<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
_____________________________
Date of report
(Date of earliest event reported):
May 20, 1997
Commission Registration; State of IRS Employer
File Number Incorporation; Address; and Identification
Telephone Number
1-10944 KU Energy Corporation 61-1141273
(a Kentucky Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
1-3464 Kentucky Utilities Company 61-0247570
(a Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
<PAGE>
ITEM 5. OTHER EVENTS
Merger Agreement with LG&E Energy Corp.
On May 20, 1997, KU Energy Corporation, a Kentucky corporation ("KU
Energy"), and LG&E Energy Corp., a Kentucky corporation ("LG&E Energy"), entered
into an Agreement and Plan of Merger (the "Merger Agreement") providing for a
merger of KU Energy and LG&E Energy. Pursuant to the Merger Agreement, KU
Energy will be merged with and into LG&E Energy, with LG&E Energy as the
surviving corporation (the "Merger"). The Merger, which was unanimously
approved by the Boards of Directors of KU Energy and LG&E Energy, is expected to
close shortly after all of the conditions to consummation of the Merger,
including the receipt of all applicable regulatory and shareholder approvals,
are met or waived, as set forth in the Merger Agreement.
On May 21, 1997, KU Energy and its principal operating subsidiary, Kentucky
Utilities Company, filed with the Securities and Exchange Commission a Current
Report on Form 8-K describing the Merger. Attached as exhibits to this Current
Report on Form 8-K are the following documents: (i) the Merger Agreement; (ii)
the KU Energy Stock Option Agreement, dated as of May 20, 1997, by and between
KU Energy and LG&E Energy; and (iii) the LG&E Energy Stock Option Agreement,
dated as of May 20, 1997, by and between LG&E Energy and KU Energy.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
2
<PAGE>
The exhibits listed below and in the accompanying Exhibit Index are filed
as part of this Current Report on Form 8-K.
Exhibit No. Title
- ----------- -----
2 Agreement and Plan of Merger,
dated as of May 20, 1997,
by and between KU Energy and
LG&E Energy.
99.1 KU Energy Stock Option Agreement,
dated as of May 20, 1997, by and
between KU Energy and LG&E
Energy.
99.2 LG&E Energy Stock Option Agreement,
dated as of May 20, 1997, by and
between LG&E Energy and KU
Energy.
3
<PAGE>
SIGNATURE
---------
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
KU ENERGY CORPORATION
By: /s/ Michael D. Robinson
-----------------------
Name: Michael D. Robinson
Title: Controller
KENTUCKY UTILITIES COMPANY
By: /s/ Michael D. Robinson
-----------------------
Name: Michael D. Robinson
Title: Controller
Dated: May 30, 1997
4
<PAGE>
EXHIBIT INDEX
KU Energy Corporation
Kentucky Utilities Company
Current Report on Form 8-K
Dated May 20, 1997
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2 Agreement and Plan of Merger,
dated as of May 20, 1997,
by and between KU Energy and LG&E Energy.
99.1 KU Energy Stock Option Agreement,
dated as if May 20, 1997, by and
between KU Energy and LG&E
Energy.
99.2 LG&E Energy Stock Option Agreement,
dated as of May 20, 1997, by and
between LG&E Energy and KU
Energy.
</TABLE>
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
LG&E ENERGY CORP.
AND
KU ENERGY CORPORATION
DATED AS OF MAY 20, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER................................. 1
Section 1.1 The Merger................................................ 1
Section 1.2 Effects of the Merger..................................... 2
Section 1.3 Effective Time of the Merger.............................. 2
ARTICLE II
TREATMENT OF SHARES............................ 2
Section 2.1 Effect of the Merger on Capital Stock..................... 2
Section 2.2 Dissenting Shares......................................... 3
Section 2.3 Exchange of Certificates.................................. 4
ARTICLE III
THE CLOSING................................ 6
Section 3.1 Closing................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF KU ENERGY................ 6
Section 4.1 Organization and Qualification............................ 6
Section 4.2 Subsidiaries.............................................. 7
Section 4.3 Capitalization............................................ 8
Section 4.4 Authority; Non-Contravention; Statutory
Approvals; Compliance................................... 9
Section 4.5 Reports and Financial Statements.......................... 11
Section 4.6 Absence of Certain Changes or Events...................... 12
Section 4.7 Litigation................................................ 12
Section 4.8 Registration Statement and Proxy
Statement............................................... 12
Section 4.9 Tax Matters............................................... 13
Section 4.10 Employee Matters; ERISA.................................. 16
Section 4.11 Environmental Protection................................. 18
Section 4.12 Regulation as a Utility.................................. 21
Section 4.13 Vote Required............................................ 21
Section 4.14 Accounting Matters....................................... 21
Section 4.15 Non-applicability of Certain Kentucky
Law..................................................... 21
Section 4.16 Opinion of Financial Advisor............................. 22
Section 4.17 Insurance................................................ 22
Section 4.18 Ownership of LG&E Energy Common Stock.................... 22
Section 4.19 KU Energy Rights Agreement............................... 22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LG&E ENERGY............... 23
Section 5.1 Organization and Qualification............................ 23
Section 5.2 Subsidiaries.............................................. 23
Section 5.3 Capitalization............................................ 24
Section 5.4 Authority; Non-Contravention; Statutory
Approvals; Compliance................................... 25
Section 5.5 Reports and Financial Statements.......................... 27
Section 5.6 Absence of Certain Changes or Events...................... 27
Section 5.7 Litigation................................................ 28
Section 5.8 Registration Statement and Proxy
Statement............................................... 28
Section 5.9 Tax Matters............................................... 28
Section 5.10 Employee Matters; ERISA.................................. 31
Section 5.11 Environmental Protection................................. 33
Section 5.12 Regulation as a Utility.................................. 34
Section 5.13 Vote Required............................................ 35
Section 5.14 Accounting Matters....................................... 35
Section 5.15 Non-applicability of Certain Kentucky
Law..................................................... 35
Section 5.16 Opinion of Financial Advisor............................. 35
Section 5.17 Insurance................................................ 35
Section 5.18 Ownership of KU Energy Common Stock...................... 36
Section 5.19 LG&E Energy Rights Agreement............................. 36
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER................... 36
Section 6.1 Covenants of the Parties.................................. 36
ARTICLE VII
ADDITIONAL AGREEMENTS........................... 45
Section 7.1 Access to Information..................................... 45
Section 7.2 Joint Proxy Statement and Registration
Statement............................................... 46
Section 7.3 Regulatory Matters........................................ 47
Section 7.4 Shareholder Approval...................................... 48
Section 7.5 Directors' and Officers' Indemnification.................. 49
Section 7.6 Disclosure Schedules...................................... 51
Section 7.7 Public Announcements...................................... 51
Section 7.8 Rule 145 Affiliates....................................... 51
Section 7.9 Employee Agreements and Workforce Matters................. 52
Section 7.10 Employee Benefit Plans................................... 53
Section 7.11 Stock Option and Other Stock Plans....................... 53
Section 7.12 No Solicitations......................................... 54
Section 7.13 Company and Subsidiary Board of
Directors............................................... 55
Section 7.14 Company Officers......................................... 56
Section 7.15 Post-Merger Operations................................... 56
Section 7.16 Expenses................................................. 57
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.17 Further Assurances....................................... 57
Section 7.18 Charter and Bylaw Amendments............................. 58
ARTICLE VIII
CONDITIONS................................. 58
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger........................................ 58
Section 8.2 Conditions to Obligation of LG&E Energy to
Effect the Merger........................................ 59
Section 8.3 Conditions to Obligation of KU Energy to
Effect the Merger........................................ 61
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER..................... 62
Section 9.1 Termination............................................... 62
Section 9.2 Effect of Termination..................................... 66
Section 9.3 Termination Fee; Expenses................................. 66
Section 9.4 Amendment................................................. 68
Section 9.5 Waiver.................................................... 69
ARTICLE X
GENERAL PROVISIONS............................. 69
Section 10.1 Non-Survival; Effect of Representations
and Warranties.......................................... 69
Section 10.2 Brokers.................................................. 69
Section 10.3 Notices.................................................. 70
Section 10.4 Miscellaneous............................................ 71
Section 10.5 Interpretation........................................... 71
Section 10.6 Counterparts; Effect..................................... 71
Section 10.7 Parties in Interest...................................... 72
Section 10.8 Waiver of Jury Trial and Certain Damages................. 72
Section 10.9 Enforcement.............................................. 72
</TABLE>
-iii-
<PAGE>
Page
----
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
-iv-
<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
<PAGE>
2
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").
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
<PAGE>
3
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
<PAGE>
4
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).
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
<PAGE>
5
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.
(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
<PAGE>
6
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)
<PAGE>
7
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 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
<PAGE>
8
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, 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
<PAGE>
9
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,
<PAGE>
10
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 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
<PAGE>
11
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
<PAGE>
12
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 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
<PAGE>
13
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.
(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
<PAGE>
14
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
<PAGE>
15
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.
(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
<PAGE>
16
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
<PAGE>
17
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 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
<PAGE>
18
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.
(c) Environmental Claims. To the best knowledge of KU Energy, there
--------------------
is no material Environmental Claim (as defined
<PAGE>
19
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,
<PAGE>
20
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
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,
<PAGE>
21
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
<PAGE>
22
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,
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.
<PAGE>
23
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 outstanding security, instrument or other
agreement, obligating any such LG&E Energy Subsidiary to issue, deliver or sell,
or
<PAGE>
24
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
<PAGE>
25
(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 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
<PAGE>
26
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
<PAGE>
27
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 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
<PAGE>
28
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.
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.
<PAGE>
29
(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.
<PAGE>
30
(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).
(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
<PAGE>
31
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
<PAGE>
32
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).
(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
<PAGE>
33
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.
(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
<PAGE>
34
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
<PAGE>
35
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.
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
<PAGE>
36
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
<PAGE>
37
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 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
<PAGE>
38
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 (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.
<PAGE>
39
(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
<PAGE>
40
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 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
<PAGE>
41
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
<PAGE>
42
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 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
<PAGE>
43
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.
<PAGE>
44
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.
(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.
<PAGE>
45
(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 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
<PAGE>
46
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
<PAGE>
47
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 Anderson
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.
(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.
<PAGE>
48
(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
<PAGE>
49
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 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
<PAGE>
50
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 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
<PAGE>
51
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
<PAGE>
52
(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, 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.
<PAGE>
53
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 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
<PAGE>
54
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
<PAGE>
55
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 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
<PAGE>
56
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
<PAGE>
57
presence throughout its service territory in order to conduct the state-
wide operations of KU.
(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,
<PAGE>
58
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.
(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.
<PAGE>
59
(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
<PAGE>
60
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.
(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.
<PAGE>
61
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.
<PAGE>
62
(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.
(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'
<PAGE>
63
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; 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;
<PAGE>
64
(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
<PAGE>
65
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 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
<PAGE>
66
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
<PAGE>
67
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 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
<PAGE>
68
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 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
<PAGE>
69
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,
<PAGE>
70
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 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
<PAGE>
71
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.
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
<PAGE>
72
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
<PAGE>
73
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.
<PAGE>
74
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
Attest: Title: Chairman, President
and Chief Executive
Officer
/s/ John R. McCall
---------------------
Secretary
KU ENERGY CORPORATION
By: /s/ Michael R. Whitley
-------------------------
Name: Michael R. Whitley
Attest: Title: Chairman, President
and Chief Executive
Officer
/s/ George S. Brooks, II
------------------------
Secretary
<PAGE>
Exhibit A
KU Energy Stock Option
Agreement is at
Exhibit 99.1 to this
Current Report on 8-K
<PAGE>
Exhibit B
LG&E Energy Stock Option
Agreement is at
Exhibit 99.2 to this
Current Report on 8-K
<PAGE>
EXHIBIT C-1
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.
<PAGE>
2
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:
"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."
<PAGE>
3
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.
<PAGE>
4
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
<PAGE>
EXHIBIT C-2
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.
<PAGE>
2
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 certificated for the LG&E Energy
Securities issued to me, or any substitutions therefor, a legend stating in
substance:
"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 share 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."
<PAGE>
3
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 of 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 and 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.
<PAGE>
4
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
<PAGE>
EXHIBIT 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.
<PAGE>
2
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.
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).
<PAGE>
3
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 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
<PAGE>
4
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 benefit shall
be reduced in accordance with the following factors to reflect Executive's age
at the date his benefits commence.
<PAGE>
5
<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
<PAGE>
6
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 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
<PAGE>
7
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
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
<PAGE>
8
(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
<PAGE>
9
(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.
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
<PAGE>
10
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.
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.
<PAGE>
11
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.
<PAGE>
12
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.
By /s/ John R. McCall /s/ Roger W. Hale
---------------------------- ----------------------
Name: John R. McCall ROGER W. HALE
Title: Executive Vice President
<PAGE>
13
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.
<PAGE>
Exhibit 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
<PAGE>
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.
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.
2
<PAGE>
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
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
3
<PAGE>
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
<PAGE>
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 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
5
<PAGE>
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;
(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
6
<PAGE>
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).
7
<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
8
<PAGE>
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.
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
9
<PAGE>
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
10
<PAGE>
or otherwise, shall reduce the amount of any Termination Payment otherwise
payable to him.
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
11
<PAGE>
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.
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
12
<PAGE>
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
13
<PAGE>
EXHIBIT F
LG&E ENERGY CORP.
By-Laws
(as amended and restated through _________ __, ____)
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
Chief Executive Officer 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 be requested to be
brought before the meeting by a stockholder. For business to be properly
<PAGE>
2
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.
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.
<PAGE>
3
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 and may also elect one of its members as Vice
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.
(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,
<PAGE>
4
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 of (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 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.
<PAGE>
5
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.
(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.
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.
<PAGE>
6
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.
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.
<PAGE>
7
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 )
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.
<PAGE>
8
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.
<PAGE>
EXHIBIT 99.1
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.
<PAGE>
2
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. 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)
<PAGE>
3
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.
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
<PAGE>
4
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.
<PAGE>
5
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 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.
<PAGE>
6
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 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
<PAGE>
7
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 Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or (ii)
in accordance with Section 9(b) or Section 10.
<PAGE>
8
(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
<PAGE>
9
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.
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
<PAGE>
10
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 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
<PAGE>
11
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.
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):
<PAGE>
12
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
<PAGE>
13
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 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.
<PAGE>
14
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.
KU ENERGY CORPORATION
By: /s/ Michael R. Whitley
-------------------------------
Name: Michael R. Whitley
Title: Chairman, President
and Chief Executive
Officer
LG&E ENERGY CORP.
By: /s/ Roger W. Hale
-------------------------------
Name: Roger W. Hale
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
EXHIBIT 99.2
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.
<PAGE>
2
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
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.
<PAGE>
3
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. 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
<PAGE>
4
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
<PAGE>
5
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 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
<PAGE>
6
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 (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
<PAGE>
7
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 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.
<PAGE>
8
(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
<PAGE>
9
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.
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
<PAGE>
10
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 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
<PAGE>
11
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.
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:
<PAGE>
12
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
<PAGE>
13
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 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.
<PAGE>
14
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.
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.
By: /s/ Roger W. Hale
-------------------------
Name: Roger W. Hale
Title: Chairman, President
and Chief
Executive Officer
KU ENERGY CORPORATION
By: /s/ Michael R. Whitley
-------------------------
Name: Michael R. Whitley
Title: Chairman, President
and Chief
Executive Officer
