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Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only
(As Permitted by Rule 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to
(S) 240.14a-11(c) or (S) 240.14a-12
KU ENERGY CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $____________
(5) Total fee paid: $______________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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KU ENERGY CORPORATION
One Quality Street
Lexington, KY 40507-1462
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of KU Energy Corporation (the "Company")
will be held in the Second Floor Assembly Room at the offices of the Company,
One Quality Street, Lexington, Kentucky, on April 28, 1998 at 1:30 p.m.,
Lexington (Kentucky) Time, for the following purposes:
(1)To elect to the Board three directors to hold office until the 2001
Annual Meeting of Shareholders of the Company or until their respective
successors shall have been duly elected and qualified.
(2)To transact such other business as may properly come before the meeting.
For further information with respect to the foregoing, reference is made to
the attached Proxy Statement.
Only holders of Common Stock of the Company of record on its books at the
close of business on March 9, 1998, are entitled to vote at the meeting. All
such shareholders of record are requested to be represented at the meeting,
either in person or by proxy.
A copy of the Company's Annual Report to Shareholders for the year 1997 has
been mailed to each common shareholder of record on the Company's books.
By order of the Board of Directors,
LOGO
George S. Brooks II
General Counsel and Secretary
March 17, 1998
----------------
SHAREHOLDERS WHO CANNOT ATTEND THE MEETING IN PERSON ARE REQUESTED TO DATE
AND SIGN THEIR PROXIES AND RETURN THEM TO THE COMPANY IN THE ENCLOSED
ENVELOPE, AS PROMPTLY AS POSSIBLE. THE BOARD OF DIRECTORS DESIRES THE
REPRESENTATION OF ALL SHAREHOLDERS AT THE MEETING, WHETHER THEIR HOLDINGS ARE
SMALL OR LARGE.
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KU ENERGY CORPORATION
One Quality Street
Lexington, KY 40507-1462
MARCH 17, 1998
Proxy Statement Relating to 1998 Annual Meeting of Shareholders
The purposes of the meeting are set forth in the accompanying Notice. The
enclosed proxy is solicited on behalf of the Board of Directors of the Company
and the cost of such solicitation will be borne by the Company. Following the
initial solicitation of proxies by mail beginning on or about March 17, 1998,
certain of the officers, employees and directors of the Company may solicit
proxies by correspondence, telephone, telecopy, telegraph or in person, but
without extra compensation. In addition, the Company has retained Georgeson &
Company, Inc., New York, New York, to assist in the solicitation of proxies.
Such solicitation may be made by mail, telephone, telecopy, telegraph or in
person. The estimated cost of the services of Georgeson & Company, Inc. is
$9,500. The Company will pay to banks, brokers, nominees and other fiduciaries
their reasonable charges and expenses incurred in forwarding the proxy
material to their principals.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER ENTITLED TO VOTE
AT THE MEETING WHO MAKES A WRITTEN REQUEST THEREFOR A COPY OF THE COMPANY'S
1997 ANNUAL REPORT ON FORM 10-K (OTHER THAN CERTAIN EXHIBITS) AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT
OF 1934. WRITTEN REQUESTS FOR A COPY OF THE REPORT SHOULD BE MAILED TO GEORGE
S. BROOKS II, SECRETARY OF THE COMPANY, AT THE ADDRESS STATED ABOVE.
The Company has been the parent holding company of Kentucky Utilities
Company ("Kentucky Utilities") since December 1991. On May 20, 1997, the
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
with LG&E Energy Corp. ("LG&E Energy"). On October 14, 1997, shareholders of
the Company approved the proposed merger (the "Merger") with LG&E Energy. The
Merger is expected to be completed later in 1998.
On the record date for the meeting, March 9, 1998, there were 38,817,517
shares of Common Stock outstanding. Only holders of Common Stock of record on
the books of the Company at the close of business on the record date are
entitled to vote at the meeting. Each such holder is entitled to vote at the
meeting, one vote per share, in respect to each of the matters to be voted on
at the meeting, except that in the election of directors each such holder is
entitled to cumulative voting and therefore may give one nominee for election
as many votes as shall equal the number of directors to be elected multiplied
by the number of shares of Common Stock held by such shareholder or may
distribute such votes among any two or more of the nominees. The proxies
solicited herewith seek discretionary authority to cast cumulative votes in
the election of directors.
A majority of the shares entitled to be cast on a matter constitutes a
quorum for action on that matter. Once a share is represented for any purpose
at the meeting, it will be deemed present for quorum purposes for the
remainder of the meeting and any adjournment of the meeting (unless a new
record date is set). If a quorum exists, action on a matter (other than the
election of directors) will be approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a different vote is
otherwise required. The three nominees for director receiving the highest
number of votes will be elected. Shares represented by a limited proxy, such
as where a broker may not vote on a particular matter without instructions
from the beneficial owner and no
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instructions have been received (i.e., a "broker non-vote"), will be counted
to determine the presence of a quorum but will not be present for other
purposes and will not be the equivalent of a "no" vote on a proposition.
Shares represented by a proxy with instructions to abstain on a matter will be
counted in determining whether a quorum is in attendance. An abstention is not
the equivalent of a "no" vote on a proposition.
Shareholders may vote either in person or by duly authorized proxy. The
giving of a proxy will not prevent a shareholder from voting in person at the
meeting. A proxy may be revoked by a shareholder at any time prior to the
voting thereof by giving written notice to the Secretary of the Company prior
to such voting. All shares entitled to vote and represented by effective
proxies on the enclosed form, received by the Company, will be voted at the
meeting (or any adjourned session thereof) in accordance with the terms of
such proxies.
Each Participant in the Company's Automatic Dividend Reinvestment and Stock
Purchase Plan (the "Reinvestment Plan"), Kentucky Utilities' Employee Stock
Ownership Plan (the "ESOP") or the Kentucky Utilities Employee Savings Plan
(the "Savings Plan") will receive a form of proxy by which such Participant
may direct the agent or trustee under such Plans as to the manner of voting
shares credited to the Participant's accounts under such Plans. Shareholders
of record who are participants in the Reinvestment Plan will receive only one
form of proxy for their certificated shares and those shares which they may
have acquired through reinvested dividends. A Participant of any of such Plans
wishing to vote in person at the meeting may obtain a proxy for shares
credited to his account under such Plans by making a written request therefor
by April 23, 1998, as follows: for the Reinvestment Plan, to George S. Brooks
II, Secretary of the Company, at the address stated on page 1; for the ESOP,
to Banc One Kentucky, PO Box 32500, Louisville, Kentucky 40232, Attention:
Barbara J. Steele, Trust Investment Division; and for the Savings Plan, to CG
Trust Company, c/o Cigna Retirement and Investment Services, Routing Code M-
122, 350 Church Street, Hartford, Connecticut 06103, Attention: Bruce
Beckmann.
Election of Directors
GENERAL
In light of the pending Merger, which will result in the Company merging
into LG&E Energy, the Board of Directors has elected to temporarily waive its
retirement policy with respect to two directors. Mr. Harry M. Hoe, who was to
have retired from the Board in 1998, will stand for reelection. Mr. Milton W.
Hudson, who had planned to retire from the Board in 1998, will continue to
serve. It is anticipated that Mr. Hoe and Mr. Hudson will each resign from the
Board of Directors at the earlier of the consummation of the Merger or the
1999 Annual Meeting of Shareholders.
Three directors are to be elected at the meeting. Barring unforeseen
circumstances and in the absence of contrary directions, the proxies solicited
herewith will be voted for the election of Carol M. Gatton, Harry M. Hoe and
Michael R. Whitley, as directors of the Company. Except as noted above, the
nominees will hold office until the 2001 Annual Meeting of Shareholders of the
Company or until their respective successors shall have been duly elected and
qualified. The proxies may also be voted for a substitute nominee or nominees
in the event any one or more of said persons shall be unable to serve for any
reason or be withdrawn from nomination, an occurrence not now anticipated.
Except as otherwise indicated, each nominee has been engaged in his present
principal occupation for at least the past five years. All information
regarding share ownership is as of January 31, 1998.
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The following information is given with respect to the nominees for election
as directors:
CAROL M. GATTON, 65, is Chairman of Area Bancshares, Inc., a
LOGO bank holding company in Owensboro, Kentucky. He is also involved
in real estate ventures and automobile dealerships. Mr. Gatton
beneficially owns 1,000 shares of Common Stock of the Company.
HARRY M. HOE, 72, is President and a director of J. R. Hoe &
LOGO Sons, Inc., Middlesboro, Kentucky, a foundry and casting
company. He has been a director of the Company since 1991 and a
director of Kentucky Utilities since 1979. Mr. Hoe beneficially
owns 17,623 shares of Common Stock of the Company, which include
5,677 shares held solely by his wife.
MICHAEL R. WHITLEY, 55, has been Chairman, President and Chief
LOGO Executive Officer of the Company and Kentucky Utilities since
August 1, 1995. He was President and Chief Operating Officer of
the Company and Kentucky Utilities from November 1, 1994 to
August 1, 1995. He was Executive Vice President of these
companies from August 1, 1994 to November 1, 1994. Before this
period, he had been a Senior Vice President of the Company since
1988 and of Kentucky Utilities since 1987. Mr. Whitley was
Secretary of the Company from 1988 until 1992 and of Kentucky
Utilities from 1978 until 1992. He is a director of PNC Bank
Kentucky, Inc., a wholly owned subsidiary of PNC Bank Corp.,
Inc. Mr. Whitley has been a director of the Company and Kentucky
Utilities since 1992. He beneficially owns 34,748 shares of
Common Stock of the Company, which include 6,300 shares held
jointly with his wife and 964 shares held solely by his wife.
Information with respect to those directors whose terms are not expiring is
as follows:
MIRA S. BALL, 63, is Secretary-Treasurer and Chief Financial
Officer of Ball Homes, Inc., a single-family residential
developer and property management company. She has been a
director of the Company and Kentucky Utilities since 1992. Ms.
Ball beneficially owns 6,123 shares of Common Stock of the
Company. Her term expires in 1999.
LOGO
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LOGO MILTON W. HUDSON, 70, has been an economic consultant
(Washington, DC) since 1991. He was Managing Director and Senior
Economic Advisor of Morgan Guaranty Trust Company of New York
from January 1990 until his retirement in June 1991. He has been
a director of the Company since 1991 and a director of Kentucky
Utilities since 1990. Mr. Hudson beneficially owns 1,274 shares
of Common Stock of the Company. His term expires in 2000.
JOHN T. NEWTON, 67, retired in 1995 as Chairman of the Board and
LOGO Chief Executive Officer of the Company and Kentucky Utilities,
positions he had held since 1987. He had also been President of
these companies from 1987 to November 1, 1994. Mr. Newton has
been a director of the Company since 1988 and a director of
Kentucky Utilities since 1974. He beneficially owns 32,653
shares of Common Stock of the Company, which include 7,668
shares held jointly with his wife and 5,000 shares held solely
by his wife. His term expires in 2000.
FRANK V. RAMSEY, JR., 66, is President and Director of Dixon
LOGO Bank, Dixon, Kentucky, and a farm owner and operator. He has
been a director of the Company since 1991 and a director of
Kentucky Utilities since 1986. Mr. Ramsey beneficially owns
1,400 shares of Common Stock of the Company. His term expires in
1999.
WILLIAM L. ROUSE, JR., 65, was Chairman of the Board and Chief
LOGO Executive Officer and a director of First Security Corporation
of Kentucky, a multi-bank holding company, prior to his
retirement in 1992. Mr. Rouse is a director of Ashland,
Incorporated. He has been a director of the Company since 1991
and a director of Kentucky Utilities since 1989. Mr. Rouse
beneficially owns 1,000 shares of Common Stock of the Company.
In addition, Mr. Rouse's account under the Directors Deferred
Compensation Plan described below has the equivalent of 7,004
shares of Common Stock. His term expires in 2000.
CHARLES L. SHEARER, PH.D., 55, is President of Transylvania
University, Lexington, Kentucky. He has been a director of the
Company since 1991 and a director of Kentucky Utilities since
1987. Dr. Shearer beneficially owns 1,527 shares of Common Stock
of the Company, which include 200 shares held solely by his wife
and 16 shares held by his children. His term expires in 1999.
LOGO
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LOGO LEE T. TODD, JR., PH.D., 51, is President and Chief Executive
Officer of DataBeam Corporation, a Kentucky-based, high-
technology firm. He was elected a director of the Company and
Kentucky Utilities in 1995. Dr. Todd beneficially owns 500
shares of Common Stock of the Company. His term expires in 1999.
VOTING SECURITIES BENEFICIALLY OWNED BY DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS
The directors, nominees and executive officers of the Company and Kentucky
Utilities owned beneficially at January 31, 1998 an aggregate of 219,869
shares of Common Stock of the Company, representing in the aggregate 0.6% of
such stock.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
All members of the Company's Board of Directors are currently members of
Kentucky Utilities' Board of Directors. The Board of Directors of the Company
and the Board of Directors of Kentucky Utilities have each established the
following six committees: the Executive Committee, the Audit Committee, the
Compensation Committee, the Finance Committee, the Long-Range Planning
Committee and the Nominating and Corporate Governance Committee. Committee
members are the same for committees of the Company and committees of Kentucky
Utilities.
During 1997, the Board of Directors of the Company held 20 meetings
(including Committee meetings), and the Board of Directors of Kentucky
Utilities held 21 meetings (including Committee meetings).
During 1997, each current director attended 100% of the meetings of the
Company's and Kentucky Utilities' Board of Directors and applicable Committee
meetings.
The members of the Executive Committee are Messrs. Hoe, Ramsey, Rouse,
Shearer and Whitley. Neither the Company's nor Kentucky Utilities' Executive
Committee met during 1997. The Executive Committee has the full power of the
Board between meetings of the Board, except as provided by law.
The members of the Audit Committee are Ms. Ball and Messrs. Gatton, Hoe,
Shearer and Todd. The Company's Audit Committee met two times in 1997, as did
Kentucky Utilities' Audit Committee. The Audit Committee selects and engages
(and may discharge) the Company's independent auditors; approves or
disapproves each professional service or type of service to be provided by the
auditors; meets with the auditors regarding the scope and results of the
annual audit and of internal accounting procedures and practices; reviews any
recommendations which may be made by the independent auditors; and generally
exercises supervision over all matters relating to audit functions, making
periodic reports to the Board.
The members of the Compensation Committee are Messrs. Gatton, Hudson,
Ramsey, and Rouse. The Company's Compensation Committee met four times in
1997, and Kentucky Utilities' Compensation Committee met five times. The
Compensation Committee reviews compensation for all officers, directors' fees
and fees paid to directors for membership on the various committees of the
Board; makes recommendations to the Board at least annually with respect to
appropriate levels of compensation and fees; and administers certain benefit
plans.
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The members of the Finance Committee are Ms. Ball and Messrs. Gatton, Hoe,
Hudson and Ramsey. The Company's Finance Committee met once in 1997, as did
Kentucky Utilities' Finance Committee. The Finance Committee monitors and
reviews financing programs and capital structure of the Company; reviews the
Company's cash position in order to establish programs for the proper
investment of amounts determined to be available for such purpose from time to
time; and reports to the Board at least annually concerning its activities,
or, when appropriate, makes recommendations which the committee deems
appropriate for action to be taken by the Board.
The members of the Long-Range Planning Committee are Messrs. Hudson, Ramsey,
Rouse, Shearer and Todd. The Company's Long-Range Planning Committee met one
time in 1997, as did Kentucky Utilities' Long-Range Planning Committee. The
Long-Range Planning Committee makes recommendations to the Board with respect
to the Company's future strategy.
The members of the Nominating and Corporate Governance Committee are Ms.
Ball and Messrs. Hoe, Rouse, Shearer and Todd. The Company's Nominating and
Corporate Governance Committee met one time in 1997, as did Kentucky
Utilities' Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee makes recommendations to the Board with respect
to qualified candidates for election to the Board. The Committee also reviews
the performance of Board members and, based upon such review, makes
recommendations to the Board as to which members shall stand for reelection.
In making recommendations for election to the Board, the Nominating and
Corporate Governance Committee will consider persons recommended by
shareholders. Any shareholder wishing to make such a recommendation must
comply with certain requirements of the Company's By-laws described herein
under the caption "General--Proposals of Shareholders." The Nominating and
Corporate Governance Committee also makes recommendations to the Board
regarding Board size, the desired number of employee (and former employee)
directors and policies regarding Director retirement or resignation.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's principal business activities are carried out through Kentucky
Utilities. Except as noted elsewhere in this Proxy Statement, each of the
officers of the Company whose compensation is reported in the Summary
Compensation Table is also an officer of Kentucky Utilities and received
compensation in 1997 from only Kentucky Utilities. Kentucky Utilities' Board
of Directors establishes compensation for Kentucky Utilities' executive
officers on the basis of recommendations made by that Board's Compensation
Committee. In addition, the Board of Directors of the Company establishes
compensation for Company executive officers who are not also Kentucky
Utilities executive officers on the basis of recommendations made by that
Board's Compensation Committee. In addition to recommending base salary for
all executive officers, the Compensation Committees make recommendations
concerning certain incentive compensation and other compensation programs
established by the respective Boards of Directors. The incentive compensation
plans described below are administered by the respective Compensation
Committees.
Given the rapid and fundamental changes occurring in the utility industry and
the resulting need to attract, retain and motivate a high-quality officer
team, the Compensation Committees are committed to implementing executive
compensation policies and programs which:
. Support the strategic business missions of the Company and Kentucky
Utilities;
. Emphasize a strong pay-for-performance orientation;
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. Have a meaningful portion of compensation at risk; and
. Provide a competitive level of compensation that is consistent with the
appropriate external marketplace.
In establishing and periodically reviewing the incentive compensation plans,
the Committees have utilized the services of outside consultants specializing
in executive compensation and benefits.
The key elements of the executive compensation program are base salary,
annual performance incentive, long-term performance incentive and benefits.
These key elements as applicable in 1997 are addressed separately below.
. Base salary:
The base salaries of all executive officers are reviewed annually by
the Committees, which make recommendations to the respective Boards of
Directors. In considering base salary levels for all officers other than
the Chairman, President and CEO, the Committees initially review
recommendations made by the Chairman, President and CEO. As part of the
review in 1997, consideration was given to the operating performance and
financial condition of the Company and/or Kentucky Utilities, as well as
the executives' contributions in guiding the companies to these
achievements. Consideration was also given to market data for electric
utility executives as set forth in the annual Edison Electric Institute
Executive Compensation Survey (the "EEI Survey"). More specifically,
comparisons were made to those survey companies similarly sized to the
Company (those with annual revenues of between $500 million and $2.5
billion). In 1997, there were 45 such comparable companies, which are
included among those in the EEI Index to which the Company's performance
is compared on page 12 of this proxy statement. For 1997, the intent of
the Committees and Boards was, in general, to set base salary levels at
or above the average but below the highest reported level for comparable
positions as shown by the EEI Survey. In order to provide base salary
market data for non-utility specific positions, information was also
considered from the 1997 Wyatt Top Management Report, which is comprised
of information from a wide variety of industries.
. Annual Performance Incentive:
The Kentucky Utilities Annual Performance Incentive Plan (the "Kentucky
Utilities Incentive Plan") and the Company's Annual Performance Incentive
Plan (the "KUE Incentive Plan" and together, the "Incentive Plans") are
designed to provide cash incentive compensation opportunities to attract,
retain and motivate a select group of employees of Kentucky Utilities and
the Company, respectively, including executive officers. The following
discussion relates to the Incentive Plans as in effect for 1997.
Effective for awards granted for 1998 and later years, the Incentive
Plans have been replaced by the KU Energy Corporation Annual Performance
Incentive Plan, as approved by shareholders on April 22, 1997.
Under the Committees' practice, no employee who has received an award
under one of the plans (i.e., either the Kentucky Utilities Incentive
Plan or the KUE Incentive Plan) for a plan year is eligible to receive an
award under the other plan for such plan year. Annual cash incentive
compensation is based on the financial and competitive strength of the
Company or Kentucky Utilities, as the case may be. The Incentive Plans
provide for establishment of incentive awards for each participant based
on performance against specific predetermined performance targets. The
performance targets applicable to 1997 are based on cost per kilowatt
hour/cost-control criterion, net income available to shareholders of
Common Stock,
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and personal performance goals (business and/or functional unit
performance targets, including safety performance).
The Compensation Committees determine eligible participants. For 1997,
a participant's potential incentive compensation was determined by a
varying percentage of base salary depending on the participant's position
and other factors as determined by the respective Committees. For 1997,
potential awards ranged from 15 to 45% of annualized base salary at the
beginning of the year, with 45% being applicable only to Mr. Whitley,
Chairman, President and CEO. If threshold performance goals are not
exceeded, no awards are paid. Participants may earn up to 1 1/2 times the
target award opportunity to the extent performance targets are exceeded.
In 1997, the weightings for the various performance measures set forth
above varied by participant. For individuals participating in the
Kentucky Utilities Incentive Plan, cost-per-kilowatt-hour performance was
weighted from 10 to 40%; net income performance was weighted from 10 to
40%; Business Unit (Customer Service & Marketing and Energy Supply
composite indexes) performance was weighted from 0 to 60%; and personal
performance goals were weighted from 0 to 60% of the total award. In the
case of participants in the KUE Incentive Plan for 1997 who were officers
of both the Company and Kentucky Utilities, the performance measures and
their weightings were cost control (40 to 50%); net income (40 to 50%);
and personal performance goals (0 to 20%). Performance measures
applicable to Mr. Whitley, Chairman, President and CEO, were cost control
(50%) and net income (50%). For participants in the KUE Incentive Plan
for 1997 who were not also officers of Kentucky Utilities, the
performance measures and their weightings were cost control (20%); net
income (0 to 20%); and personal performance goals (60 to 80%).
Incentive Plans awards earned in 1995, 1996 and 1997, as a result of
attaining or exceeding the performance goals for each of those years, are
set forth in the Summary Compensation Table under the column "Bonus" for
the individuals named therein.
Participants may elect to have all or any portion of their cash awards
deferred under the applicable Executive Optional Deferred Compensation
Plan (collectively, the "Executive Deferred Compensation Plans")
established by the Company and Kentucky Utilities, respectively. Amounts
deferred for cash awards earned for 1997 will be maintained in an
unfunded account for each participant and credited with earnings each
quarter at a rate of interest equal to the greater of (1) the return on
capital of the Company or Kentucky Utilities (as the case may be) for the
12 months ended each quarter or (2) the 13-week Treasury Bill rate in
effect on the first business day following each quarter. A participant
may elect instead, however, to have such deferred amounts credited with
appreciation (depreciation) and earnings based on a hypothetical
investment in the Company's Common Stock, but once made in respect of an
Executive Deferred Compensation Plan for amounts deferred for 1997 the
election may not be changed. Amounts credited under the Executive
Deferred Compensation Plans will be paid to each participant upon
termination of employment or as otherwise permitted by the Executive
Deferred Compensation Plans, including upon a change in control. See
"Change in Control Arrangements" below.
. Long-Term Performance Incentive:
The Kentucky Utilities Performance Share Plan (the "Kentucky Utilities
Performance Share Plan") and the Company's Performance Share Plan (the
"KUE Performance Share Plan" and together, the "Performance Share Plans")
apply to long-term incentive awards granted prior to 1997 and were
designed to provide long-term incentives in the form of additional
compensation to officers and other select employees of Kentucky Utilities
and the Company, respectively, dependent upon the respective
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company's return on equity compared to a group of comparable companies
selected by the Committees. Under the Performance Share Plans, the
respective Compensation Committee determined a Performance Cycle and
the number of Performance Shares, each representing a share unit, to be
contingently granted to eligible participants for that Performance
Cycle. Performance Cycles have been set at three years under the
Performance Share Plans. At the end of each Performance Cycle, the
respective Compensation Committee determines the number of Performance
Shares earned by each participant, based on the degree to which actual
performance compared to targets set. Upon such determination,
Performance Shares earned for a Performance Cycle, if any, will be
converted into an equal number of restricted shares of the Company's
Common Stock.
Effective for awards granted for 1997 and later years, the
Performance Share Plans have been replaced by the KU Energy Corporation
Long-Term Incentive Plan (the "Long-Term Incentive Plan") as approved
by shareholders on April 22, 1997. Under the Long-Term Incentive Plan,
the Compensation Committee of the Company may grant or issue stock
options, restricted shares, stock appreciation rights and performance
shares or performance units. For 1997, the Compensation Committee chose
to grant Performance Shares to eligible participants. The number of
Performance Shares contingently granted for the Performance Cycle
beginning in 1997 was based on a varying percentage of annualized base
salary in effect on the first day of the Performance Cycle divided by
the closing market price of the Company's Common Stock on the last
business day before the beginning of the Performance Cycle. For
executive officers, the percentage for assistant officers was 10%, for
vice presidents and other officers was 20%, for senior vice presidents
was 30% and for Mr. Whitley, Chairman, President and CEO was 50%. A
Performance Cycle is a number of years determined by the Compensation
Committee over which the contingent grants of Performance Shares may be
earned. The Performance Cycle beginning in 1997 has been set at three
years. A Performance Share is a share unit which is contingently
granted to a participant at the beginning of a Performance Cycle.
The number of Performance Shares that may be earned by each
participant for the Performance Cycle beginning in 1997 is based on the
relative performance of the Company's average total shareholder return
compared to the EEI Index, as determined for that particular
Performance Cycle, with modification to awards in certain cases based
on the Company's average total shareholder return relative to the S&P
500 Index. See the information following the table "Long-Term Incentive
Plan--Awards In Last Fiscal Year" for a description of the scale
applicable to contingent grants made for 1997. At the end of the
Performance Cycle, the Compensation Committee determines the number of
Performance Shares earned by each participant, based on the degree to
which actual performance compared to the targets set. Upon such
determination, Performance Shares earned for the Performance Cycle, if
any, will be converted into an equal number of shares of the Company's
Common Stock, which may be subject to restriction as determined by the
Compensation Committee.
The Performance Cycle that commenced in 1992 under the Performance
Share Plans was completed in 1994. Since the stringent target goals set
by the Committee were not met, there were no distributions of
restricted shares to participants. All contingent grants for the 1992-
1994 Performance Cycle have lapsed.
The Performance Cycle that commenced in 1993 under the Performance
Share Plans was completed in 1995. Based on performances during the 3-
year cycle, 100% of the maximum level of shares were converted to
restricted shares during 1996. These awards of restricted shares are
shown on the Summary Compensation Table as LTIP Payouts.
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The Performance Cycle that commenced in 1994 under the Performance
Share Plans was completed in 1996. Based on performances during the 3-
year cycle, 100% of the maximum level of shares contingently granted
under the Kentucky Utilities Performance Share Plan and 75%
contingently granted under the KUE Performance Share Plan were
converted to restricted shares during 1997. These awards are shown on
the Summary Compensation Table as LTIP Payout.
The Performance Cycle that commenced in 1995 under the Performance
Share Plans was completed in 1997. Shares earned in respect of that
Performance Cycle, if any, will be distributed in the form of
restricted shares to participants in the second quarter of 1998 after
necessary comparisons are made.
The Performance Cycle that commenced in 1996 under the Performance
Share Plans will be completed in 1998. Shares earned in respect of that
Performance Cycle, if any, will be distributed in the form of
restricted shares to participants in the second quarter of 1999 after
necessary comparisons are made.
The Performance Cycle that commenced under the Long-Term Incentive
Plan in 1997 will be completed in 1999. Shares earned in respect of
this Performance Cycle, if any, will be distributed in the form of
restricted shares to participants in the second quarter of 2000 after
necessary comparisons are made.
.Benefits:
Executive officers of the Company and Kentucky Utilities, including
those listed in the Summary Compensation Table on page 15 of this proxy
statement, are eligible for participation in the standard benefit
package available to all Company and Kentucky Utilities employees. In
addition, executive officers of the Company and Kentucky Utilities are
eligible to be members in Kentucky Utilities' Supplemental Security
Plan, which is described below under "Executive Compensation."
The Committees believe that the above-described components combine to
provide total compensation packages that enable the companies to
effectively recruit, motivate and retain executive personnel. The
Committees further believe the provisions of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), which limit the deductibility of certain compensation expense
(generally referred to as the "$1 million limit"), will not limit the
deductibility of any compensation that was paid by the Company or
Kentucky Utilities in 1997. To ensure to the extent practicable that
certain compensation paid to officers under the KU Energy Corporation
Annual Performance Incentive Plan and the Long-Term Incentive Plan
would qualify for the "performance-based compensation" exception to the
$1 million limit and therefore be deductible by the Company, such plans
were submitted to and were approved by shareholders at the annual
meeting held on April 22, 1997.
The Kentucky Utilities Compensation Committee makes its
recommendations for the base salary of Michael R. Whitley, Chairman,
President and CEO, by utilizing the same criteria and philosophies
described above. The Committee analyzes Mr. Whitley's individual
performance on the additional basis of its evaluation of the
performance and coordination of the Company's and Kentucky Utilities'
other management personnel. The incentive portion of Mr. Whitley's
compensation for 1997 was provided under the KUE Incentive Plan and the
Long-Term Incentive Plan. As described above, compensation under these
plans is tied to Company performance. Awards made under these plans to
Mr. Whitley were established based upon plan parameters. Specific
information regarding the level of
10
<PAGE>
compensation and Incentive Plan, Performance Share Plan and Long-Term
Incentive Plan participation for Mr. Whitley is set forth in the tables
shown under Executive Compensation below and as detailed in the
discussion above.
None of the present members of the Compensation Committees is (or has
been) an employee of the Company or Kentucky Utilities or has any
relationship with the Company or Kentucky Utilities which is required
to be disclosed pursuant to the rules of the Securities and Exchange
Commission. The members of the Company's Compensation Committee and
Kentucky Utilities' Compensation Committee responsible for this report
are:
Carol M. Gatton
Milton W. Hudson
Frank V. Ramsey, Jr.
William L. Rouse, Jr.
11
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance for the last five
years of the Company's Common Stock to the S&P 500 Index and the index of
investor-owned electric and combination electric and natural gas utilities
reported by Edison Electric Institute (the "EEI Index"). The graph gives total
shareholder return in each case assuming $100 invested at December 31, 1992
and the reinvestment of all dividends. Following the graph is a chart giving
the same information.
LOGO
Shareholder Returns
(Dividends Reinvested)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
KU Energy....................... $100.00 $108.79 $107.71 $127.03 $134.67 $185.74
EEI Index....................... 100.00 112.60 97.89 128.32 128.11 161.74
S&P 500 Index................... 100.00 110.08 111.53 153.45 188.68 251.63
</TABLE>
12
<PAGE>
EQUITY OWNERSHIP GUIDELINES
Effective January 1, 1998, under the Company's Equity Ownership Guidelines
adopted by the Board of Directors of the Company, directors and executives of
the Company and Kentucky Utilities are encouraged to make a minimum personal
investment in Company Common Stock. The minimum guidelines may be satisfied in
various ways including through plans maintained by the Company or a
subsidiary. A director's or executive's compliance with the guidelines will be
taken into account by the Compensation Committee in the grant or payment of
awards to the director or executive under incentive or other plans maintained
by the Company. The Board of Directors of the Company may amend or terminate
the Equity Ownership Guidelines at any time or from time to time.
DIRECTORS' COMPENSATION
Each director of the Company is also a director of its principal subsidiary,
Kentucky Utilities. Each director who is not an employee of the Company or
Kentucky Utilities is paid an annual retainer of $20,000. This retainer is
reduced by any retainer paid from a Company subsidiary. Kentucky Utilities
pays non-employee directors an annual retainer of $15,000. Thus, the net
annual Company retainer paid to such directors is $5,000 but the aggregate
paid for serving on both Boards is $20,000. An additional annual retainer of
$1,200 is paid to each non-employee director who is a chairperson of a
committee of either Board. However, if a non-employee director is a
chairperson of the same Board committee of the Company and Kentucky Utilities,
only one such additional annual retainer is paid.
In addition to an annual retainer, the Company and Kentucky Utilities pay
each non-employee director a $1,000 fee for each meeting of a Board or a
particular committee attended; provided that if the Boards of the Company and
Kentucky Utilities meet on the same day, only one $1,000 fee is paid for both
meetings. Similarly, if the same committee of the Boards of the Company and
Kentucky Utilities meets on the same day, only one $1,000 fee is paid for both
meetings. Out-of-pocket travel expenses are paid to directors for all meetings
attended.
The Compensation Committees have recommended that the total compensation to
Directors for service on the Board of the Company and Kentucky Utilities be
revised, effective March 1, 1998, to be as follows: the annual retainer,
$28,000 (of which $21,000 would relate to Kentucky Utilities as described
above); the committee chairperson fee, $2,000; the Board meeting fee, $1,100;
and the committee meeting fee, unchanged. The Boards may not act on such
proposal or may modify the proposal upon adoption.
All eligible directors of the Company and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs (the "Director
Retirement Plans") of the Company and Kentucky Utilities. Directors who are
not, and have not previously been, an officer of Kentucky Utilities, the
Company, or their affiliated companies ("outside directors") are eligible to
participate. An outside director who is 65 years of age or older and has
completed at least five consecutive years of service on the Company's and/or
Kentucky Utilities' Board will receive, upon termination of service from a
Board for any reason other than death, an annual retirement benefit equal to
the annual retainer paid to such Board's directors in effect as of such
termination, payable monthly over a period of years equal to the number of
full years such director served on the Board, but not in excess of 10 years.
Such payments cease, however, if the director dies before all such payments
are made. The annual retainer in effect upon the director's termination from a
Board will generally be calculated as described in the first paragraph under
this caption (excluding the additional annual retainer for chairpersons). In
13
<PAGE>
the event of a change in control of the Company or Kentucky Utilities, any
person then receiving a retirement benefit would be paid, within 30 days of
the change in control, a lump-sum payment equal to the discounted present
value of all then unpaid installments of the director's retirement benefit. In
the event of a change in control, each outside director in office immediately
prior to such change in control will be eligible to receive an accelerated
retirement benefit if the director terminates service from a Board for any
reason other than death within three years of the date of the change in
control. Such accelerated retirement benefit would be paid in a lump sum
within 30 days of such termination and would be equal to the discounted
present value of the retirement benefit which such director would have
received if the director had retired from the Board at age 70 (or for certain
directors, 72) and lived to collect the full benefit otherwise payable under
the applicable Director Retirement Plan. Such benefit would be based on the
higher of the annual retainer in effect immediately prior to the change in
control or immediately prior to such director's termination of service. Change
in control has the meaning set out under "Change In Control Arrangements"
below. The consummation of the Merger will constitute a "change in control"
under the Director Retirement Plans.
Directors may elect to have all or a specified portion of their directors'
fees deferred under the Director Deferred Compensation Plans (the "Director
Deferred Compensation Plans") of the Company and Kentucky Utilities, such
elections to be made in accordance with and subject to the terms of the
Director Deferred Compensation Plans. Amounts deferred will be maintained in
unfunded accounts for each participant, which, based on a choice made by the
director, either: (1) bear interest at a floating rate based upon the average
prime rate charged by banks as reported in the Federal Reserve Bulletin; or
(2) experience appreciation (depreciation) and earnings based on a
hypothetical investment in the Company's Common Stock. Amounts deferred under
the Director Deferred Compensation Plans will be paid to the participant upon
termination as a director for any reason other than death based on a choice
made by the Director as permitted by the Director Deferred Compensation Plans
in a single payment or, with interest, quarterly over a period of not to
exceed 40 calendar quarters, or, with interest, annually over a period of not
to exceed 10 years. In the event of a participant's death, payment of any
remaining balance of credited amounts will be made in a single payment to a
designated beneficiary. In certain cases, directors may receive a distribution
of deferred amounts in the event of substantial financial hardship. In the
event of a change in control of the Company or Kentucky Utilities, any
director who terminated prior to the change in control whose deferred amounts
have not been distributed would receive, within 15 days of the change in
control, a lump sum payment of the undistributed amounts. In the event of a
change in control, each director who terminates thereafter within three years
of the date of the change in control would be paid, within 15 days after
termination, a lump sum payment of the director's deferred amounts. The
consummation of the Merger will also constitute a "change in control" under
the Director Deferred Compensation Plans.
The Compensation Committees have recommended a proposal to eliminate the
Director Retirement Plans for current and future directors. Under this
proposal, current participating directors would be entitled to a lump sum
benefit based on the present value of the Director's retirement benefits
calculated as if a "change in control" had occurred and the Director had
terminated service immediately thereafter. Such lump sum amount would be
credited to the Director Deferred Compensation Plans in the hypothetical
Company Common Stock account (except for certain retiring directors who may
make the election described in the preceding paragraph). The Boards may not
act on such proposal or may modify the proposal upon adoption.
14
<PAGE>
EXECUTIVE COMPENSATION
General. The following table contains information with respect to the
compensation paid by (or earned from) the Company and Kentucky Utilities, for
all services rendered during 1995 through 1997 in all capacities, to the Chief
Executive Officer and the other four most highly compensated executive
officers of the Company and Kentucky Utilities:
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION ALL OTHER
SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) ($)(4)
- --------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MICHAEL R. WHITLEY; 1997 444,427 186,173 2,477 50,967 4,750
Chairman of the Board, President 1996 387,737 99,741 2,164 79,798 6,242
& Chief Executive Officer & 1995 318,467 73,476 116 0 4,686
Director of the Company &
Kentucky Utilities
O. M. GOODLETT; 1997 239,153 69,828 1,738 58,406 4,750
Senior Vice President of the 1996 231,840 51,994 0 52,560 5,181
Company & Kentucky Utilities 1995 210,195 44,550 0 0 4,500
JAMES W. TIPTON; 1997 237,340 83,166 2,854 64,829 4,750
Senior Vice President 1996 230,750 38,304 2,004 77,882 5,670
of the Company 1995 227,591 39,942 1,445 0 4,667
WAYNE T. LUCAS; 1997 215,792 69,555 1,271 29,576 4,750
Senior Vice President 1996 208,137 49,043 749 33,124 6,361
of Kentucky Utilities 1995 194,553 42,160 711 0 4,692
ROBERT M. HEWETT; 1997 183,727 45,033 1,768 29,576 4,750
Senior Vice President 1996 164,681 32,052 363 33,124 4,500
of Kentucky Utilities 1995 157,396 28,054 15 0 4,500
</TABLE>
- --------
(1) Bonuses are paid under the Incentive Plans. Any bonus earned but deferred
under the Executive Deferred Compensation Plans is included in the Table.
(2) Other annual compensation consists of amounts for group term life
insurance and related taxes and above-market-rate interest earned on
deferred compensation during 1997 and paid in 1997.
(3) Reflects payouts under the Performance Share Plans described under "Report
of Compensation Committee on Executive Compensation" above. Performance
goals were not met, and thus no payouts were made for the Performance
Cycle that relates to 1995 in the table above. Amounts shown for 1996 and
1997 reflect a payout, in the form of restricted shares of the Company's
Common Stock, of a percentage of the contingent grant for the applicable
Performance Cycle as follows: 1996, 100%; 1997, 100% for the Kentucky
Utilities Performance Share Plan and 75% for the KUE Performance Share
Plan. Such restricted stock was subject to forfeiture if the officer
terminated employment prior to January 2, 2003 (for amounts shown for
1996) and January 2, 2000 (for amounts shown for 1997) for any reason
other than retirement, disability or death. In the event of a change in
control, however, the restrictions lapse immediately. The execution of the
Merger
15
<PAGE>
Agreement constituted a "change in control" for this purpose and all
restrictions on these shares lapsed in 1997.
(4) All other compensation for 1995 and 1996 includes: (a) above-market-rate
interest earned on deferred compensation; and (b) the employer matching
contribution made to the officer's account in the 401(k) Employee Savings
Plan. Such amounts for 1997 relate only to employer matching contributions
to 401(k) Employee Savings Plan.
Long-Term Incentive Awards. Performance Shares contingently awarded under
the Long-Term Incentive Plan in 1997 are reported in the Long-Term Incentive
Plan awards table below. A description of how awards are determined is
presented under "Report of Compensation Committee on Executive Compensation."
A description of the scale by which performance targets are set follows the
table.
Long-Term Incentive Plan--Awards In Last Fiscal Year
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR UNTIL NON-STOCK PRICE-BASED PLANS(2)
OTHER RIGHTS MATURATION ---------------------------------------
NAME (#) OR PAYOUT(1) THRESHOLD($) TARGET($) MAXIMUM($)
- ---- ------------ -------------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Michael R. Whitley...... 6,835 3 0 214,619-268,274 321,929
James W. Tipton......... 2,350 3 0 73,790-92,238 110,685
O.M. Goodlett........... 2,270 3 0 71,278-89,098 106,917
Wayne T. Lucas.......... 2,030 3 0 63,742-79,678 95,613
Robert M. Hewett........ 1,075 3 0 33,755-42,194 50,633
</TABLE>
- --------
(1) Number of years in Performance Cycle.
(2) See description below for the scale that determines which amount may be
applicable. Amounts are calculated based on the price of the Company's
Common Stock on December 31, 1997.
For the Performance Cycle commencing in 1997, payouts of contingent grants
shown in the table above will be determined by calculating the average total
shareholder return of the Company for the Performance Cycle and comparing it
to the average total shareholder return of the EEI Index for the Performance
Cycle, with adjustment to payouts in certain cases based on the Company's
average total shareholder return relative to the S&P 500 Index. For the 1997-
1999 Performance Cycle, the scale that determines if contingent grants are
earned is as follows: if the Company's average total shareholder return is at
or above 75th percentile of the EEI Index, 100% of the contingent grant will
be earned (the second figure shown as Target in the table); if it is at the
50th percentile level, 60% will be earned (the first figure shown as Target in
the table); and if the average is between the 50th and 75th percentile levels,
the earned grants will be between 60% and 100% determined by straight line
interpolation. If the average is below the 50th percentile, no shares
contingently granted will be earned (shown as the Threshold in the table) for
that Performance Cycle. Any performance shares earned under the foregoing
scale will be increased by 20% if the Company's average total shareholder
return for the Performance Cycle is at or above the 75th percentile of the S&P
500 Index for the Performance Cycle (the Maximum shown in the table) and
reduced by 20% if the average is below the 25th percentile.
Retirement Plan. Each of the officers of the Company and Kentucky Utilities
is entitled to participate in the Kentucky Utilities employee retirement plans
described below. Executive officers, like other employees, are
16
<PAGE>
eligible to participate in Kentucky Utilities' Retirement Plan, and all
eligible persons whose compensation is reported in the Summary Compensation
Table participated in the Retirement Plan. Contributions to the Retirement
Plan are determined actuarially and cannot be readily calculated as applied to
any individual participant or small group of participants. Generally,
compensation for Retirement Plan purposes means base compensation while a
participant, excluding overtime pay, commissions, performance incentive
compensation or other extraordinary compensation. The compensation for
Retirement Plan purposes of the individuals named in the foregoing table is
substantially equivalent to the base salary reported in the Summary
Compensation Table. The credited years of service under the Retirement Plan
for such persons were as follows: Mr. Whitley, 33 years; Mr. Tipton, 30 years;
Mr. Goodlett, 27 years; Mr. Lucas, 28 years; and Mr. Hewett, 29 years. All of
the credited years of service were computed as of December 31, 1997.
Retirement Plan benefits depend upon length of service, age at retirement and
amount of compensation (determined in accordance with the Retirement Plan).
Although higher amounts are determined under the Retirement Plan and shown
in the table below, in most cases, pension benefits under the Retirement Plan
or compensation used to measure such benefits will be reduced to comply with
maximum limitations imposed by the Internal Revenue Code. Under such
limitations, no base compensation above $150,000 ($160,000 effective for
compensation in 1997) may be used to calculate a benefit, except in the case
of certain executive officers to preserve benefits accrued under previously
applicable rules. In addition, in 1997 no annual benefit derived from employer
contributions may exceed $125,000. Assuming retirement at age 65, a Retirement
Plan participant would be eligible at retirement for a maximum annual pension
benefit (without taking into account the Internal Revenue Code limitations
referred to above) set forth in the following table. However, assuming
retirement at age 65, assuming 1997 base compensation and taking into account
the Internal Revenue Code limitations, the annual pension benefit under the
Retirement Plan for the executive officers named in the Summary Compensation
Table would be as follows: Mr. Whitley, $103,607; Mr. Tipton, $95,146; Mr.
Goodlett, $90,493; Mr. Lucas, $93,011; and Mr. Hewett, $93,246.
<TABLE>
<CAPTION>
ANNUAL BENEFIT AFTER SPECIFIED YEARS OF SERVICE(2)
FINAL AVERAGE BASE --------------------------------------------------------------
PAY(1) 15 20 25 30 35 40 45
- ------------------ -- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000................ $ 29,999 $ 39,999 $ 49,999 $ 59,999 $ 69,998 $ 79,998 $ 89,998
$200,000................ $ 39,999 $ 53,332 $ 66,665 $ 79,998 $ 93,331 $106,664 $119,997
$250,000................ $ 49,999 $ 66,665 $ 83,331 $ 99,998 $116,664 $133,330 $149,996
$300,000................ $ 59,999 $ 79,998 $ 99,998 $119,997 $139,997 $159,996 $179,996
$350,000................ $ 69,998 $ 93,331 $116,664 $139,997 $163,329 $186,662 $209,995
$400,000................ $ 79,998 $106,664 $133,330 $159,996 $186,662 $213,328 $239,994
$450,000................ $ 89,998 $119,997 $149,996 $179,996 $209,995 $239,994 $269,993
$500,000................ $ 99,998 $133,330 $166,663 $199,995 $233,328 $266,660 $299,993
$550,000................ $109,997 $146,663 $183,329 $219,995 $256,660 $293,326 $329,992
$600,000................ $119,997 $159,996 $199,995 $239,994 $279,993 $319,992 $359,991
</TABLE>
- --------
(1) "Final average base pay" generally means the average annual compensation
during the 60 consecutive months of highest pay during the period of
employment.
(2) Annual benefits shown are on a straight life annuity basis. Amounts shown
are not subject to any deduction for Social Security benefits or other
offset amounts. Benefits may be reduced by Internal Revenue Code
limitations described above.
Supplemental Security Plan. Executive officers and certain other employees
of the Company and Kentucky Utilities are eligible to be members in Kentucky
Utilities' Supplemental Security Plan which provides retirement,
17
<PAGE>
disability and death benefits as well as a change in control retirement
benefit and a change in control severance benefit. Change in control has the
meaning set out under "Change in Control Arrangements" below. As to executive
officers, upon retirement at age 65, an eligible member will receive 15 annual
payments of an amount equal to 75% of basic compensation, offset by benefits
payable from any defined benefit plan of the Company or an affiliate (such as
Kentucky Utilities' Retirement Plan) and Social Security benefits. Basic
compensation is the annualized base monthly salary of the member, exclusive of
performance incentive compensation or other extraordinary compensation, in
effect at termination of employment by retirement, disability or death. Upon
termination of employment by death of an eligible executive officer prior to
age 65, the member's beneficiary will receive an annual benefit equal to 50%
of basic compensation until the later of the date such member would have
attained age 65 or completion of 15 annual payments. Upon termination of
employment by disability prior to age 65, the member will receive the
"retirement benefit" if the member lives to retirement age and remains
disabled or the "death benefit" if the member dies prior to retirement age and
is disabled at death. Benefits will be paid from the general funds of the
employer. The estimated annual benefits from Kentucky Utilities' Supplemental
Security Plan that would be payable upon retirement at normal retirement age
(age 65) for the individuals named in the Summary Compensation Table (assuming
1997 base salary) are as follows: Mr. Whitley, $216,937; Mr. Tipton, $68,654;
Mr. Goodlett, $68,279; Mr. Lucas, $47,761; and Mr. Hewett, 30,273. To assist
in providing funds to pay such benefits when they become payable, insurance is
purchased on the lives of the members of the Supplemental Security Plan.
Change In Control Arrangements. Under the Supplemental Security Plan,
members are entitled to change in control severance benefits in the following
circumstances: (i) involuntary termination of the individual's employment
within two years following a change in control (or, if later, prior to the
consummation of the change in control transaction or its earlier abandonment)
for reasons other than cause (as defined in the plan), death or permanent
disability; (ii) resignation within two years of a change in control (or, if
later, prior to the consummation of the change in control transaction or its
earlier abandonment) for good reason (as defined in the plan); and (iii) in
respect of the Chairman of the Board, the President, the Chief Financial
Officer (or, if such positions are filled by less than three persons, the
Executive Vice President), the Senior Vice Presidents and the Corporate
Secretary, in each case of Kentucky Utilities, termination of employment for
any reason during the 30-day period commencing on the first anniversary of the
consummation of a change in control. In such circumstances, the employee will
be entitled to a change in control severance payment equal to a certain
percentage (300% in the case of executive officers of the Company or Kentucky
Utilities) of the sum of (i) the employee's basic compensation and (ii) the
employee's target annual performance incentive compensation. In addition, the
employee will be entitled to continuation of certain employee welfare benefits
for up to three years following termination of employment, subject to an
offset for comparable benefits. Under the Supplemental Security Plan, the
employee is entitled to receive additional payments, if necessary, to
reimburse the employee for certain excise tax liabilities payable under
federal, state or local law as a result of the payment and any other
compensation being contingent on a change in control. The Supplemental
Security Plan's change in control retirement benefit provides that, upon
termination of employment, other than for cause (as defined in the
Supplemental Security Plan) following a change in control, an eligible member
will receive a lump-sum amount equal to the present value of the retirement
benefit (described in the preceding paragraph and assuming the member is then
65 but prorated if the member then has less than 15 years of service,
including an assumed three additional years of service in the case of
executive officers); provided that, if the termination is more than two years
from the change in control, the calculation of years of service will not
include the assumed additional three years and the compensation upon which the
benefit is calculated will be the actual compensation in effect at termination
(rather than the compensation in effect at the change in control which, if
higher, would be used if
18
<PAGE>
termination occurred within two years of the change in control). The change in
control severance benefits and change in control retirement benefits are
effective for a minimum of five years, which is automatically extended from
year to year unless Kentucky Utilities gives notice that it does not wish to
extend the period of effectiveness.
The Incentive Plans, Performance Share Plans, Executive Deferred
Compensation Plans and Long-Term Incentive Plan contain provisions relating to
a change in control. Under the Performance Share Plans and Long- Term
Incentive Plan, or the awards granted thereunder, if a participant's
employment is terminated voluntarily or involuntarily after a change in
control, such participant will have the right to an immediate payment in
shares of Company Common Stock for all Performance Cycles in which the
participant is currently participating. The amount payable to a participant in
the event of termination following a change in control will be determined in
accordance with the formula specified in the plans. In addition, the
restriction on any restricted shares then held by the participant under these
plans will lapse on the occurrence of a change in control, whether or not the
participant is terminated. Under the Executive Deferred Compensation Plans,
all amounts held under such plans will be paid to the participant after a
change in control, whether or not the participant is terminated. Such payments
were made to participants following execution of the Merger Agreement, which
constituted a change in control. Under the Incentive Plans, after a change in
control, whether or not a participant is terminated, a participant, including
a participant who had terminated prior to the change in control by reason of
retirement, disability or death, will have a right to an immediate cash
payment based on actual base salary earned prior to the change in control and
on the assumption that established targets for the year had been met.
For purposes of all the executive and director plans, "change in control"
includes any merger, consolidation, reorganization or sale of substantially
all of the assets of the Company or Kentucky Utilities which results in less
than 60% of the voting power of the resulting entity being owned by the
holders of the Common Stock of the Company prior to the transaction; a change
in the majority of the Board of Directors of the Company or Kentucky Utilities
over a two-year period which is not approved by two-thirds of the incumbent
directors; and the acquisition by any person or group of persons of beneficial
ownership of 10% or more of the Common Stock of the Company or Kentucky
Utilities. The execution of the Merger Agreement constituted, and the
consummation of the Merger will also constitute, a "change in control" under
all of the executive and director plans, or awards granted thereunder,
described above, other than the Incentive Plans, the Director Retirement Plans
and the Director Deferred Compensation Plans under which only the consummation
of the Merger will constitute a "change in control".
Employment Agreement. In connection with the Merger Agreement, the Company
entered into an Employment Agreement with Mr. Whitley which will become
effective only upon consummation of the Merger. The Employment Agreement will
have an initial term of five years commencing at the effective date of the
Merger with automatic renewal for additional one-year terms at the end of the
initial term or any renewal term unless Mr. Whitley or LG&E Energy (as
successor to the Company) gives at least 3 months prior notice of an intention
not to renew. Under the Employment Agreement Mr. Whitley will serve as Vice
Chairman, President and Chief Operating Officer of LG&E Energy and Vice
Chairman and Chief Operating Officer of Louisville Gas and Electric Company
and Kentucky Utilities. Under the Employment Agreement, Mr. Whitley will
receive an annual base salary of not less than $575,000 and will participate
in the annual bonus plan and long-term incentive plan of LG&E Energy, with an
annual bonus target award of not less than 55% of his base salary and long-
term incentive grants with a present value of not less than 70% of his base
salary, to be delivered 60% in the form of performance units/shares and 40% in
the form of non-qualified stock options. He is also entitled to life insurance
19
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coverage in an amount of not less than $2,000,000 and certain other welfare,
retirement and fringe benefits similar to other LG&E Energy executive officers
and benefits currently offered by the Company. If LG&E Energy terminates Mr.
Whitley's employment without cause (as defined in the Employment Agreement) or
if Mr. Whitley terminates his employment for good reason (which, as defined in
the Employment Agreement includes for any reason during the 30-day period
commencing on the first anniversary of the effective date of the Merger), Mr.
Whitley will receive, in addition to all compensation earned through the date
of termination and coverage and benefits under all benefit and incentive
compensation plans, a severance payment equal to the discounted present value
of his base salary and target bonus for the greater of (i) two years, or (ii)
the remainder of the employment term then in effect (the "Continuation
Period"). In addition, in such event Mr. Whitley will receive his outstanding
target bonus award, pro-rated through the date of his termination. Further, he
will continue to receive welfare benefits during the Continuation Period and
all stock options will become exercisable and all restricted stock and other
equity awards will vest. In addition, any long term incentive awards (other
than stock options ) will be cashed out at the discounted present value of the
target payout pro-rated for Mr. Whitley's actual period of service plus the
Continuation Period. Payments to Mr. Whitley upon termination after a change
in control under the Employment Agreement will be grossed up for any
applicable excise taxes.
General
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board has selected the firm of Arthur Andersen
LLP as independent public accountants to examine the financial statements of
the Company and Kentucky Utilities for 1998. The firm has served as the
independent public accountants for the Company and Kentucky Utilities for many
years. Representatives of the firm are not expected to be present at the
annual meeting.
If the Merger is consummated prior to the end of 1998, it may be deemed
desirable at that time for the current auditors of LG&E Energy Corp. or
another auditing firm to audit the annual financial statements for all
affiliated corporations for 1998, in which case Arthur Andersen LLP would no
longer serve.
PROPOSALS OF SHAREHOLDERS
Under the rules of the Securities and Exchange Commission, any shareholder
proposal intended to be presented at the 1999 Annual Meeting of Shareholders
must be received by the Company at its principal executive offices no later
than November 18, 1998 in order to be eligible to be considered for inclusion
in the Company's proxy materials relating to that meeting. A shareholder
submitting a proposal or nominating a person to serve as director must comply
with procedures set forth in the Company's By-laws. In general, the By-laws
provide that for business to be considered at an annual meeting of
shareholders, a shareholder must give timely and proper notice of the matter
to the Secretary of the Company. The notice must specify in reasonable detail
the business desired to be brought before the meeting and contain other
information required by the By-laws. Nominations for director may be made by
shareholders only if the shareholder has given timely and proper notice
thereof to the Secretary of the Company. The notice must contain the name of
the person or persons nominated, certain information about the nominee and
other information required by the By-laws. Shareholder proposals or
nominations must be received no fewer than 60 days prior to the meeting (or,
if the date of the meeting has not been made public, within 10 days after the
publication of the date of the meeting).
20
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OTHER BUSINESS
The meeting is being held for the purposes set forth in the Notice which
accompanies this Proxy Statement. The Board of Directors of the Company knows
of no business to be transacted at the meeting other than the election of
directors. However, if any other business should properly be presented to the
meeting, the proxies will be voted in respect thereof in accordance with the
judgment of the person or persons voting the proxies.
KU Energy Corporation
By order of the Board of Directors
Michael R. Whitley
Chairman, President and Chief
Executive Officer
George S. Brooks II
General Counsel and Secretary
21
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LOGO
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KU ENERGY CORPORATION THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PROXY. The undersigned appoints, and if a participant in the Company's
automatic dividend reinvestment and stock purchase plan and/or Kentucky
Utilities Company's employee stock ownership plan and/or employee savings plan,
authorizes and directs the appropriate agent or trustee, in each case as agent
for the undersigned, to appoint, John T. Newton, William L. Rouse, Jr. and
Michael R. Whitley, and each of them, attorneys and proxies, with power of
substitution, to vote all shares of COMMON STOCK of KU Energy Corporation of
record in the name of the undersigned, and all shares, if any, of such stock
credited to the account of the undersigned under each of such plans, in each
case, at the close of business on March 9, 1998, at the 1998 annual meeting of
shareholders (or any adjourned session) as follows:
FOR all nominees WITHHOLD AUTHORITY to vote for all
listed below nominees listed below [_]
(except as marked
to the contrary
below) [_]
1. Election of Directors:
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.
CAROL M. GATTON, HARRY M. HOE AND MICHAEL R. WHITLEY
In their discretion with respect to such other business as may properly come
before the meeting,
all as set forth in the Notice and Proxy Statement relating to the meeting.
(to be signed on reverse side)
(continued from other side)
SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS
SPECIFIED ON THE REVERSE SIDE. IN ABSENCE OF
SPECIFIC DIRECTIONS, SAID SHARES SHALL BE VOTED
FOR THE ELECTION OF DIRECTORS.
PLEASE DO
NOT FOLD
Dated ______
PLEASE SIGN BELOW
-------------------------------------
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NOTE: PLEASE DATE AND SIGN EXACTLY AS NAME(S) APPEAR ABOVE AND RETURN
SIGNED PROXY IN ENCLOSED ENVELOPE. IF THE STOCK IS ISSUED IN THE NAMES OF
TWO OR MORE PERSONS, ALL SHOULD SIGN THE PROXY. STATE FULL TITLE WHEN
SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC.
