounting
principles and will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. Our opinion
is necessarily based upon economic, market, monetary and other conditions as
they exist and can be evaluated, and the information made available to us, as
of the date hereof. Furthermore, we express no opinion as to the prices at
which LG&E Common Stock will trade at any time.
This letter does not constitute a recommendation to any shareholder as to
how such holder should vote with respect to the Merger, and should not be
relied upon by any shareholder as such.
We have acted as financial advisor to LG&E with respect to the proposed
Merger and will receive a fee from LG&E for our services. In addition, we have
performed other investment banking and financial advisory services for LG&E in
the past for which we have received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of LG&E Common Stock
from a financial point of view.
Very truly yours,
THE BLACKSTONE GROUP L.P.
By: _________________________________
Michael B. Hoffman
LOGO
Senior Managing Director
F-2
<PAGE>
ANNEX G
- -------------------------------------------------------------------------------
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
GOLDMAN
SACHS
- -------------------------------------------------------------------------------
PERSONAL AND CONFIDENTIAL
August 22, 1997
Board of Directors
KU Energy Corporation
One Quality Street
Lexington, Kentucky 40507-1428
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, no par value per share (the "Shares"), of
KU Energy Corp. (the "Company") of the exchange ratio of 1.67 shares of Common
Stock, no par value per share (the "LG&E Energy Corp. Common Stock"), of LG&E
Energy Corp. ("LG&E") to be received for each Share (the "Exchange Ratio") in
connection with the merger of the Company with and into LG&E (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of May 20, 1997 (the
"Agreement") by and between the Company and LG&E.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company, having provided certain investment
banking services to the Company from time to time, including having acted as
managing underwriter of various public offerings for the Company's wholly-
owned subsidiary, Kentucky Utilities, over the past five years, of securities
aggregating $315.5 million principal amount and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have also provided certain
investment banking services to LG&E from time to time. We may provide
investment banking services to LG&E or certain of its subsidiaries in the
future. In the ordinary course of its trading activities, Goldman Sachs
actively trades the equity securities of the Company and LG&E, and the debt
securities of their respective subsidiaries, for its own account and for the
accounts of its customers and may, therefore, at any time hold a long or short
position in such securities.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K of
the Company and LG&E for the five years ended December 31, 1996; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q of the
Company and LG&E; certain FERC Forms 1 of Kentucky Utilities Company and
Louisville Gas & Electric Company; certain other communications from the
Company and LG&E to their respective shareholders; certain estimated cost
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savings prepared jointly by the managements of the Company and LG&E with the
assistance of a third party consultant (the "Cost Savings"); and certain
internal financial analyses and forecasts (the "Forecasts") for the Company
and LG&E prepared by their respective managements, including analyses and
forecasts of certain operating efficiencies and financial synergies (the
"Synergies") expected to be achieved as a result of the Merger, that were
prepared jointly by the managements of the Company and LG&E. We also have held
discussions with members of the senior management of the Company and LG&E
regarding past and current business operations, financial condition and future
prospects of their respective companies and their analyses of the strategic
benefits of the Merger, including, without limitation, the amount and timing
of realization of the Synergies and the Cost Savings. In addition, we have
reviewed the reported price and trading activity for the Shares and for the
LG&E Energy Corporation Common Stock, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the utility industry
specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion as well as upon
assessments by each of the Company and LG&E of their respective contingent
obligations. In that regard, we have assumed, with your consent, that the Cost
Savings and the Forecasts, including, without limitation, the Synergies have
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the managements of the Company and LG&E and that
the Synergies and the Cost Savings will be realized in the amounts and at the
times contemplated thereby. We have further assumed, with your consent, that
obtaining any necessary regulatory or third-party approvals for the
transactions contemplated by the Agreement will not have an adverse effect on
the Company or LG&E, as applicable. We have also assumed, with your consent,
that the consummation of the transactions contemplated by the Agreement will
be recorded as a pooling of interests under generally accepted accounting
principles. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or LG&E or their
respective subsidiaries, and we have not been furnished with any such
evaluation or appraisal. Our advisory services and our opinion were provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and do not constitute a recommendation to any shareholder of the
Company as to how to vote on matters relating to the transactions contemplated
by the Agreement.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio is fair to the holders of the Shares.
Very truly yours,
- -------------------------------------
(GOLDMAN, SACHS & CO.)
LOGO
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ANNEX H
FORM OF AMENDED AND
RESTATED ARTICLES OF INCORPORATION
OF
LG&E ENERGY CORP.
"FIRST. The corporate name is
LG&E Energy Corp.
SECOND. The address of the registered office of LG&E Energy Corp. (herein, the
"Company") is 220 West Main Street, P.O. Box 32030, Louisville, Kentucky 40232
and the name of the Company's registered agent at that office is John R.
McCall.
THIRD. The mailing address of the principal office of the Company is 220 West
Main Street, P.O. Box 32030, Louisville, Kentucky 40232.
FOURTH. A. AUTHORIZED CAPITAL STOCK. The total number of shares which the
Company shall have the authority to issue shall be 305,000,000 shares, of
which 300,000,000 shares shall be Common Stock, without par value, and
5,000,000 shares shall be Preferred Stock, without par value.
B. COMMON STOCK. The Board of Directors is hereby authorized to cause shares
of Common Stock, without par value, to be issued from time to time for such
consideration as may be fixed from time to time by the Board of Directors, or
by way of stock split pro rata to the holders of the Common Stock. The Board
of Directors may also determine the proportion of the proceeds received from
the sale of such stock which shall be credited upon the books of the Company
to Capital or Capital Surplus.
Each share of the Common Stock shall be equal in all respects to every other
share of the Common Stock. Subject to any special voting rights of the holders
of Preferred Stock fixed by or pursuant to the provisions of Paragraph C of
this Article Fourth, the shares of Common Stock shall entitle the holders
thereof to one vote for each share upon all matters upon which shareholders
have the right to vote and, to the extent required by law, to cumulative
voting in all elections of directors by shareholders.
No holder of shares of Common Stock shall be entitled as such as a matter of
right to subscribe for or purchase any part of any new or additional issue of
stock, or securities convertible into stock, of any class whatsoever, whether
now or hereafter authorized, and whether issued for cash, property, services
or otherwise. After the requirements with respect to preferential dividends on
Preferred Stock (fixed by or pursuant to the provisions of Paragraph C of this
Article Fourth), if any, shall have been met and after the Company shall have
complied with all the requirements, if any, with respect to the setting aside
of sums as sinking funds or redemption or purchase accounts (fixed by or
pursuant to the provisions of Paragraph C of this Article Fourth) and subject
further to any other conditions which may be fixed by or pursuant to the
provisions of Paragraph C of this Article Fourth, then, but not otherwise, the
holders of Common Stock shall be entitled to receive dividends, if any, as may
be declared from time to time by the Board of Directors.
After distribution in full of the preferential amount (fixed by or pursuant to
the provisions of Paragraph C of this Article Fourth), if any, to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding up of the Company, the holders of the Common Stock shall be entitled
to receive all the remaining assets of the Company, tangible and intangible,
of whatever kind available for distribution to shareholders, ratably in
proportion to the number of shares of Common Stock held by each.
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C. PREFERRED STOCK. Shares of Preferred Stock may be divided into and issued
in such series, on such terms and for such consideration as may from time to
time be determined by the Board of Directors of the Company. Each series shall
be so designated as to distinguish the shares thereof from the shares of all
other series and classes. All shares of Preferred Stock shall be identical,
except as to variations between different series in the relative rights and
preferences as permitted or contemplated by the next succeeding sentence.
Authority is hereby vested in the Board of Directors of the Company to
establish out of shares of Preferred Stock which are authorized and unissued
from time to time one or more series thereof and to fix and determine the
following relative rights and preferences of shares of each such series:
(1) The distinctive designation of, and the number of shares which shall
constitute, the series and the "stated value" or "nominal value," if any,
thereof;
(2) The rate of dividend applicable to shares of such series;
(3) The price at and the terms and conditions on which shares of such series
may be redeemed;
(4) The amount payable upon shares of such series in the event of the
involuntary liquidation of the Company;
(5) The amount payable upon shares of such series in the event of the
voluntary liquidation of the Company;
(6) Sinking fund provisions for the redemption or purchase of shares of such
series;
(7) The terms and conditions on which shares of such series may be
converted, if such shares are issued with the privilege of conversion;
(8) The voting powers, if any, of the holders of shares of the series which
may, without limiting the generality of the foregoing, include (i) the right
to one or less than one vote per share on any or all matters voted upon by the
shareholders and (ii) the right to vote, as a series by itself or together
with other series of Preferred Stock or together with all series of Preferred
Stock as a class, upon such matters, under such circumstances and upon such
conditions as the Board of Directors may fix, including, without limitation,
the right, voting as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock as a class, to
elect one or more directors of this Company in the event there shall have been
a failure to pay dividends on any one or more series of Preferred Stock or
under such other circumstances and upon such conditions as the Board of
Directors may determine; provided, however, that in no event shall a share of
Preferred Stock have more than one vote; and
(9) Any other such rights and preferences as are not inconsistent with the
Kentucky Business Corporation Act.
No holder of any share of any series of Preferred Stock shall be entitled to
vote for the election of directors or in respect of any other matter except as
may be required by the Kentucky Business Corporation Act, as amended, or as is
permitted by the resolution or resolutions adopted by the Board of Directors
authorizing the issue of such series of Preferred Stock.
D. OTHER PROVISIONS.
(1) The relative powers, preferences, and rights of each series of Preferred
Stock in relation to the powers, preferences and rights of each other series
of Preferred Stock shall, in each case, be as fixed from time to time by the
Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph C of this Article Fourth, and the consent by
class or series vote or otherwise, of the holders of the Preferred Stock or
such of the series of the Preferred Stock as are from time to time outstanding
shall not be required for the issuance by the Board of Directors of any other
series of Preferred Stock whether the powers, preferences and
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rights of such other series shall be fixed by the Board of Directors as senior
to, or on a parity with, powers, preferences and rights of such outstanding
series, or any of them, provided, however, that the Board of Directors may
provide in such resolution or resolutions adopted with respect to any series
of Preferred Stock that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of
such series voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(2) Subject to the provisions of Section 1 of this Paragraph D, shares of
any series of Preferred Stock may be issued from time to time as the Board of
Directors shall determine and on such terms and for such consideration as
shall be fixed by the Board of Directors.
(3) Common Stock may be issued from time to time as the Board of Directors
shall determine and on such terms and for such consideration as shall be fixed
by the Board of Directors.
(4) No holder of any of the shares of any class or series of shares or
securities convertible into such shares of any class or series of shares, or
of options, warrants or other rights to purchase or acquire shares of any
class or series of shares or of other securities of the Company shall have any
preemptive right to purchase, acquire, subscribe for any unissued shares of
any class or series or any additional shares of any class or series to be
issued by reason of any increase of the authorized capital stock of the
Company of any class or series, or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for shares of
any class or series, or carrying any right to purchase or acquire shares of
any class or series, but any such unissued shares, additional authorized issue
of shares of any class or series of shares or securities convertible into or
exchangeable for shares, or carrying any right to purchase or acquire shares,
may be issued and disposed of pursuant to resolution of the Board of Directors
to such persons, firms, corporations or associations, and upon such terms, as
may be deemed advisable by the Board of Directors in the exercise of its sole
discretion.
(5) The Company reserves the right to increase or decrease its authorized
capital shares, or any class or series thereof or to reclassify the same and
to amend, alter, change or repeal any provision contained in the Articles of
Incorporation or in any amendment thereto, in the manner now or hereafter
prescribed by law, but subject to such conditions and limitations as are
hereinbefore prescribed, and all rights conferred upon shareholders in the
Articles of Incorporation of this Company, or any amendment thereto, are
granted subject to this reservation.
FIFTH. The purpose of the Company is the transaction of any or all lawful
business for which corporations may be incorporated under the Kentucky
Business Corporation Act.
SIXTH. The period of the Company's duration shall be perpetual.
SEVENTH. A. Certain Definitions. For purposes of this Article Seventh:
(1) "Affiliate," including the term "affiliated person," means a person who
directly, or indirectly through one (1) or more intermediaries, controls, or
is controlled by, or is under common control with, a specified person.
(2) "Associate," when used to indicate a relationship with any person,
means:
(a) Any corporation or organization (other than the Company or a
Subsidiary), of which such person is an officer, director or partner or is,
directly or indirectly, the Beneficial Owner of ten percent (10%) or more of
any class of Equity Securities;
(b) Any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity; and
(c) Any relative or spouse of such person, or any relative of such spouse,
any one (1) of whom has the same home as such person or is a director or
officer of the corporation or any of its Affiliates.
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(3) "Beneficial Owner," when used with respect to any Voting Stock, means a
person:
(a) Who, individually or with any of its Affiliates or Associates,
beneficially owns Voting Stock, directly or indirectly; or
(b) Who, individually or with any of its Affiliates or Associates, has:
1. The right to acquire Voting Stock, whether such right is exercisable
immediately or only after the passage of time and whether or not such right is
exercisable only after specified conditions are met, pursuant to any
agreement, arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise;
2. The right to vote Voting Stock pursuant to any agreement,
arrangement, or understanding; or
3. Any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting or disposing of Voting Stock with any other person
who beneficially owns, or whose Affiliates or Associates beneficially owns,
directly or indirectly, such shares of Voting Stock.
(4) "Business Combination" means:
(a) Any merger or consolidation of the Company or any Subsidiary with any
Interested Shareholder, or any other corporation, whether or not itself an
Interested Shareholder, which is, or after the merger or consolidation would
be, an Affiliate of an Interested Shareholder who was an Interested
Shareholder prior to the transaction;
(b) Any sale, lease, transfer, or other disposition, other than in the
ordinary course of business, in one (1) transaction or a series of
transactions in any twelve-month period, to any Interested Shareholder or any
Affiliate of any Interested Shareholder, other than the Company or any
Subsidiary, of any assets of the Company or any Subsidiary having, measured at
the time the transaction or transactions are approved by the Board of
Directors of the Company, an aggregate book value as of the end of the
Company's most recently ended fiscal quarter of five percent (5%) or more of
the total Market Value of the outstanding stock of the Company or of its net
worth as of the end of its most recently ended fiscal quarter;
(c) The issuance or transfer by the Company, or any Subsidiary, in one
transaction or a series of transactions in any twelve-month period, of any
Equity Securities of the Company or any Subsidiary which have an aggregate
Market Value of five percent (5%) or more of the total Market Value of the
outstanding stock of the Company, determined as of the end of the Company's
most recently ended fiscal quarter prior to the first such issuance or
transfer, to any Interested Shareholder or any Affiliate of any Interested
Shareholder, other than the Company or any of its Subsidiaries, except
pursuant to the exercise of warrants or rights to purchase securities offered
pro rata to all holders of the Company's Voting Stock or any other method
affording substantially proportionate treatment to the holders of Voting
Stock;
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Company in which anything other than cash will be received
by an Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(e) Any reclassification of securities, including any reverse stock split;
or recapitalization of the Company; or any merger or consolidation of the
Company with any of its Subsidiaries; or any other transaction which has the
effect, directly or indirectly, in one transaction or a series of
transactions, of increasing by five percent (5%) or more the proportionate
amount of the outstanding shares of any class of Equity Securities of the
Company or any Subsidiary which is directly or indirectly beneficially owned
by any Interested Shareholder or any Affiliate of any Interested Shareholder.
(5) "Common Stock" means any stock of the Company other than preferred or
preference stock of the Company.
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(6) "Continuing Director" means any member of the Company's Board of
Directors who is not an Interested Shareholder or an Affiliate or Associate of
an Interested Shareholder or any of its Affiliates, other than the Company or
any of its Subsidiaries, and who was a director of the Company prior to the
time the Interested Shareholder became an Interested Shareholder, and any
successor to such Continuing Director who is not an Interested Shareholder or
an Affiliate or Associate of an Interested Shareholder or any of its
Affiliates, other than the Company or any of its Subsidiaries, and was
recommended or elected by a majority of the Continuing Directors at a meeting
at which a quorum consisting of a majority of the Continuing Directors is
present.
(7) "Control," including the term "controlling," "controlled by" and "under
common control with," means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise, and the beneficial ownership of ten percent (10%) or more of the
votes entitled to be cast by a corporation's Voting Stock creates a
presumption of control.
(8) "Equity Security" means:
(a) Any stock or similar security, certificate of interest, or
participation in any profit-sharing agreement, voting trust certificate, or
certificate of deposit for the foregoing;
(b) Any security convertible, with or without consideration, into an
Equity Security, or any warrant or other security carrying any right to
subscribe to or purchase an Equity Security; or
(c) Any put, call, straddle, or other option, right or privilege of
acquiring an Equity Security from or selling an Equity Security to another
without being bound to do so.
(9) "Interested Shareholder" means any person, other than the Company or any
of its Subsidiaries, who:
(a) Is the Beneficial Owner, directly or indirectly, of ten percent (10%)
or more of the voting power of the outstanding Voting Stock of the Company; or
is an Affiliate of the Company and at any time within the two-year period
immediately prior to the date in question was the Beneficial Owner, directly
or indirectly, of ten percent (10%) or more of the voting power of the then
outstanding Voting Stock of the Company.
(b) For the purpose of determining whether a person is an Interested
Shareholder, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by the person through application of
Subsection (3) of this Paragraph A of Article Seventh but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement, or understanding, or upon exercise of conversion
rights, warrants or options or otherwise.
(10) "Market Value" means:
(a) In the case of stock, the highest closing sale price during the
thirty-day period immediately preceding the date in question of a share of
such stock on the composite tape for New York Stock Exchange listed stocks,
or, if such stock is not quoted on the composite tape, on the New York Stock
Exchange, or if such stock is not listed on such exchange, on the principal
United States securities exchanges registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation with respect to a share
of such stock during the thirty-day period preceding the date in question on
the National Association of Securities Dealers, Inc., Automated Quotation
System or any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors at a meeting of the Board
of Directors at which a quorum consisting of at least a majority of the
Continuing Directors is present; and
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(b) In the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by a majority of
the Continuing Directors at a meeting of the Board of Directors at which a
quorum consisting of at least a majority of the Continuing Directors is
present.
(11) "Subsidiary" means any corporation of which Voting Stock having a
majority of the votes entitled to be cast is owned, directly or indirectly, by
the Company.
(12) "Voting Stock" means shares of capital stock of a corporation entitled
to vote generally in the election of its directors.
B. MINIMUM SHARE VOTE REQUIREMENTS FOR APPROVAL OF BUSINESS COMBINATIONS.
(1) In addition to any vote otherwise required by law or these Articles of
Incorporation, a Business Combination shall be recommended by the Board of
Directors of the Company and approved by the affirmative vote of at least:
(a) Eighty percent (80%) of the votes entitled to be cast by outstanding
shares of Voting Stock of the Company, voting together as a single voting
group, and
(b) Two-thirds of the votes entitled to be cast by holders of Voting Stock
other than Voting Stock beneficially owned by the Interested Shareholder who
is, or whose Affiliate is, a party to the Business Combination or by an
Affiliate or Associate of such Interested Shareholder, voting together as a
single voting group.
(2) Unless a Business Combination is exempted from the operation of this
Paragraph B in accordance with Paragraph C of this Article Seventh, the
failure to comply with the voting requirements of Subsection (1) of this
Paragraph B shall render such Business Combination void.
C. EXEMPTIONS FROM MINIMUM SHARE VOTE REQUIREMENTS.
(1) For purposes of Section (2) of this Paragraph C
(a) "Announcement Date" means the first general public announcement of the
proposal or intention to make a proposal of the Business Combination or the
first communication generally to shareholders of the Company, whichever is
earlier.
(b) "Determination Date" means the date on which an Interested Shareholder
first became an Interested Shareholder, and
(c) "Valuation Date" means:
1. For a Business Combination voted upon by shareholders, the latter of
the day prior to the date of the shareholders' vote or the date twenty (20)
days prior to the consummation of the Business Combination; and
2. For a Business Combination not voted upon by shareholders, the date
of the consummation of the Business Combination.
(2) The vote required by Paragraph B of this Article Seventh does not apply
to a Business Combination if each of the following conditions is met:
(a) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination is at least equal to the
highest of the following:
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1. The highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by the Interested
Shareholder for any shares of Common Stock of the same class or series
acquired by it:
a. Within the two-year period immediately prior to the Announcement
Date of the proposal of the Business Combination; or
b. In the transaction in which it became an Interested Shareholder,
whichever is higher; or
2. The Market Value per share of Common Stock of the same class or
series on the Announcement Date or on the Determination Date, whichever is
higher; or
3. The price per share equal to the Market Value per share of Common
Stock of the same class or series determined pursuant to clause 2 of this
Subsection (a), multiplied by the fraction of:
a. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of Common Stock of the same class or series
acquired by it within the two-year period immediately prior to the
Announcement Date ever.
b. The Market Value per share of Common Stock of the same class or
series on the first day in such two-year period on which the Interested
Shareholder acquired any shares of Common Stock.
(b) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding stock other than
Common Stock is at least equal to the highest of the following, whether or not
the Interested Shareholder has previously acquired any shares of a particular
class or series of stock:
1. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of such class of stock acquired by it.
a. Within the two-year period immediately prior to the Announcement
Date of the proposal of the Business Combination; or
b. In the transaction in which it became an Interested Shareholder,
whichever is higher; or
2. The highest preferential amount per share to which the holders of
shares of such class of stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company; or
3. The Market Value per share of such class of stock on the Announcement
Date or on the Determination Date, whichever is higher; or
4. The price per share equal to the Market Value per share of such class
of stock determined pursuant to clause 3 of this Subsection (b), multiplied by
the fraction of:
a. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of any class of Voting Stock acquired by it within
the two-year period immediately prior to the Announcement Date, over
b. The Market Value per share of the same class of Voting Stock on the
first day in such two-year period on which the Interested Shareholder acquired
any shares of the same class of Voting Stock.
(c) In making any price calculation under Section (2) of this Paragraph C,
appropriate adjustments shall be made to reflect any reclassification,
including any reverse stock split; recapitalization; reorganization; or any
similar transaction which has the effect of reducing the number of outstanding
shares of the stock. The
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consideration to be received by holders of any class or series of outstanding
stock is to be in cash or in the same form as the Interested Shareholder has
previously paid for shares of the same class or series of stock. If the
Interested Shareholder has paid for shares of any class of stock with varying
forms of consideration, the form of consideration for such class of stock
shall be either cash or the form used to acquire the largest number of shares
of such class or series of stock previously acquired by it.
(d) 1. After the Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination.
a. There shall have been no failure to declare and pay at the regular
date therefor any full period dividends, whether or not cumulative, on any
outstanding preferred stock of the Company;
b. There shall have been no reduction in the annual rate of dividends
paid on any class or series of stock of the Company that is not preferred
stock, except as necessary to reflect any subdivision of the stock, and an
increase in such annual rate of dividends as necessary to reflect any
reclassification, including any reverse stock split, recapitalization,
reorganization, or any similar transaction which has the effect of reducing
the number of outstanding shares of the stock;
c. The Interested Shareholder shall not become the Beneficial Owner of
any additional shares of stock of the Company except as part of the
transaction which resulted in such Interested Shareholder becoming an
Interested Shareholder or by virtue of proportionate stock splits or stock
dividends.
2. The provisions of subclauses a and b of clause 1 do not apply if no
Interested Shareholder or an Affiliate or Associate of the Interested
Shareholder voted as a director of the Company in a manner inconsistent with
such subclauses and the Interested shareholder, within ten (10) days after any
act or failure to act inconsistent with such subclauses, notifies the Board of
Directors of the Company in writing that the Interested Shareholder
disapproves thereof and requests in good faith that the Board of Directors
rectify such act or failure to act.
(e) After the Interested Shareholder has become an Interested Shareholder,
the Interested Shareholder may not have received the benefit, directly or
indirectly, except proportionately as a shareholder, of any loans, advances,
guarantees, pledges or other financial assistance provided by the Company or
any Subsidiary, whether in anticipation of or in connection with such Business
Combination or otherwise.
(3) (a) The vote required by Paragraph B of this Article Seventh does not
apply to any Business Combination that is approved by a majority of Continuing
Directors at a meeting of the Board of Directors at which a quorum consisting
of at least a majority of the Continuing Directors is present.
(b) Unless by its terms a resolution adopted under the foregoing subsection
(a) of this Section (3) is made irrevocable, it may be altered or repealed by
the Board of Directors, but this shall not affect any Business Combinations
that have been consummated, or are the subject of an existing agreement
entered into, prior to the alteration or repeal.
D. POWERS OF THE BOARD OF DIRECTORS. A majority of the Continuing Directors of
the Company shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article Seventh, including without limitation,
(a) whether a person is an Interested Shareholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Company or any Subsidiary in
any Business Combination has, an aggregate book value or Market Value of five
percent (5%) or more of the total Market Value of the outstanding stock of the
Company or of its net worth, and (e) whether the requirements of Paragraph C
of this Article Seventh have been met.
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E. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS. Nothing
contained in this Article Seventh shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
F. AMENDMENT OR REPEAL. Notwithstanding any other provisions of this Article
Seventh or of any other Article hereof, or of the By-Laws of the Company (and
notwithstanding the fact that a lesser percentage may be specified from time
to time by law, this Article Seventh, any other Article hereof, or the By-Laws
of the Company), the provisions of this Article Seventh may not be altered,
amended or repealed in any respect, nor may any provision inconsistent
therewith be adopted, unless such alteration, amendment, repeal or adoption is
approved by the affirmative vote of the holders of at least: (i) 80% of the
combined voting power of the then outstanding Voting Stock of the Company,
voting together as a single class and (ii) 66 2/3% of the combined voting
power of the then outstanding Voting Stock (which is not beneficially owned by
an Interested Shareholder), voting together as a single class.
EIGHTH. A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The business of the
Company shall be managed by a Board of Directors. The number of directors of
the Company shall be fixed from time to time by or pursuant to the By-Laws of
the Company. Except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances, the directors shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the By-
Laws of the Company. One class shall be originally elected for a term expiring
at the annual meeting of shareholders to be held in 1991, another class shall
be originally elected for a term expiring at the annual meeting of
shareholders to be held in 1992, and another class shall be originally elected
for a term expiring at the annual meeting of shareholders to be held in 1993,
with each member of each class to hold office until a successor is elected and
qualified. At each annual meeting of shareholders of the Company and except as
otherwise provided in or fixed by or pursuant to the provisions of Article
Fourth hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, the successors
of the class of directors whose term expires at that meeting shall be elected
to hold office for a term of three years.
B. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES AND INTRODUCTION OF
BUSINESS. Advance notice of shareholder nominations for the election of
directors, and advance notice of business to be brought by shareholders before
an annual meeting of shareholders, shall be given in the manner provided in
the By-Laws of the Company.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise required by
law and except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances: (i) newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board of Directors; (ii) any
director elected in accordance with the preceding clause (i) shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified; and (iii) no decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
D. REMOVAL. Except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances, any director may be removed from office, with or without cause,
only by the affirmative vote of the holders of at least 80% of the combined
voting power of the then outstanding shares of the Company's stock entitled to
vote generally, voting
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together as a single class. Notwithstanding the foregoing provisions of this
Paragraph D, if at any time any shareholders of the Company have cumulative
voting rights with respect to the election of directors and less than the
entire Board of Directors is to be removed, no director may be removed from
office if the votes cast against removal would be sufficient to elect the
person as a director if cumulatively voted at an election of the class of
directors of which such person is a part. Whenever in this Article Eighth or
in Article Ninth hereof or in Article Tenth hereof, the phrase, "the then
outstanding shares of the Company's stock entitled to vote generally" is used,
such phrase shall mean each then outstanding share of any class or series of
the Company's stock that is entitled to vote generally in the election of the
Company's directors.
E. AMENDMENT OR REPEAL. Notwithstanding any other provisions of this Article
Eighth or of any other Article hereof or of the By-Laws of the Company (and
notwithstanding the fact that a lesser percentage may be specified from time
to time by law, this Article Eighth, any other Article hereof, or the By-Laws
of the Company), the provisions of this Article Eighth may not be altered,
amended or repealed in any respect, nor may any provision inconsistent
therewith be adopted, unless such alteration, amendment, repeal or adoption is
approved by the affirmative vote of at least 80% of the combined voting power
of the then outstanding shares of the Company's stock entitled to vote
generally, voting together as a single class.
NINTH. Any action required or permitted to be taken by the shareholders of the
Company at a meeting of such holders may be taken without such a meeting only
by written consent by all of the shareholders entitled to vote on the subject
matter thereof. Except as otherwise mandated by Kentucky law and except as
otherwise provided in or fixed by or pursuant to the provisions of Article
Fourth hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, special meetings
of shareholders of the Company may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors or by the President of the Company. Notwithstanding any other
provisions of this Article Ninth or of any other Article hereof or of the By-
Laws of the Company (and notwithstanding the fact that a lesser percentage may
be specified from time to time by law, this Article Ninth, any other Article
hereof, or the By-Laws of the Company), the provisions of this Article Ninth
may not be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least 80%
of the combined voting power of the then outstanding shares of the Company's
stock entitled to vote generally, voting together as a single class.
TENTH. The Board of Directors shall have power to adopt, amend and repeal the
By-Laws of the Company to the maximum extent permitted from time to time by
Kentucky law; provided, however, that any By-Laws adopted by the Board of
Directors under the powers conferred hereby may be amended or repealed by the
Board of Directors or by the holders of at least a majority of the combined
voting power of the outstanding shares of the Company's stock entitled to vote
generally, voting together as a single class, except that, and notwithstanding
any other provisions of this Article Tenth or of any other Article hereof or
of the By-Laws of the Company (and notwithstanding the fact that a lesser
percentage may be specified from time to time by law, this Article Tenth, any
other Article hereof or the By-Laws of the Company), no provision of Section
2, Section 5 or Section 6 of Article I of the By-Laws or of Section 1 of
Article II of the By-Laws or of Article VIII of the By-Laws may be altered,
amended or repealed in any respect, nor may any provision inconsistent
therewith be adopted, unless such alteration, amendment, repeal or adoption is
approved by the affirmative vote of the holders of at least 80% of the
combined voting power of the then outstanding shares of the Company's stock
entitled to vote generally, voting together as a single class. Notwithstanding
any other provisions of this Article Tenth or of any other Article hereof or
of the By-Laws of the Company (and notwithstanding the fact that a lesser
percentage may be specified from time to time by law, this Article Tenth, any
other Article hereof, or the By-Laws of the Company), the provisions of this
Article Tenth may not be altered, amended or repealed in any respect, nor may
any provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the
holders of at least 80% of the combined voting power of the then outstanding
shares of the Company's stock entitled to vote generally, voting together as a
single class.
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ELEVENTH. A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of his duties as a
director, except for liability (i) for any transaction in which the director's
personal financial interest is in conflict with the financial interests of the
Company or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or are known to the director to be a
violation of law, (iii) under Kentucky Revised Statutes 271B.8-330, or (iv)
for any transaction from which the director derived any improper personal
benefit. If the Kentucky Business Corporation Act as amended after approval by
the shareholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the Kentucky Business Corporation Act, as so
amended.
Any repeal or modification of the foregoing paragraph by the shareholders of
the Company shall not adversely affect any right or protection of a director
of the Company existing at the time of such repeal or modification.
TWELFTH. A. Right to Indemnification. Each person who was or is a director of
the Company and who was or is made a party or is threatened to be made a party
to or as otherwise involved (including, without limitation, as a witness) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer of the Company or is or was serving at the
request of the Company as a director, officer, partner, trustee, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnified Director"), whether the basis of such proceeding
is alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified
and held harmless by the Company to the fullest extent permitted by the
Kentucky Business Corporation Act, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
such law permitted the Company to provide prior to such amendment), against
all liability, all reasonable expense and all loss (including, without
limitation, judgments, fines, reasonable attorneys' fees, ERISA excise taxes
or penalties and amounts paid in settlement) incurred or suffered by such
Indemnified Director in connection therewith and such indemnification shall
continue as to an Indemnified Director who has ceased to be a director and
shall inure to the benefit of the Indemnified Director's heirs, executors and
administrators. Each person who was or is an officer of the Company and not a
director of the Company and who was or is made a party or is threatened to be
made a party to or is otherwise involved (including, without limitation, as a
witness) in any proceeding, by reason of the fact that he or she is or was an
officer of the Company or is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "Indemnified
Officer"), whether the basis of such proceeding is alleged action in an
official capacity as an officer or in any other capacity while serving as an
officer, shall be indemnified and held harmless by the Company against all
liability, all reasonable expense and all loss (including, without limitation,
judgments, fines, reasonable attorneys' fees, ERISA excise taxes or penalties
and amounts paid in settlement) incurred or suffered by such Indemnified
Officer to the same extent and under the same conditions that the Company must
indemnify an Indemnified Director pursuant to the immediately preceding
sentence and to such further extent as is not contrary to public policy and
such indemnification shall continue as to an Indemnified Officer who has
ceased to be an officer and shall inure to the benefit of the Indemnified
Officer's heirs, executors and administrators. Notwithstanding the foregoing
and except as provided in Paragraph B of this Article Twelfth with respect to
proceedings to enforce rights to indemnification, the Company shall indemnify
any Indemnified Director or Indemnified Officer in connection with a
proceeding (or part thereof) initiated by such Indemnified Director or
Indemnified Officer only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Company. As hereinafter used in this Article
Twelfth, the term "indemnitee" means any Indemnified Director or Indemnified
Officer. Any person who is or was a director or officer of a subsidiary of the
Company shall be deemed to be serving in such capacity at the request of the
Company for purposes of this Article Twelfth. The right to indemnification
conferred in this Article shall include the right to be paid by the Company
the expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Kentucky
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Business Corporation Act requires, an advancement of expenses incurred by an
indemnitee who at the time of receiving such advance is a director of the
Company shall be made only upon: (i) delivery to the Company of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter, a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise; (ii) delivery to the Company of a
written affirmation of the indemnitee's good faith belief that he or she has
met the standard of conduct that makes indemnification by the Company
permissible under the Kentucky Business Corporation Act; and (iii) a
determination that the facts then known to those making the determination
would not preclude indemnification under the Kentucky Business Corporation
Act. The right to indemnification and advancement of expenses conferred in
this Paragraph A shall be a contract right.
B. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Paragraph A of this
Article Twelfth is not paid in full by the Company within sixty days after a
written claim has been received by the Company (except in the case of a claim
for an advancement of expenses, in which case the applicable period shall be
twenty days), the indemnitee may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit or in a suit brought by the Company to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee also shall be entitled to be paid the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (other than a suit to enforce a right to an
advancement of expenses brought by an indemnitee who will not be a director of
the Company at the time such advance is made) it shall be a defense that, and
in (ii) any suit by the Company to recover an advancement of expenses pursuant
to the terms of an undertaking the Company shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
standard that makes it permissible hereunder or under the Kentucky Business
Corporation Act (the "applicable standard") for the Company to indemnify the
indemnitee for the amount claimed. Neither the failure of the Company
(including its Board of Directors, a committee of the Board of Directors,
independent legal counsel or its shareholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee
is proper in the circumstances because the indemnitee has met the applicable
standard, nor an actual determination by the Company (including its Board of
Directors, a committee of the Board of Directors, independent legal counsel or
its shareholders) that the indemnitee has not met the applicable standard,
shall create a presumption that the indemnitee has not met the applicable
standard or, in the case of such a suit brought by the indemnitee, shall be a
defense to such suit. In any suit brought by the indemnitee to enforce a right
to indemnification or to an advancement of expenses hereunder, or by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified or to such advancement of expenses under this Article Twelfth or
otherwise shall be on the Company.
C. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article Twelfth shall not be
exclusive of any other right which any person may have or hereinafter acquire
under any statute, these Restated Articles of Incorporation, any By-Law, any
agreement, any vote of shareholders or disinterested directors or otherwise.
D. INSURANCE. The Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under the
Kentucky Business Corporation Act.
E. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Company and to any person serving at the request of the Company as an
agent or employee of another corporation or of a joint venture, trust or other
enterprise to the fullest extent of the provisions of this Article Twelfth
with respect to the indemnification and advancement of expenses of either
directors or officers of the Company.
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F. REPEAL OR MODIFICATION. Any repeal or modification of any provision of this
Article Twelfth shall not adversely affect any rights to indemnification and
to advancement of expenses that any person may have at the time of such repeal
or modification with respect to any acts or omissions occurring prior to such
repeal or modification.
G. SEVERABILITY. In case any one or more of the provisions of this Article
Twelfth, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions in this Article Twelfth, and any other application
thereof, shall not in any way be affected or impaired thereby.
THIRTEENTH. The name and mailing address of the sole incorporator is:
Charles A. Markel III
LG&E Energy Corp.
220 West Main Street
P.O. Box 32030
Louisville, KY 40232
FOURTEENTH. SERIES A PREFERRED STOCK.
Designation and Amount. There shall be a series of the Preferred Stock
designated as "Series A Preferred Stock". The number of shares constituting
such series shall be 2,000,000 and such series shall have the preferences,
limitations and relative rights set forth below.
Section 1. Dividends and Distributions.
(A) Subject to the possible prior and superior rights of the holders of any
shares of any other series of Preferred Stock or any other shares of preferred
stock of the Company ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, each holder of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for that purpose: (i) quarterly
dividends payable in cash on the first day of January, April, July, and
October in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of such share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $5.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends declared on shares of the
Common Stock of the Company, without par value (the "Common Stock"), since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of a share of
Series A Preferred Stock, and (ii) subject to the provision for adjustment
hereinafter set forth, quarterly distributions (payable in kind) on each
Quarterly Dividend Payment Date in an amount per share equal to 100 times the
aggregate per share amount of all non-cash dividends or other distributions
(other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock, by reclassification or otherwise)
declared on shares of Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or with respect to the first Quarterly Dividend Payment
Date, since the first issuance of a share of Series A Preferred Stock. If the
Quarterly Dividend Payment Date is a Saturday, Sunday or legal holiday, then
such Quarterly Dividend Payment Date shall be the first immediately preceding
calendar day which is not a Saturday, Sunday or legal holiday. In the event
that the Company shall at any time after December 5, 1990, (the "Rights
Declaration Date") (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock (ii) subdivide outstanding shares of
Common Stock, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case, the amount to which the
holder of a share of Series A Preferred Stock was entitled immediately prior
to such event pursuant to the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event, and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
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(B) The Company shall declare a dividend or distribution on shares of Series
A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the shares of Common Stock (other than
a dividend payable in shares of Common Stock); provided, however, that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $5.00 per share on
the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding share of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of such share of Series A
Preferred Stock, unless the date of issuance of such share is prior to the
record date for the first Quarterly Dividend Payment Date, in which case,
dividends on such share shall begin to accrue from the date of issuance of
such share, or unless the date of issuance is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on shares of Series A Preferred Stock in an amount less than the
aggregate amount of all such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all shares
of Series A Preferred Stock at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
(D) Dividends payable on the Series A Preferred Stock for the initial
dividend period and for any period less than a full quarterly period, shall be
computed on the basis of a 360-day year of 30-day months.
Section 2. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle the holder thereof
to one vote on all matters submitted to a vote of the shareholders of the
Company and, to the extent required by law, to cumulative voting in all
elections of directors by shareholders.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of
Company.
(C) If at the time of any annual meeting of shareholders for the election of
directors a "default in preference dividends" on the Series A Preferred Stock
shall exist, the holders of the Series A Preferred Stock shall have the right
at such meeting, voting together as a single class, to the exclusion of the
holders of Common Stock, to elect two (2) directors of the Company. Such right
shall continue until there are no dividends in arrears upon the Series A
Preferred Stock. Either or both of the two directors to be elected by the
holders of the Series A Preferred Stock may be to fill a vacancy or vacancies
created by an increase by the Board of Directors in the number of directors
constituting the Board of Directors. Each director elected by the holders of
Preferred Stock (a "Preferred Director") shall continue to serve as such
director for the full term for which he or she shall have been elected,
notwithstanding that prior to the end of such term a default in preference
dividends shall cease to exist. Any Preferred Director may be removed by, and
shall not be removed except by, the vote of the holders of record of the
outstanding Series A Preferred Stock voting together as a single class, at a
meeting of the shareholders or of the holders of Preferred Stock called for
the purpose. So long as a default in preference dividends on the Series A
Preferred Stock shall exist, (i) any vacancy in the office of a Preferred
Director may be filled (except as provided in the following clause (ii)) by an
instrument in writing signed by the remaining Preferred Director and filed
with the Company and (ii) in the case of the removal of any Preferred
Director, the vacancy may be filled by the vote of the holders of the
outstanding Series A Preferred Stock voting together as a
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single class, at the same meeting at which such removal shall be voted. Each
director appointed as aforesaid by the remaining Preferred Director shall be
deemed, for all purposes hereof, to be a Preferred Director. For the purposes
hereof, a "default in preference dividends" on the Preferred Stock shall be
deemed to have occurred whenever the amount of accrued and unpaid dividends
upon the Series A Preferred Stock shall be equivalent to six (6) full
quarterly dividends or more, and having so occurred, such default shall be
deemed to exist thereafter until, but only until, all accrued dividends on all
Series A Preferred Stock then outstanding shall have been paid to the end of
the last preceding quarterly dividend period. The provisions of this paragraph
(C) shall govern the election of Directors by holders of Series A Preferred
Stock during any default in preference dividends notwithstanding any
provisions of these Articles of Incorporation to the contrary.
(D) Except as set forth herein, holders of shares of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
shares of Common Stock as set forth herein) for taking any corporate action.
Section 3. Certain Restrictions.
(A) Until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding shares of Series A Preferred Stock shall have been
paid in full, the Company shall not:
(i) Declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of junior
stock;
(ii) Declare or pay dividends on or make any other distributions on any
shares of parity stock, except dividends paid ratably on shares of Series A
Preferred Stock and shares of all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders
of such Series A Preferred Stock and all such shares are then entitled;
(iii) Redeem or purchase or otherwise acquire for consideration shares of
any junior stock, provided, however, that the Company may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in exchange for
shares of any other junior stock;
(iv) Purchase or otherwise acquire for consideration any shares of Series
A Preferred Stock or any shares of parity stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company
unless the Company could, under paragraph (A) of this Section 3, purchase or
otherwise acquire such shares at such time and in such manner.
Section 4. Reacquired Shares. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Company in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall,
upon their cancellation, become authorized but unissued Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth in the Articles of
Incorporation of the Company creating a series of Preferred Stock or any
similar shares or as otherwise required by law.
Section 5. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary or involuntary liquidation, dissolution or winding up
of the Company, no distributions shall be made (i) to the holders of shares of
junior stock unless the holders of Series A Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B), the
greater of either (a) $100.00 per share plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether
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or not declared, to the date of such payment, or (b) an amount per share equal
to 100 times the aggregate per share amount to be distributed to holders of
shares of Common Stock or (ii) to the holders of shares of parity stock,
unless simultaneously therewith distributions are made ratably on shares of
Series A Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of shares of Series A
Preferred Stock are entitled under clause (i)(a) of this sentence and to which
the holders of shares of such parity stock are entitled, in each case, upon
such liquidation, dissolution or winding up.
(B) In the event the Company shall at any time after the Rights Declaration
Date (i) declare any dividend on outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, then in each such case, the aggregate amount to which holders of
Series A Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted
by multiplying such amount by a fraction, the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event, and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Company shall enter into
any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case, shares of
Series A Preferred Stock shall at the same time be similarly exchanged for or
converted into an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is converted or exchanged. In
the event the Company shall at any time after the Rights Declaration Date (i)
declare any dividend on outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares,
then in each such case, the amount set forth in the immediately preceding
sentence with respect to the exchange or conversion of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which shall be the number of shares of Common Stock that are
outstanding immediately after such event, and the denominator of which shall
be the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. Redemption. The shares of Series A Preferred Stock shall not be
redeemable.
Section 8. Ranking. The shares of Series A Preferred Stock shall rank junior
to all other series of the Preferred Stock and to any other class of preferred
stock that hereafter may be issued by the Company as to the payment of
dividends and the distribution of assets, unless the terms of any such series
or class shall provide otherwise.
Section 9. Amendment. These Restated Articles of Incorporation shall not
hereafter be amended, either directly or indirectly, or through merger or
consolidation with another corporation, in any manner that would alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least a majority of the outstanding shares of Series A Preferred
Stock, voting separately as a class.
Section 10. Fractional Shares. The Series A Preferred Stock may be issued in
fractions of a share, which fractions shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions, and to have the benefit of all other
rights of holders of Series A Preferred Stock.
Section 11. Certain Definitions. As used herein with respect to the Series A
Preferred Stock, the following terms shall have the following meanings:
(A) The term "junior stock" (i) as used in Section 3, shall mean the Common
Stock and any other class or series of capital stock of the Company hereafter
authorized or issued over which the Series A Preferred Stock
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has preference or priority as to the payment of dividends, and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of
capital stock of the Company over which the Series A Preferred Stock has
preference or priority in the distribution of assets on any liquidation,
dissolution or winding up of the Company.
(B) The term "parity stock" (i) as used in Section 3, shall mean any class
or series of stock of the Company hereafter authorized or issued ranking pari
passu with the Series A Preferred Stock as to dividends, and (ii) as used in
Section 5, shall mean any class or series of stock of the Company ranking pari
passu with the Series A Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding up.
The undersigned hereby certifies that the Amended and Restated Articles of
Incorporation correctly set forth the corresponding Articles of Incorporation
as amended and that these Amended and Restated Articles of Incorporation
supersede the original Articles of Incorporation and any amendments and
corrections thereto.
LG&E Energy Corp.
By: _________________________________
John R. McCall,
Executive Vice President,
Secretary and General Counsel
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ANNEX I
FORM OF
LG&E ENERGY CORP.
BY-LAWS
Article I
Meetings of Stockholders
Section 1. The Annual Meeting of the stockholders of the Company shall be
held in or out of Kentucky at a time, date and place to be annually designated
by the Board of Directors.
Section 2. Except as otherwise mandated by Kentucky law and except as
otherwise provided in or fixed by or pursuant to the Company's Articles of
Incorporation, special meetings of the stockholders may be called only by the
President of the Company or by the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors. For purposes of these
By-Laws, the phrase "Company's Articles of Incorporation" shall mean the
Articles of Incorporation of LG&E Energy Corp. as in effect on March 1, 1990,
and as thereafter amended from time to time.
Section 3. Written notice of each meeting of stockholders, stating the time
and place, and, in the case of a special meeting, the purpose, shall be given
at least ten (10) days prior to the meeting to each stockholder entitled to
attend the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing by any stockholder and shall be waived
by his attendance in person or by proxy at such meeting.
Section 4. A stockholder may vote in person or by proxy. All appointments of
proxies shall be in accordance with Kentucky law.
Section 5. Any action required or permitted to be taken by the stockholders
of the Company at a meeting of such holders may be taken without such a
meeting only by written consent of all the stockholders entitled to vote on
the subject matter.
Section 6. At an annual meeting of the stockholders, any business conducted
must be properly brought before the meeting. To be properly brought before the
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors, or (c) otherwise properly be requested to be brought
before the meeting by a stockholder. For business to be properly requested to
be brought by a stockholder, the stockholder must have given timely written
notice to the Secretary of the Company. To be timely, it must be delivered to
or mailed and received at the principal executive offices of the Company, not
less than 90 days prior to the meeting. If the date of the meeting is not
publicly announced by the Company by mail, press release or otherwise more
than 100 days prior to the meeting, timely notice must be delivered to the
Secretary of the Company not later than the close of business on the tenth day
following the day on which such announcement was communicated to stockholders.
This notice shall include (a) a description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Company's books, of the stockholder proposing such business, (c) the class and
number of shares of the Company which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such
business. No business shall be conducted at an annual meeting except in
accordance with this procedure. The Chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 6, and if so determined, shall declare to the meeting that any
such business not properly brought before the meeting shall not be transacted.
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Section 7. The Chairman of the Board, if present, and in his absence the Vice
Chairman of the Board, and the Secretary of the Company, shall serve as
Chairman and Secretary, respectively, at each stockholders meeting. The
Chairman of the stockholders meeting shall determine the order of business and
shall have the authority in his discretion to regulate the conduct of any such
meeting, including, without limitation, by imposing restrictions on the persons
(other than stockholders of the Company or their duly appointed proxies) who
may attend any such stockholders meeting, by determining whether any
stockholder or his proxy may be excluded from any stockholders meeting based
upon any determination by the Chairman of the meeting, in his sole discretion,
that any such person has unduly disrupted or is likely to disrupt the
proceedings thereof, and by regulating the circumstances in which any person
may make a statement or ask questions at any stockholders meeting.
Section 8. The Company shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by law.
Section 9. The Board of Directors may postpone and reschedule any previously
scheduled annual or special meeting of stockholders and may adjourn any
convened meeting of stockholders to another date and time as specified by the
Chairman of the meeting.
Article II
Board of Directors
Section 1. (a) The number of directors of the Company shall be fixed from
time to time by the Board of Directors, but shall be no fewer than nine (9) and
no more than fifteen (15). The Board of Directors may elect one of its members
as Chairman of the Board. Except as otherwise provided in or fixed by or
pursuant to the Company's Articles of Incorporation, the directors shall be
classified, with respect to the time for which they each hold office, into
three classes, as nearly equal in number as possible, as determined by the
Board of Directors. One class shall be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1991, another class shall
be originally elected for a term expiring at the annual meeting of stockholders
to be held in 1992, and another class shall be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1993, with each
member of each class to hold office until a successor is elected and qualified.
At each annual meeting of stockholders of the Company and except as otherwise
provided in or fixed by or pursuant to the Company's Articles of Incorporation,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a three-year term.
(b) Except as otherwise provided in or fixed by or pursuant to the Company's
Articles of Incorporation, nominations for the election of directors may be
made by the Board of Directors or any stockholder entitled to vote in the
election of directors generally. However, such stockholders may nominate one or
more persons for election as director or directors at a stockholders' meeting
only if written notice of intent to make such nomination or nominations has
been given either by personal delivery or mail to the Secretary of the Company
in the time frame set out in Article I, Section 6. Each such notice shall state
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at a meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of
each nominee to serve as a director of the Company if so elected. The Chairman
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
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(c) Except as otherwise required by law and except as otherwise provided in
or fixed by or pursuant to the Company's Articles of Incorporation: (i) newly
created directorships resulting from any increase in the number of directors
and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors; (ii) any director elected in
accordance with the preceding clause (i) shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified; and (iii) no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(d) Except as otherwise provided in or fixed by or pursuant to the Company's
Articles of Incorporation, any director may be removed from office, with or
without cause, only by the affirmative vote of the holders of at least 80% of
the combined voting power of the then outstanding shares of the Company's stock
entitled to vote generally (as defined in Article Eighth of the Company's
Articles of Incorporation), voting together as a single class. Notwithstanding
the foregoing provisions of this Paragraph (d), if at any time stockholders of
the Company have cumulative voting rights with respect to the election of
directors and less than the entire Board of Directors is to be removed, no
director may be removed from office if the votes cast against his removal would
be sufficient to elect the person as a director if cumulatively voted at an
election of the class of directors of which the person is a part.
Section 2. The business of the Company shall be managed by a Board of
Directors. Regular meetings of the Board of Directors may be held without
notice of the date, place, time or purpose at such time and place as may be
fixed by the Board of Directors.
Section 3. Special meetings of the Board of Directors may be called by the
Chairman of the Board or the Chief Executive Officer of the Company, or, in
their absence, the Vice Chairman of the Board or the Vice President, or at the
request in writing of not less than three (3) directors on one (1) day's notice
to each director.
Section 4. Unless otherwise provided by law, at each meeting of the Board of
Directors, the presence of at least one-half (1/2) of the total number of
directors shall constitute a quorum for the transaction of business. Except as
provided in Section 1(c) of this Article II, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. At any meeting of the Board of Directors where a quorum
is not present, the members of the Board of Directors present may by majority
vote to adjourn the meeting from time to time until a quorum shall attend.
Section 5. The Chairman of the Board, if such person is present, shall serve
as Chairman at each regular or special meeting of the Board of Directors and
shall determine the order of business at such meeting. If the Chairman of the
Board is not present at a regular or special meeting of the Board of Directors,
the Vice Chairman of the Board shall serve as Chairman of such meeting and
shall determine the order of business at such meeting.
Section 6. Directors may receive such fees, compensation or expenses for
their services as are authorized by resolution of the Board of Directors.
Section 7. Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting if the action is taken by all members
of the Board. Such action shall be evidenced by one (1) or more written
consents describing the action taken, signed by each director, and included in
the minutes with the Company's records reflecting the action taken.
Section 8. (a) The Board of Directors may create committees and appoint
members of the Board of Directors to serve on them. Each committee shall have
two (2) or more members, who serve at the pleasure of the Board of Directors.
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(b) To the extent provided in the resolution of the Board of Directors
establishing a committee, a committee shall have and exercise all the
authority of the Board of Directors, but no such committee shall have the
authority to take any action that under Kentucky law can only be taken by the
Board of Directors.
(c) Sections 2, 3, 4, 6 and 7 of this Article II shall apply to committees
and their members as well.
Section 9. The Board of Directors may elect one of its members as Vice
Chairman of the Board.
Article III
Officers
Section 1. The officers of the Company shall be a Chief Executive Officer,
President, Chief Operating Officer, Chief Financial Officer, one or more Vice
Presidents, Secretary, Treasurer, Controller and such other officers as the
Board may from time to time elect or appoint. Any two of the offices may be
combined in one person, but no officer shall execute, acknowledge, or verify
any instrument in more than one capacity. Officers are to be elected by the
Board of Directors of the Company at the first meeting of the Board following
the annual meeting of stockholders and, unless otherwise specified by the
Board of Directors, shall be elected to hold office for one year or until
their successors are elected and qualified. Any vacancy shall be filled by the
Board of Directors, provided that the Chief Executive Officer may fill such a
vacancy until the Board of Directors shall elect a successor. Except as
provided below, officers shall perform those duties usually incident to the
office or as otherwise required by the Board of Directors, the Chief Executive
Officer, or the officer to whom they report. An officer may be removed with or
without cause and at any time by the Board of Directors or by the Chief
Executive Officer.
Chief Executive Officer
Section 2. The Chief Executive Officer of the Company shall have full charge
of all of the affairs of the Company and shall report directly to the Board of
Directors.
President
Section 3. The President shall report to the Chief Executive Officer and
shall exercise the functions of the Chief Executive Officer during the absence
or disability of the Chief Executive Officer.
Chief Operating Officer
Section 4. The Chief Operating Officer shall report to the Chief Executive
Officer of the Company and shall have full charge of the management and
direction of the domestic and international operating business of the
Company's Utility Distribution Group and the Company's Power Generation
Division, subject to the direction and approval of the Chief Executive
Officer.
Chief Financial Officer
Section 5. The Chief Financial Officer of the Company shall report to the
Chief Executive Officer of the Company and shall have full charge of all of
the financial affairs of the Company, including maintaining accurate books and
records, meeting all reporting requirements and controlling Company funds, in
each case subject to the direction and approval of the Chief Executive
Officer.
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Vice Presidents
Section 6. The Vice President or Vice Presidents may be designated as Vice
President, Senior Vice President or Executive Vice President, as the Board of
Directors or Chief Executive Officer may determine.
Secretary
Section 7. The Secretary shall be present at and record the proceedings of
all meetings of the Board of Directors and of the stockholders, give notices
of meetings of Directors and stockholders, have custody of the seal of the
Company and affix it to any instrument requiring the same, and shall have the
power to sign certificates for shares of stock of the Company.
Treasurer
Section 8. The Treasurer shall have charge of all receipts and disbursements
of the Company and be custodian of the Company's funds.
Controller
Section 9. The Controller shall have charge of the accounting records of the
Company.
Article IV
Capital Stock Certificates
The Board of Directors shall approve all stock certificates as to form. The
certificates for the shares of stock, issued by the Company, shall be signed
(manually or by facsimile) by the President and Secretary, and the seal of the
Company or a facsimile shall be affixed. The Board of Directors shall appoint
transfer agents to issue and transfer certificates of stock, and registrars to
register such certificates.
Article V
Finance
Section 1. The Board of Directors shall designate the bank or banks to be
used to deposit Company funds and designate the officers and employees of the
Company who may sign and countersign checks drawn against the Company
accounts. The Board of Directors may authorize the use of facsimile signatures
on checks.
Section 2. Notes shall be signed by the Chief Executive Officer or the
President and by either a Vice President or the Treasurer. In the absence of
the President, notes shall be signed by two Vice Presidents, or a Vice
President and the Treasurer.
Article VI
Seal
The seal of the Company shall be in the form of a circular disk, bearing the
following information:
LG&E Energy Corp.
Kentucky
Corporate Seal
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Article VII
Emergency By-Laws
Section 1. The Board of Directors of the Company may adopt by-laws to be
effective only in an emergency. For purposes of Article VII of these By-Laws,
an "emergency" shall exist if a quorum of the Company's directors cannot be
readily assembled because of a catastrophic event.
Section 2. The stockholders of the Company may amend or repeal the by-laws
adopted pursuant to Section 1 of Article VII of these By-Laws.
Section 3. The by-laws adopted pursuant to Section 1 of Article VII of these
By-Laws may include all provisions necessary for managing the Company during
the emergency, including:
(a) procedures for calling a meeting of the Board of Directors;
(b) quorum requirements for meetings of the Board of Directors; and
(c) designation of additional or substitute directors.
Article VIII
Amendments
Subject to the provisions of the Company's Articles of Incorporation, these
By-Laws may be amended or repealed at any annual meeting of the stockholders
(or at any special meeting thereof duly called for that purpose) by the
holders of at least a majority of the voting power of the shares represented
and entitled to vote at such meeting at which a quorum is present; provided
that in the notice of such special meeting the purpose is given. Subject to
the laws of the Commonwealth of Kentucky and these By-Laws, the Board of
Directors may by majority vote of those present at any meeting at which a
quorum is present amend these By-Laws, or adopt such other By-Laws as in their
judgment may be advisable to conduct the affairs of the Company.
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ANNEX J
BALDWIN'S KENTUCKY REVISED STATUTES ANNOTATED
TITLE XXIII. PRIVATE CORPORATIONS AND ASSOCIATIONS
CHAPTER 271B. BUSINESS CORPORATIONS
SUBTITLE 13. DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
271B.13-010 DEFINITIONS
As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under KRS 271B.13-020 and who exercises that right when and in the
manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable. In
any transaction subject to the requirements of KRS 271B.12-210 or exempted by
KRS 271B.12-220(2), "fair value" shall be at least an amount required to be
paid under KRS 271B.12-220(2) in order to be exempt from the requirements of
KRS 271B.12-210.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
271B.13-020 RIGHT TO DISSENT
(1) A shareholder shall be entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If shareholder approval is required for the merger by KRS 271B.11-030 or
the articles of incorporation and the shareholder is entitled to vote on the
merger; or
2. If the corporation is a subsidiary that is merged with its parent under KRS
271B.11-040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale;
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(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
1. Alters or abolishes a preferential right of the shares to a distribution or
in dissolution;
2. Creates, alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares;
3. Excludes or limits the right of the shares to vote on any matter other than
a limitation by dilution through issuance of shares or other securities with
similar voting rights; or
4. Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under KRS
271B.6-040;
(e) Any transaction subject to the requirements of KRS 271B.12-210 or exempted
by KRS 271B.12-220(2); or
(f) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his shares under
this chapter shall not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
271B.13-030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he shall dissent with respect to all
shares beneficially owned by any one (1) person and notify the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection
shall be determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(a) He submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
271B.13-200 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this subtitle and the corporation shall undertake to
provide a copy of this subtitle to any shareholder entitled to vote at the
shareholders' meeting upon request of that shareholder.
(2) If corporate action creating dissenters' rights under KRS 271B.13-020 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in KRS 271B.13-220.
271B.13-210 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(a) Shall deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Shall not vote his shares in favor of the proposed action.
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(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section shall not be entitled to payment for his shares under this
chapter.
271B.13-220 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of KRS 271B.13-210.
(2) The dissenters' notice shall be sent no later than ten (10) days after the
date the proposed corporate action was authorized by the shareholders, or, if
no shareholder authorization was obtained, by the board of directors, and
shall:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the corporation must receive the payment demand, which
date may not be fewer than thirty (30), nor more than sixty (60) days after
the date the notice provided in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this subtitle.
271B.13-230 DUTY TO DEMAND PAYMENT
(1) A shareholder who is sent a dissenters' notice described in KRS 271B.13-
220 shall demand payment, certify whether he acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to subsection (2)(c) of KRS 271B.13-220, and deposit his certificates
in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his share certificates
under subsection (1) of this section shall retain all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
shall not be entitled to payment for his shares under this subtitle.
271B.13-240 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under KRS 271B.13-260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares shall retain all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
271B.13-250 PAYMENT
(1) Except as provided in KRS 271B.13-270, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall
pay each dissenter who complied with KRS 271B.13-230 the amount the
corporation estimates to be the fair value of his shares, plus accrued
interest.
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(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen (16) months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the shares;
(c) An explanation of how the interest was calculated; and
(d) A statement of the dissenter's right to demand payment under KRS 271B.13-
280.
271B.13-260 FAILURE TO TAKE ACTION
(1) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under KRS 271B.13-220 and repeat the payment demand
procedure.
271B.13-270 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by KRS 271B.13-250
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate
action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated, and a statement of the dissenter's right to demand payment
under KRS 271B.13-280.
271B.13-280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under KRS 271B.13-250), or reject the
corporation's offer under KRS 271B.13-270 and demand payment of the fair value
of his shares and interest due, if:
(a) The dissenter believes that the amount paid under KRS 271B.13-250 or
offered under KRS 271B.13-270 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under KRS 271B.13-250 within sixty
(60) days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(2) A dissenter waives his right to demand payment under this section unless
he shall notify the corporation of his demand in writing under subsection (1)
of this section within thirty (30) days after the corporation made or offered
payment for his shares.
271B.13-300 COURT ACTION
(1) If a demand for payment under KRS 271B.13-280 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the
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fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty (60) day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of the
county where a corporation's principal office (or, if none in this state, its
registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section shall be plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under KRS 271B.13-270.
271B.13-310 COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under KRS 271B.13-300 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under KRS 271B.13-280.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters, if the
court finds the corporation did not substantially comply with the requirements
of KRS 271B.13-200 to 271B.13-280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this subtitle.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court
may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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<PAGE>
LOGO
<PAGE>
LOGO
PLEASE COMPLETE BOTH SIDES OF PROXY CARD, DETACH AND RETURN IN THE ENCLOSED
ENVELOPE.
If you do not return the proxy card and do not vote at the meeting, it will
have the same effect as if you voted against the Merger Agreement. Thus, it is
important that you promptly mark and return the attached proxy card, even if
you intend to vote in person at the special meeting of shareholders.
Thank you.
KU ENERGY CORPORATION THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PROXY. The undersigned appoints, and if a participant in the Company's
dividend reinvestment plan, and/or Kentucky Utilities Company's employee stock
ownership plan and/or employee savings plan, authorizes and directs the
appropriate agent or trustee, in each case as agent for the undersigned, to
appoint, MICHAEL R. WHITLEY, JOHN T. NEWTON and O.M. GOODLETT, and each of
them, attorneys and proxies, with power of substitution, to vote all shares of
COMMON STOCK of KU Energy Corporation of record in the name of the undersigned,
and all shares, if any, of such stock credited to the account of the
undersigned under each of such plans, in each case, at the close of business on
August 8, 1997, at the October 14, 1997 special meeting of shareholders (or any
adjourned session) as follows:
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER (THE "MERGER
AGREEMENT") DATED AS OF MAY 20, 1997, BETWEEN LG&E ENERGY CORP., A KENTUCKY
CORPORATION AND KU ENERGY CORPORATION, A COPY OF WHICH IS ATTACHED AS ANNEX A
TO THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
[_] FOR approval and adoption of the Merger Agreement
[_] AGAINST approval and adoption of the Merger Agreement
[_] ABSTAIN from vote on the Merger
Agreement
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE MERGER PROPOSAL
In their discretion, the proxies are authorized to vote upon such other
business incident to the conduct of the meeting as may properly come before the
meeting all as set forth in the Notice and Joint Proxy Statement/Prospectus
relating to the meeting.
(to be signed on reverse side)
<PAGE>
LOGO
PLEASE COMPLETE BOTH SIDES OF PROXY CARD, DETACH AND RETURN IN THE ENCLOSED
ENVELOPE.
If you do not return the proxy card and do not vote at the meeting, it will
have the same effect as if you voted against the Merger Agreement. Thus, it is
important that you promptly mark and return the attached proxy card, even if
you intend to vote in person at the special meeting of shareholders.
Thank you.
(continued from other side)
SHARES REPRESENTED BY THIS PROXY SHALL BE
VOTED AS SPECIFIED ON THE REVERSE SIDE. IN
ABSENCE OF SPECIFIC DIRECTIONS SAID SHARES
SHALL BE VOTED FOR THE MERGER.
PLEASE DO NOT FOLD
Dated
PLEASE SIGN BELOW
------------------------
------------------------
NOTE: PLEASE DATE AND SIGN EXACTLY AS NAME(S) APPEAR ABOVE AND RETURN SIGNED
PROXY IN ENCLOSED ENVELOPE. IF THE STOCK IS ISSUED IN THE NAMES OF TWO OR MORE
PERSONS, ALL SHOULD SIGN THE PROXY. STATE FULL TITLE WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC.
