SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1 - 10568
LG&E ENERGY CORP.
(Exact name of registrant as specified in its charter)
Kentucky 61 - 1174555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 West Main Street 40232
P.O. Box 32030 (Zip Code)
Louisville, KY
(Address of principal executive offices)
(502) 627-2000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 66,341,444 shares,
without par value, as of October 31, 1996.
Part I. Financial Information - Item 1. Financial Statements
LG&E Energy Corp. and Subsidiaries
Statements of Income
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
REVENUES:
Electric utility $183,624 $178,896 $ 471,300 $444,997
Gas utility 20,306 17,566 140,724 119,021
Non-utility 648,938 213,699 1,867,618 303,301
Total revenues 852,868 410,161 2,479,642 867,319
COST OF REVENUES:
Fuel and power purchased 43,377 50,362 124,256 119,857
Gas supply expenses 13,327 8,791 90,211 70,752
Non-utility 638,698 205,669 1,823,911 291,249
Total cost of revenues 695,402 264,822 2,038,378 481,858
Gross profit 157,466 145,339 441,264 385,461
OPERATING EXPENSES:
Operation and maintenance:
Utility 48,928 46,030 159,420 150,366
Non-utility 15,910 5,483 48,341 19,776
Depreciation and amortization 25,893 24,587 77,385 69,699
Total operating expenses 90,731 76,100 285,146 239,841
Equity in earnings
of joint ventures 2,512 4,718 11,313 25,249
OPERATING INCOME 69,247 73,957 167,431 170,869
Other income and (deductions) 1,812 2,031 3,353 4,358
Interest charges and
preferred dividends 12,525 12,683 40,404 39,593
Income before income taxes 58,534 63,305 130,380 135,634
Income taxes (note 7) 17,430 24,214 43,945 52,201
NET INCOME $ 41,104 $ 39,091 $ 86,435 $ 83,433
Average common shares
outstanding 66,307 66,108 66,278 66,089
Earnings per share $ .62 $ .59 $ 1.30 $ 1.26
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Balance Sheets
(Unaudited)
(Thousands of $)
ASSETS
Sept. 30, Dec. 31,
1996 1995
UTILITY PLANT:
At original cost $2,652,717 $2,598,860
Less: reserve for depreciation 987,642 934,942
Net utility plant 1,665,075 1,663,918
OTHER PROPERTY AND INVESTMENTS - less reserve:
Investment in affiliates 123,528 123,338
Other 192,893 197,130
Total other property and investments 316,421 320,468
CURRENT ASSETS:
Cash and temporary cash investments 100,178 80,144
Marketable securities 9,384 29,060
Accounts receivable - less reserve 337,484 314,153
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 14,319 14,996
Gas stored underground 42,349 47,530
Other 33,206 34,384
Prepayments and other 32,976 27,245
Total current assets 569,896 547,512
DEFERRED DEBITS AND OTHER ASSETS 109,540 97,022
Total assets $2,660,932 $2,628,920
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Balance Sheets (cont.)
(Unaudited)
(Thousands of $)
CAPITAL AND LIABILITIES
Sept. 30, Dec. 31,
1996 1995
CAPITALIZATION:
Common stock, without par value -
Outstanding 66,341,444 shares
and 66,194,766 shares (note 2) $ 466,329 $ 463,705
Other (1,261) (1,501)
Retained earnings 347,499 316,930
Total common equity 812,567 779,134
Cumulative preferred stock 95,328 95,328
Long-term debt 646,836 646,845
Total capitalization 1,554,731 1,521,307
CURRENT LIABILITIES:
Long-term debt due within one year (note 5) - 16,000
Notes payable 158,000 173,000
Accounts payable 274,294 287,457
Trimble County settlement 19,061 29,800
Accrued taxes 27,994 9,812
Other 91,291 72,376
Total current liabilities 570,640 588,445
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 247,746 233,481
Investment tax credit, in
process of amortization 80,732 84,037
Regulatory liability 86,009 88,242
Other 121,074 113,408
Total deferred credits and other liabilities 535,561 519,168
Total capital and liabilities $2,660,932 $2,628,920
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Statements of Cash Flows
(Unaudited - Thousands of $)
Nine Months
Ended
Sept. 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 86,435 $ 83,433
Items not requiring cash currently:
Depreciation and amortization 77,385 69,699
Deferred income taxes - net 20,480 10,788
Other 1,490 15,888
Change in net current assets (9,535) (59,723)
Other (21,444) (388)
Net cash flows from operating activities 154,811 119,697
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (15,536) (174,593)
Proceeds from sales of securities 35,771 255,751
Construction expenditures (71,142) (63,259)
Investment in affiliates (3) (28,234)
Acquisition of LG&E Natural Inc.,
net of cash and temporary cash
investments acquired - (146,104)
Net cash flows from investing activities (50,910) (156,439)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,295 1,934
Issuance of bonds - 39,943
Retirement of bonds and
other long-term debt (16,000) (43,579)
Repayment of short-term borrowings (79,800) (81,282)
Short-term borrowings 64,800 193,865
Payment of common dividends (55,162) (53,275)
Net cash flows from financing activities $ (83,867) $ 57,606
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
Nine Months
Ended
Sept. 30,
1996 1995
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS $ 20,034 $ 20,864
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 80,144 49,407
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 100,178 $ 70,271
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 15,358 $ 29,173
Interest on borrowed money 33,238 36,533
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
Balance at beginning
of period $325,468 $315,885 $316,930 $307,072
Net income 41,104 39,091 86,435 83,433
Cash dividends declared on
common stock ($.2875, $.2775,
$.8425 and $.815 per share) 19,073 18,355 55,866 53,884
Balance at end of period $347,499 $336,621 $347,499 $336,621
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries
Notes to Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements include the accounts
of LG&E Energy Corp. and its wholly-owned subsidiaries - Louisville Gas
and Electric Company (LG&E), LG&E Energy Systems Inc. (Energy Systems),
and LG&E Gas Systems Inc. (Gas Systems), collectively referred to as
the "Company."
In the opinion of management, all adjustments have been made to
present fairly the consolidated financial position, results of
operations and cash flows for the periods indicated. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. Certain
amounts in the statements of income for the three and nine months ended
September 30, 1995, have been reclassified to be consistent with the
presentation for the three and nine months ended September 30, 1996,
with no impact on previously-reported net income or earnings per share.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year 1995, and the Reports on Form
10-Q for the quarters ended March 31, 1996, and June 30, 1996.
2. On March 6, 1996, the Company announced that its Board of Directors
approved a two-for-one split of its common stock, without par value,
effective April 15, 1996. In addition, authorized shares were
increased from 75,000,000 to 125,000,000 on April 23, 1996. All
references in the accompanying financial statements to numbers of
shares outstanding and per share amounts have been restated to reflect
the split.
3. The Company entered into four over-the-counter interest-rate swap
contracts at various times in the first quarter of 1996. The notional
amounts on these swaps totaled $75 million. Management has designated
the swaps as hedges of some of its notes payable, and as such they
reduce the Company's exposure to changes in interest rates by
converting the variable rates paid on the notes to an average fixed
rate of 4.935 percent. The average variable rates received on the
swaps during the three- and nine-month periods ended September 30,
1996, were 5.55 percent and 5.44 percent. The average interest rates
paid on the underlying notes during the three- and nine-month periods
ended September 30, 1996, were 5.8 percent and 5.75 percent. The
variable rates received on the swaps change every three months, and
they are based on the three-month London Interbank Offered Rate. The
swaps mature at various times from February 1997 through April 1997.
The fair values of the swaps were immaterial at September 30, 1996.
Information summarizing the Company's open positions on natural
gas financial instruments used for trading purposes at September 30,
1996, is presented below. Dollar amounts represent net premiums paid
or (received) for natural gas options (in millions).
Short/sell positions:
554 BCF notional amount, delivery
dates from October 1996 to December 1999 $(21.5)
Long/buy positions:
614 BCF notional amount, delivery
dates from October 1996 to December 1999 24.6
Total $ 3.1
For the three- and nine-month periods ended September 30, 1996,
the Company recorded net gains of $3.6 million and $17.4 million,
respectively, from natural gas trading activities. These amounts are
included in non-utility revenues in the accompanying income statements.
The average fair values of the Company's natural gas financial
instruments used for trading purposes during the three months ended
September 30, 1996, included assets of $78.6 million and liabilities of
$72.8 million. The comparable average fair values for the nine months
ended September 30, 1996, included assets of $72.6 million and
liabilities of $69.3 million. The fair values of the Company's natural
gas options and swaps used for trading purposes as of September 30,
1996, included assets of $46.5 million and liabilities of $45.1
million.
The Company uses exchange-traded and over-the-counter futures,
options and swap contracts to hedge its exposure to changes in electric
power prices. The Company defers its gains and losses on these
instruments in other current assets or liabilities, and transfers the
gains and losses to non-utility revenues or non-utility cost of
revenues when the hedged transactions occur. The Company had open
short positions covering 1,544,064 megawatt hours and open long
positions covering 1,241,632 megawatt hours at September 30, 1996. Net
deferred gains and losses on these positions were immaterial at
September 30, 1996.
The notional amounts, costs and fair values at September 30, 1996,
of the Company's other financial instruments were not materially
different from comparable amounts at December 31, 1995.
4. LG&E filed an application with the Public Service Commission of
Kentucky (Commission) on October 7, 1994, in which it requested
approval of an environmental cost recovery surcharge to recover certain
costs required to comply with the Federal Clean Air Act, as amended,
and those federal, state, and local environmental requirements which
apply to coal combustion wastes and by-products from facilities
utilized for the production of energy from coal. On April 6, 1995, the
Commission approved, with modifications, an environmental cost recovery
surcharge that increased electric revenues by $3.2 million in 1995, and
is expected to increase 1996 revenues by approximately $5.7 million.
The surcharge became effective on May 1, 1995.
An appeal of the Commission's April 6, 1995, order by various
intervenors in the proceeding (including the Kentucky Attorney General)
is currently pending in the Franklin Circuit Court of Kentucky. The
intervenors are contesting the validity of the order on several
grounds, including the constitutionality of the Kentucky statute that
authorizes the surcharge. In an order dated April 10, 1996, associated
with the first six-month review of the operation of the surcharge, the
Commission stated that all environmental surcharge revenues collected
from the date of the April 10 order will be subject to refund, pending
the final determination of the April 6, 1995, order. LG&E is
vigorously contesting the legal challenges to the surcharge, but cannot
predict the outcome of the appeal. The amount of refunds that may be
ordered, if any, are not expected to have a material adverse effect on
the Company's financial position or results of operations.
5. On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16
million matured and were retired.
6. Gas Systems has guaranteed letters of credit issued to third parties
to secure certain off-balance sheet obligations (including contingent
obligations) of LG&E Natural and its subsidiaries. The letters of
credit totaled approximately $35.0 million at September 30, 1996.
7. The effective income tax rate changed to 29.8% for the three months
ended September 30, 1996, from 38.2% for the three months ended
September 30, 1995. The rate changed to 33.7% for the nine months
ended September 30, 1996, from 38.5% for the nine months ended
September 30, 1995. The decreases in 1996 resulted from successfully
resolving several pending income tax issues totaling $6.0 million.
8. See Item 1, Legal Proceedings, under Part II for a discussion of the
request for rehearing filed with FERC by LG&E-Westmoreland Southampton,
the partnership that owns the Southampton facility, regarding the
partnership's request for an order from FERC stating that the
Southampton facility remains a qualifying facility for 1992 and the
subsequent order issued by FERC dated July 31, 1996.
9. See Item 1, Legal Proceedings, under Part II for a discussion of a
filing by Kenetech Windpower, Inc., for protection under Chapter 11 of
the United States Bankruptcy Code. The filing seeks to restructure
contracts that exist between Kenetech and certain partnerships in which
the Company has investments.
10. Reference is made to Part II herein - Item 1, Legal Proceedings, and
Note 16 of the Notes to Financial Statements of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The Company's principal subsidiary is LG&E, an electric and gas utility.
Accordingly, LG&E's results of operations and liquidity and capital
resources are the primary factors affecting the Company's consolidated
results of operations and capital resources and liquidity.
Some of the matters discussed in Part I or Part II of this Form 10-Q may
contain forward looking statements that are subject to certain risks,
uncertainties and assumptions. Actual results may vary materially.
Factors that could cause actual results to differ materially include, but
are not limited to: general economic conditions; business and competitive
conditions in the energy industry; unusual weather; regulatory decisions;
and the other factors described in the Company's Form 10-K for the year
ended December 31, 1995, or listed in Exhibit 99.01 to the Company's Form 8-
K dated June 10, 1996, under the heading "LG&E Energy Corp. Cautionary
Factors."
Results of Operations
LG&E's results of operations are significantly affected by seasonal fluctua
tions in temperature and other weather-related factors. To a lesser
degree, LG&E Natural Inc.'s (LG&E Natural, formerly Hadson Gas Services
Inc., and a wholly-owned subsidiary of Gas Systems) results are also
affected by seasonal fluctuations in temperature and other weather-related
factors. Additionally, results of LG&E Power Inc.'s (LPI, a wholly-owned
subsidiary of Energy Systems) operations are substantially dependent upon
the development of its electric power marketing business. Because of these
and other factors, the results of one interim period are not necessarily
indicative of results or trends to be expected for the full year.
Three Months Ended September 30, 1996, Compared with
Three Months Ended September 30, 1995
Earnings per share increased 5.1 percent to $.62 in 1996 from $.59 in 1995
mainly due to higher earnings at LG&E and to successfully resolving several
pending income tax issues. Lower earnings at LPI partially offset these
increases. The LG&E increase resulted from significantly higher off-system
sales and decreased power purchases, partially offset by lower retail
electric sales caused by unseasonably mild temperatures and increased
general operation expenses. The LPI decrease resulted from higher
operating expenses and lower equity in earnings of joint ventures.
Utility Results:
LG&E's electric revenues increased $4.7 million (2.6 percent) primarily due
to aggressive efforts in marketing off-system sales. Lower retail electric
sales caused by unseasonably mild weather during the quarter partially
offset this increase. Gas revenues increased $2.7 million (15.6 percent)
due to increased gas supply adjustments and increased volumes.
Fuel for electric generation and gas supply expenses comprise a large
segment of LG&E's total operating expenses. LG&E's electric and gas rates
contain a fuel adjustment clause and a gas supply clause, respectively,
whereby increases or decreases in the cost of fuel and gas supply may be
reflected in LG&E's retail rates, subject to the approval of the Public
Service Commission of Kentucky. Fuel and power purchased decreased $7.0
million (13.9 percent) for the quarter. Fuel for electric generation
increased $1.6 million (4 percent) for the quarter because of an increase
in generation ($4 million), partially offset by a decrease in the cost of
coal burned ($2.4 million). Power purchased decreased $8.6 million because
of fewer unplanned outages at the electric generating plants as compared to
the same period in 1995.
Gas supply expenses increased $4.5 million (52 percent) due to an increase
in net gas supply cost.
Utility operation and maintenance expenses increased $2.9 million (6.3
percent) over 1995 primarily because of the recognition of credits to
expense in September 1995 for settlement proceeds received related to a
commercial dispute.
Non-Utility Results:
Non-utility revenue and cost of revenues increased $435.2 million and
$433.0 million, respectively, in 1996 mainly due to higher gas marketing
and electric power marketing volumes. Higher gas prices also contributed
to the increases.
Operation and maintenance expense increased to $15.9 million in 1996 from
$5.5 million in 1995 due to several factors including LPI's reducing a
reserve by $2.5 million in 1995. LPI set up the reserve in 1994 to cover
the cost of vacating leased office space and reduced the reserve when it
executed subleases. Increases reflecting higher levels of electric power
marketing activity and a $3.5 million increase in corporate expenses also
contributed to the increase.
Non-utility equity in earnings of joint ventures decreased 46.8 percent to
$2.5 million in 1996 from $4.7 million in 1995. The decrease resulted
mainly from a $2.3 million decrease in earnings from the three windpower
projects managed by Kenetech Windpower, Inc. Kenetech filed for protection
under Chapter 11 of the United States Bankruptcy Code (see Item 1, Legal
Proceedings under Part II). The Company has taken over operations at two
of the projects, and one of its partners now operates the third project.
The consolidated effective tax rate decreased to 29.8% in 1996 from 38.2%
in 1995 mainly due to successfully resolving several pending income tax
issues in 1996. See Note 7 of Notes to Financial Statements.
Niagara Mohawk Corporation ("NIMO") has proposed to buy out the Power
Purchase Agreements NIMO has with a group of independent power projects.
The Rensselaer Project, owned in part by indirect subsidiaries of the
Company, is one of the projects affected by this initiative.
Nine Months Ended September 30, 1996, Compared with
Nine Months Ended September 30, 1995
Earnings per share increased 3.2 percent to $1.30 in 1996 from $1.26 in
1995 mainly due to higher earnings at LG&E and LG&E Natural, which the
Company acquired in May 1995. The increase in LG&E's earnings resulted
primarily from an increase in sales of electricity and natural gas,
partially offset by increases in operation and maintenance expenses.
Increases also resulted from successfully resolving several pending income
tax issues. These increases were partially offset by gains totaling $.08
per share recorded on sales of purchase power contracts by two of LPI's
partnerships in June 1995.
Utility Results:
LG&E's electric revenues increased $26.3 million (5.9 percent) mainly due
to aggressive efforts in marketing off-system sales. Gas revenues
increased $21.7 million (18.2 percent) due to higher volumes.
Fuel and power purchased increased $4.4 million (3.7 percent) for the nine
months ended September 30, 1996. Fuel for electric generation increased
$6.6 million (6 percent) for the nine months primarily because of increased
generation ($11.4 million), partially offset by a lower cost of coal burned
($4.8 million). Power purchased decreased $2.2 million due mainly to less
power being purchased to meet native load and other power commitments and
fewer planned outages.
Gas supply expenses increased $19.5 million (28 percent) primarily because
of an increase in gas delivered to the distribution system ($12.9 million)
and the higher cost of net gas supply ($6.6 million).
Utility operation and maintenance expenses increased $9.1 million (6
percent) primarily due to an increase in scheduled outages and turbine
overhauls at the electric generating plants ($3.1 million), expenses
related to the repair of equipment resulting from storm damage ($1.8
million), and to the recognition of credits to expense in September 1995
for settlement proceeds received related to a commercial dispute.
Utility other income and deductions decreased $1.3 million primarily
because of lower gains related to the sale of property as compared to the
same period in 1995 ($1 million) and lower dividend and interest income
from investments ($1.2 million).
Utility interest charges and preferred dividends decreased $2.5 million due
to decreases in debt and preferred stock outstanding. LG&E's First
Mortgage Bonds, 5.625% Series of $16 million were retired at maturity on
June 1, 1996 (see Note 5 of Notes to Financial Statements). LG&E redeemed
its 7.45% Series Cumulative Preferred Stock in December 1995.
Non-Utility Results:
Non-utility revenues and cost of revenues increased by $1.6 billion and
$1.5 billion, respectively, in 1996 mainly due to acquiring LG&E Natural on
May 15, 1995. Also contributing to the increases were higher revenues and
cost of revenues in 1996 at LG&E Natural during the May 15-to-September 30
period, and an increase in electric power marketing volumes. The increases
at LG&E Natural during the May 15-to-September 30 period resulted from
higher volumes and higher natural gas prices.
Operation and maintenance expense increased to $48.3 million in 1996 from
$19.8 million in 1995 mainly due to acquiring LG&E Natural and to LPI's
reducing a reserve by $2.5 million in 1995. LPI set up the reserve in 1994
to cover the cost of vacating leased office space and reduced the reserve
when it executed subleases. Part of the increase also resulted from
including certain expenses in operation and maintenance in 1996, and
including them in cost of revenues in 1995. Increases reflecting higher
levels of electric power marketing activity at LPI and a $5.6 million
increase in corporate expenses also contributed to the increase.
Non-utility depreciation and amortization increased $5.3 million primarily
due to acquiring LG&E Natural.
Non-utility equity in earnings of joint ventures decreased to $11.3 million
in 1996 from $25.2 million in 1995 mainly due to two of LPI's partnerships'
recording gains totaling $9.7 million on sales of purchase power contracts
in June 1995. Also, earnings from the three windpower projects managed by
Kenetech Windpower, Inc., decreased $3.8 million. Kenetech filed for
protection under Chapter 11 of the United States Bankruptcy Code (see Item
1, Legal Proceedings under Part II). The Company has taken over operations
at two of the projects, and one of its partners now operates the third
project.
To conform its practices to those of the commodities trading industry and
as a result of a study begun early this year, the Company will be adopting
in the fourth quarter the mark-to-market method of accounting for its
electric and gas marketing businesses and trading activities. This change
is currently expected to positively affect the earnings of the non-utility
businesses and the Company. Offsetting some of this expected positive
impact on earnings, LG&E Natural experienced a one-time trading loss,
discovered in the fourth quarter, from unauthorized trading activities by
one of its marketers in Calgary, Canada. The marketer's employment with the
Company has been terminated, and the Company is studying what legal actions
it may take. These activities were discovered through the Company's
internal controls, which the Company continues to believe are adequate.
Nevertheless, as a result of this incident, additional procedures and
controls have been instituted to minimize the risk of recurrence. The
after-tax impact of this loss on LG&E Natural will be in the range of $8-10
million. The loss is not expected to prevent the Company from attaining
previously anticipated year-end earnings from either the non-utility
businesses or the Company due to the conversion to the mark-to-market
accounting method.
Non-utility interest charges increased $3.3 million due to an increase in
notes payable related to the acquisition of LG&E Natural. The notes were
outstanding during all nine months in 1996, but only during the May 15-to-
September 30 period in 1995.
The consolidated effective tax rate decreased to 33.7% in 1996 from 38.5%
in 1995 mainly due to successfully resolving several pending income tax
issues in 1996. See Note 7 of Notes to Financial Statements.
Liquidity and Capital Resources
The Company's capital structure and cash flow remained strong throughout
the reported periods. This was evidenced primarily by the Company's
ability to fulfill its investing requirements with internally-generated
cash.
The Company's need for capital funds is primarily related to the
construction of plant and equipment necessary to meet LG&E's electric and
gas customers' needs and protection of the environment. Needs for capital
funds also arise from partnership equity contributions in connection with
independent power production projects in the non-utility business, LG&E
Natural's efforts to expand and improve its gas gathering and processing
facilities, and other business development opportunities. Utility
construction expenditures for the nine months ended September 30, 1996, of
$66 million were financed with internally-generated funds.
The Company's combined cash and marketable securities balance essentially
did not change during the nine months ended September 30, 1996. Cash flows
from operations were offset by construction expenditures and debt and
dividend payments.
The increase in accounts receivable resulted from higher natural gas
marketing and electric power marketing volumes. The decrease in accounts
payable resulted from seasonal fluctuations in LG&E's and LG&E Natural's
businesses, partially offset by an increase resulting from higher electric
power marketing volumes. Variations in accounts receivable, accounts
payable and materials and supplies are generally not significant indicators
of the Company's liquidity. Such variations are primarily attributable to
fluctuations in weather, which have a direct effect on sales of electricity
and natural gas.
Other cash flows from operating activities for the first nine months of
1996 included $14.8 million in increased gas supply costs. LG&E will
recover these costs through its gas supply clause mechanism subject to the
approval of the Public Service Commission of Kentucky. The higher gas
prices were due to unusually cold weather in the first quarter that
resulted in increased demand.
LG&E's First Mortgage Bonds, 5.625% Series of $16 million matured on June
1, 1996. LG&E used internally-generated cash to retire the bonds.
At September 30, 1996, lines of credit were in place totaling $550 million
($160 million for LG&E, $150 million for Energy Systems, $215 million for
Gas Systems, and $25 million for LG&E Energy Corp.) for which the companies
pay commitment or facility fees. $158 million of notes payable were
outstanding under these lines at September 30, 1996 ($87 million for Energy
Systems and $71 million for Gas Systems). The credit lines are scheduled
to expire at various times between 1996 and 2001, and management expects to
renegotiate them when they expire.
On October 2, 1996, LG&E issued $22.5 million of Jefferson County,
Kentucky, and $27.5 million of Trimble County, Kentucky, Pollution Control
Bonds, Flexible Rate Series, due September 1, 2026. The initial interest
rates for these bonds were 3.59% and 3.55%, respectively. On December 2,
1996, the proceeds from the bonds will be used to redeem the outstanding
7.25% Series of Jefferson County and Trimble County Pollution Control Bonds
due December 1, 2016.
The Company's capitalization ratios at September 30, 1996, and December 31,
1995, were:
Sept. 30, Dec. 31,
1996 1995
Long-term debt (including current portion) 37.8% 38.7%
Notes payable 9.2 10.1
Preferred stock 5.6 5.6
Common equity 47.4 45.6
Total 100.0% 100.0%
For a description of significant contingencies that may affect the Company,
reference is made to Part II herein - Item 1, Legal Proceedings.
Part II. Other Information
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the
Company, reference is made to the information under (i) the following items
and captions of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; and Notes 3 and 16 of the Notes to Financial Statements under
Item 8 and (ii) the following items and captions of the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, and June 30,
1996: Part II, Item 1, Legal Proceedings; and Note 4 of Notes to the
Financial Statements. Except as noted below, there have been no material
changes in these proceedings as reported in the Company's 1995 Form 10-K,
Form 10-Q for the quarter ended March 31, 1996, and Form 10-Q for the
quarter ended June 30, 1996.
TVA/LPM Interchange Agreement. As discussed in Item 3, Legal Proceedings,
of the Company's 1995 Form 10-K, and Part II, Item 1, Legal Proceedings, of
the Company's June 30, 1996, Form 10-Q, on January 12, 1996, the Alabama
Power Company, Georgia Power Company and Mississippi Power Company (the
Plaintiffs) filed a Complaint for Declaratory Judgment and Injunctive
Relief against the Tennessee Valley Authority (TVA) and LG&E Power
Marketing Inc. (LPM), a wholly-owned subsidiary of the Company, in the
United States District Court for the Northern District of Alabama. The
Plaintiffs claim that TVA has violated the Tennessee Valley Authority Act
(TVA Act) by entering into an interchange agreement with LPM (Interchange
Agreement) and that TVA is prohibited from selling or delivering any power
to LPM, to any other broker or marketer of power, or to any other
unauthorized recipient or from otherwise engaging in unlawful power supply
arrangements. In September 1996, the Court granted the Plaintiffs Motion
for Summary Judgment, finding that LPM is not a power generating
organization with which TVA had an exchange power arrangement on July 1,
1957, and that the contract is null and void. The parties have until
November 22, 1996, to file an appeal.
Southampton. As reported in Item 1, Business; Item 3, Legal Proceedings;
and Note 16 of Notes to Financial Statements under Item 8 of the Company's
1995 Form 10-K, the Southampton plant, a 63 megawatt coal-fired
cogeneration facility in Franklin, Virginia, supplies process steam to a
nearby chemical manufacturer and bulk electric power under contract to
Virginia Electric and Power Company (Virginia Power) as a qualifying
facility (QF) under the Public Utility Regulatory Policies Act (PURPA).
The plant began commercial operation in 1992. On July 7, 1994, FERC denied
the request of LG&E-Westmoreland Southampton (the Partnership) for a waiver
of certain QF requirements and directed the Partnership to show cause as to
why it should not be required to file new cost-based rates for its 1992
electric sales to Virginia Power.
The Partnership subsequently filed a request seeking a reversal of FERC's
order, or, in the alternative, a clarification of FERC's order stating
that, with the exception of rates, the Partnership remains a QF for 1992
exempt from regulation as a public utility under PUHCA, utility laws in
Virginia and various portions of the Federal Power Act.
On July 31, 1996, FERC entered an order in the Southampton case which
included a policy statement regarding all QF facilities which fail to meet
QF standards. The order turned down the Partnership's request for a
settlement conference. The order affirmed the continued availability to
Southampton of exemptions from PUHCA and state law for the year 1992,
supporting the Partnership's request that the ruling on non-compliance
should have no effect on the exemptions from regulations that would have
classified the plant as a public utility. The FERC's decision to uphold
these exemptions eliminates potential issues involving provisions of the
Public Utility Holding Company Act, Virginia utility law and the non-rate
provisions of the Federal Power Act.
The FERC also concluded that the Partnership should refund a portion of the
rates it received from Virginia Power during 1992. The Company had
anticipated that the Partnership could be required to make a refund to
Virginia Power in the event the QF standards for 1992 were not waived. The
order calls for a refund with interest from the Partnership of the
difference between the amount paid by Virginia Power during the period and
the amount Virginia Power would have paid for energy if it had purchased
energy at its incremental energy rate. The Company's share of the revenues
received by the Partnership in 1992 is approximately $9.5 million. The
amount of the refund is currently unknown, and is dependent on records to
be produced by Virginia Power, and further FERC review. On August 23
Southampton filed a Request for Clarification to better understand what the
Commission intended, and on August 30 filed a Request for Rehearing on the
grounds that the order violated the statutory standard for just and
reasonable rates. On September 23 Southampton filed a motion for review at
the U.S. Court of Appeals for the District of Columbia Circuit. The
Company continues to study the order and, at this time, cannot predict
what, if any, further action it may take, cannot predict the determinations
of FERC on the pending motions, nor can it predict what action Virginia
Power may take.
Kenetech Bankruptcy. In May 1996, Kenetech Windpower, Inc. (Kenetech)
filed in the United States Bankruptcy Court in the Northern District of
California for protection under Chapter 11 of the United States Bankruptcy
Code seeking, among other things, to restructure certain contractual
commitments between Kenetech and its subsidiaries, on the one hand, and
various windpower projects located in the U.S. and abroad, on the other
hand. Included in these projects are the Windpower Partners 1993 (WPP 93),
Windpower Partners 1994 (WPP 94) and KW Tarifa, S.A. (Tarifa) wind projects
in which the Company has invested, collectively, approximately $31 million.
As a part of the bankruptcy proceeding, Kenetech is also seeking to void
certain warranty commitments made to the owners of those projects with
respect to the operation and output of the facilities, and the repair and
replacement of the windpower generation equipment located there. LPI has
been named to the creditors' committee in the Kenetech bankruptcy on behalf
of the three projects, and has been working with representatives of
Kenetech and other secured and unsecured creditors to ensure that the
project owners' interests are equitably treated in the bankruptcy.
In September 1996, LG&E Power Operating Services Inc., an affiliate of the
Company (LPOS), assumed operating control over the WPP 93 and WPP 94
facilities, pursuant to Facility Operating Agreements with the owners of
those facilities. Those agreements replaced the interim operations and
maintenance agreements between the owners and Kenetech that were
implemented at the time of the Kenetech bankruptcy filing. The owners of
the Tarifa windpower project assumed operating control over that facility
shortly after the bankruptcy filing, and do not plan to retain Kenetech,
LPOS or any other third party operator for the project in the foreseeable
future.
The Company is unable to predict the outcome of the bankruptcy proceeding
or the settlement negotiations. However, the Company does not expect the
ultimate resolution of the bankruptcy to have a material adverse effect on
its results of operations or financial condition.
Item 6(a). Exhibits.
Exhibit
Number Description
3.06 (revised) Articles of Amendment setting forth minor changes
27 Financial Data Schedule.
Item 6(b). Reports on Form 8-K.
On November 5, 1996, the Company filed a report on Form 8-K announcing that
on October 24, 1996, Ronald L. Bittner, chairman and chief executive
officer of Frontier Corporation, Rochester, New York, had been elected a
member of the board of directors of LG&E Energy Corp. and its wholly-owned
subsidiary, Louisville Gas and Electric Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LG&E ENERGY CORP.
Registrant
Date: November 12, 1996 /s/ Walter Z. Berger
Walter Z. Berger
Executive Vice President and
Chief Financial Officer
(On behalf of the registrant in his capac
ity as Principal Accounting Officer)
Exhibit 3.06
CERTIFICATE
Pursuant to the provisions of KRS 271B.10-070, LG&E Energy Corp., a
Kentucky corporation (the "Company"), files herewith Articles of Amendment
and Restated Articles of Incorporation and hereby certifies that:
FIRST: The name of the Company is LG&E Energy Corp.
SECOND: The Articles of Amendment and Restated Articles of Incorporation
(the "Restatement") filed herewith contains no amendments to the Company's
Articles of Incorporation which require shareholder approval.
THIRD: Articles First through Fourteenth of the Company's Articles of
Incorporation are restated in their entirety as set forth in the
Restatement filed herewith, a copy of which is attached hereto.
FOURTH: The Restatement of the Company's Articles of Incorporation was
adopted by the Company's Board of Directors as of September 4, 1996.
Dated: September 4, 1996.
LG&E ENERGY CORP.
By: /s/ John R. McCall
John R. McCall
Title: Executive Vice President, General
Counsel and Corporate Secretary
ARTICLES OF AMENDMENT AND
RESTATED ARTICLES OF INCOMPANY
OF
LG&E ENERGY CORP.
Pursuant to the provisions of KRS 271B.10-030 and KRS 271B.10-060, LG&E
Energy Corp., a Kentucky corporation (the "Company"), hereby adopts the
following Articles of Amendment to its Amended and Restated Articles of
Incorporation, as amended, and restates its Articles of Incorporation, as
amended:
FIRST: The name of the Company is LG&E Energy Corp.
SECOND: These Articles of Amendment and Restated Articles of
Incorporation (the "Restatement" ) do not contain any amendments to the
Company's Amended and Restated Articles of Incorporation, as amended,
requiring shareholder approval and were adopted by the Company's Board of
Directors on September 4, 1996.
THIRD: The amendments contained in the Restatement do not provide for
an exchange, reclassification or cancellation of issued shares of stock of
the Company.
FOURTH: The Restatement, together with the amendments contained therein,
supersede the original Amended and Restated Articles of Incorporation, as
amended, and all amendments thereto.
FIFTH: The Restatement, containing the amendments adopted, shall read in
its entirety as set forth on Exhibit A attached hereto.
Dated: September 4, 1996
LG&E ENERGY CORP.
By: /s/ John R. McCall
John R. McCall
Title: Executive Vice President, General
Counsel and Corporate Secretary
Exhibit A
ARTICLES OF AMENDMENT AND
RESTATED ARTICLES OF INCORPORATION
OF
LG&E ENERGY CORP.
"FIRST. The corporate name is
LG&E Energy Corp.
SECOND. The address of the registered office of LG&E Energy Corp. (herein,
the "Company") is 220 West Main Street, P.O. Box 32030, Louisville,
Kentucky 40232 and the name of the Company's registered agent at that
office is John R. McCall.
THIRD. The mailing address of the principal office of the Company is 220
West Main Street, P.O. Box 32030, Louisville, Kentucky 40232.
FOURTH. A. AUTHORIZED CAPITAL STOCK. The total number of shares which
the Company shall have the authority to issue shall be 130,000,000 shares,
of which 125,000,000 shares shall be Common Stock, without par value, and
5,000,000 shares shall be Preferred Stock, without par value.
B. COMMON STOCK. The Board of Directors is hereby authorized to cause
shares of Common Stock, without par value, to be issued from time to time
for such consideration as may be fixed from time to time by the Board of
Directors, or by way of stock split pro rata to the holders of the Common
Stock. The Board of Directors may also determine the proportion of the
proceeds received from the sale of such stock which shall be credited upon
the books of the Company to Capital or Capital Surplus.
Each share of the Common Stock shall be equal to all respects to every
other share of the Common Stock. Subject to any special voting rights of
the holders of Preferred Stock fixed by or pursuant to the provisions of
Paragraph C of this Article Fourth, the shares of Common Stock shall
entitle the holders thereof to one vote for each share upon all matters
upon which shareholders have the right to vote and, to the extent required
by law, to cumulative voting in all elections of directors by shareholders.
No holder of shares of Common Stock shall be entitled as such as a matter
of right to subscribe for or purchase any part of any new or additional
issue of stock, or securities convertible into stock, of any class
whatsoever, whether now or hereafter authorized, and whether issued for
cash, property, services or otherwise.
After the requirements with respect to preferential dividends on Preferred
Stock (fixed by or pursuant to the provisions of Paragraph C of this
Article Fourth), if any, shall have been met and after the Company shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts
(fixed by or pursuant to the provisions of Paragraph C of this Article
Fourth) and subject further to any other conditions which may be fixed by
or pursuant to the provisions of Paragraph C of this Article Fourth, then,
but not otherwise, the holders of Common Stock shall be entitled to receive
dividends, if any, as may be declared from time to time by the Board of
Directors.
After distribution in full of the preferential amount (fixed by or pursuant
to the provisions of Paragraph C of this Article Fourth), if any, to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding up of the Company, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the Company, tangible and
intangible, of whatever kind available for distribution to shareholders,
ratably in proportion to the number of shares of Common Stock held by each.
C. PREFERRED STOCK. Shares of Preferred Stock may be divided into and
issued in such series, on such terms and for such consideration as may from
time to time be determined by the Board of Directors of the Company. Each
series shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. All shares of Preferred Stock
shall be identical, except as to variations between different series in the
relative rights and preferences as permitted or contemplated by the next
succeeding sentence. Authority is hereby vested in the Board of Directors
of the Company to establish out of shares of Preferred Stock which are
authorized and unissued from time to time one or more series thereof and to
fix and determine the following relative rights and preferences of shares
of each such series:
(1) The distinctive designation of, and the number of shares which shall
constitute, the series and the "stated value" or "nominal value," if any,
thereof;
(2) The rate of dividend applicable to shares of such series;
(3) The price at and the terms and conditions on which shares of such
series may be redeemed;
(4) The amount payable upon shares of such series in the event of the
involuntary liquidation of the Company;
(5) The amount payable upon shares of such series in the event of the
voluntary liquidation of the Company;
(6) Sinking fund provisions for the redemption or purchase of shares of
such series;
(7) The terms and conditions on which shares of such series may be
converted, if such shares are issued with the privilege of conversion;
(8) The voting powers, if any, of the holders of shares of the series
which may, without limiting the generality of the foregoing, include
(i) the right to one or less than one vote per share on any or all matters
voted upon by the shareholders and (ii) the right to vote, as a series by
itself or together with other series of Preferred Stock or together with
all series of Preferred Stock as a class, upon such matters, under such
circumstances and upon such conditions as the Board of Directors may fix,
including, without limitation, the right, voting as a series by itself or
together with other series of Preferred Stock or together with all series
of Preferred Stock as a class, to elect one or more directors of this
Company in the event there shall have been a failure to pay dividends on
any one or more series of Preferred Stock or under such other circumstances
and upon such conditions as the Board of Directors may determine; provided,
however, that in no event shall a share of Preferred Stock have more than
one vote; and
(9) Any other such rights and preferences as are not inconsistent with the
Kentucky Business Corporation Act.
No holder of any share of any series of Preferred Stock shall be entitled
to vote for the election of directors or in respect of any other matter
except as may be required by the Kentucky Business Corporation Act, as
amended, or as is permitted by the resolution or resolutions adopted by the
Board of Directors authorizing the issue of such series of Preferred Stock.
D. OTHER PROVISIONS.
(1) The relative powers, preferences, and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each
other series of Preferred Stock shall, in each case, be as fixed from time
to time by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted in Paragraph C of this Article Fourth, and
the consent by class or series vote or otherwise, of the holders of the
Preferred Stock or such of the series of the Preferred Stock as are from
time to time outstanding shall not be required for the issuance by the
Board of Directors of any other series of Preferred Stock whether the
powers, preferences and rights of such other series shall be fixed by the
Board of Directors as senior to, or on a parity with, powers, preferences
and rights of such outstanding series, or any of them, provided, however,
that the Board of Directors may provide in such resolution or resolutions
adopted with respect to any series of Preferred Stock that the consent of
the holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Preferred Stock.
(2) Subject to the provisions of Section 1 of this Paragraph D, shares of
any series of Preferred Stock may be issued from time to time as the Board
of Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
(3) Common Stock may be issued from time to time as the Board of Directors
shall determine and on such terms and for such consideration as shall be
fixed by the Board of Directors.
(4) No holder of any of the shares of any class or series of shares or
securities convertible into such shares of any class or series of shares,
or of options, warrants or other rights to purchase or acquire shares of
any class or series of shares or of other securities of the Company shall
have any preemptive right to purchase, acquire, subscribe for any unissued
shares of any class or series or any additional shares of any class or
series to be issued by reason of any increase of the authorized capital
stock of the Company of any class or series, or bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for shares of any class or series, or carrying any right to
purchase or acquire shares of any class or series, but any such unissued
shares, additional authorized issue of shares of any class or series of
shares or securities convertible into or exchangeable for shares, or
carrying any right to purchase or acquire shares, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, and upon such terms, as may
be deemed advisable by the Board of Directors in the exercise of its sole
discretion.
(5) The Company reserves the right to increase or decrease its authorized
capital shares, or any class or series thereof or to reclassify the same
and to amend, alter, change or repeal any provision contained in the
Articles of Incorporation or in any amendment thereto, in the manner now or
hereafter prescribed by law, but subject to such conditions and limitations
as are hereinbefore prescribed, and all rights conferred upon shareholders
in the Articles of Incorporation of this Company, or any amendment thereto,
are granted subject to this reservation.
FIFTH. The purpose of the Company is the transaction of any or all lawful
business for which corporations may be incorporated under the Kentucky
Business Corporation Act.
SIXTH. The period of the Company's duration shall be perpetual.
SEVENTH. A. CERTAIN DEFINITIONS. For purposes of this Article Seventh:
(1) "Affiliate," including the term "affiliated person," means a person
who directly, or indirectly through one (1) or more intermediaries,
controls, or is controlled by, or is under common control with, a specified
person.
(2) "Associate," when used to indicate a relationship with any person,
means:
(a) Any corporation or organization (other than the Company or a
Subsidiary), of which such person is an officer, director or partner or is,
directly or indirectly, the Beneficial Owner of ten percent (10%) or more
of any class of Equity Securities;
(b) Any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity; and
(c) Any relative or spouse of such person, or any relative of such spouse,
any one (1) of whom has the same home as such person or is a director or
officer of the corporation or any of its Affiliates.
(3) "Beneficial Owner," when used with respect to any Voting Stock, means
a person:
(a) Who, individually or with any of its Affiliates or Associates,
beneficially owns Voting Stock, directly or indirectly; or
(b) Who, individually or with any of its Affiliates or Associates, has:
1. The right to acquire Voting Stock, whether such right is exercisable
immediately or only after the passage of time and whether or not such right
is exercisable only after specified conditions are met, pursuant to any
agreement, arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise;
2. The right to vote Voting Stock pursuant to any agreement, arrangement,
or understanding; or
3. Any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting or disposing of Voting Stock with any other
person who beneficially owns, or whose Affiliates or Associates
beneficially owns, directly or indirectly, such shares of Voting Stock.
(4) "Business Combination" means:
(a) Any merger or consolidation of the Company or any Subsidiary with any
Interested Shareholder, or any other corporation, whether or not itself an
Interested Shareholder, which is, or after the merger or consolidation
would be, an Affiliate of an Interested Shareholder who was an Interested
Shareholder prior to the transaction;
(b) Any sale, lease, transfer, or other disposition, other than in the
ordinary course of business, in one (1) transaction or a series of
transactions in any twelve-month period, to any Interested Shareholder or
any Affiliate of any Interested Shareholder, other than the Company or any
Subsidiary, of any assets of the Company or any Subsidiary having, measured
at the time the transaction or transactions are approved by the Board of
Directors of the Company, an aggregate book value as of the end of the
Company's most recently ended fiscal quarter of five percent (5%) or more
of the total Market Value of the outstanding stock of the Company or of its
net worth as of the end of its most recently ended fiscal quarter;
(c) The issuance or transfer by the Company, or any Subsidiary, in one
transaction or a series of transactions in any twelve-month period, of any
Equity Securities of the Company or any Subsidiary which have an aggregate
Market Value of five percent (5%) or more of the total Market Value of the
outstanding stock of the Company, determined as of the end of the Company's
most recently ended fiscal quarter prior to the first such issuance or
transfer, to any Interested Shareholder or any Affiliate of any Interested
Shareholder, other than the Company or any of its Subsidiaries, except
pursuant to the exercise of warrants or rights to purchase securities
offered pro rata to all holders of the Company's Voting Stock or any other
method affording substantially proportionate treatment to the holders of
Voting Stock;
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Company in which anything other than cash will be
received by an Interested Shareholder or any Affiliate of any Interested
Shareholder; or
(e) Any reclassification of securities, including any reverse stock split;
or recapitalization of the Company; or any merger or consolidation of the
Company with any of its Subsidiaries; or any other transaction which has
the effect, directly or indirectly, in one transaction or a series of
transactions, of increasing by five percent (5%) or more the proportionate
amount of the outstanding shares of any class of Equity Securities of the
Company or any Subsidiary which is directly or indirectly beneficially
owned by any Interested Shareholder or any Affiliate of any Interested
Shareholder.
(5) "Common Stock" means any stock of the Company other than preferred or
preference stock of the Company.
(6) "Continuing Director" means any member of the Company's Board of
Directors who is not an Interested Shareholder or an Affiliate or Associate
of an Interested Shareholder or any of its Affiliates, other than the
Company or any of its Subsidiaries, and who was a director of the Company
prior to the time the Interested Shareholder became an Interested
Shareholder, and any successor to such Continuing Director who is not an
Interested Shareholder or an Affiliate or Associate of an Interested
Shareholder or any of its Affiliates, other than the Company or any of its
Subsidiaries, and was recommended or elected by a majority of the
Continuing Directors at a meeting at which a quorum consisting of a
majority of the Continuing Directors is present.
(7) "Control," including the term "controlling," "controlled by" and
"under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract, or otherwise, and the beneficial ownership of ten percent
(10%) or more of the votes entitled to be cast by a corporation's Voting
Stock creates a presumption of control.
(8) "Equity Security" means:
(a) Any stock or similar security, certificate of interest, or
participation in any profit-sharing agreement, voting trust certificate, or
certificate of deposit for the foregoing;
(b) Any security convertible, with or without consideration, into an
Equity Security, or any warrant or other security carrying any right to
subscribe to or purchase an Equity Security; or
(c) Any put, call, straddle, or other option, right or privilege of
acquiring an Equity Security from or selling an Equity Security to another
without being bound to do so.
(9) "Interested Shareholder" means any person, other than the Company or
any of its Subsidiaries, who:
(a) Is the Beneficial Owner, directly or indirectly, of ten percent (10%)
or more of the voting power of the outstanding Voting Stock of the Company;
or is an Affiliate of the Company and at any time within the two-year
period immediately prior to the date in question was the Beneficial Owner,
directly or indirectly, of ten percent (10%) or more of the voting power of
the then outstanding Voting Stock of the Company.
(b) For the purpose of determining whether a person is an Interested
Shareholder, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by the person through application of
Subsection (3) of this Paragraph A of Article Seventh but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement, or understanding, or upon exercise of conversion
rights, warrants or options or otherwise.
(10) "Market Value" means:
(a) In the case of stock, the highest closing sale price during the thirty-
day period immediately preceding the date in question of a share of such
stock on the composite tape for New York Stock Exchange listed stocks, or,
if such stock is not quoted on the composite tape, on the New York Stock
Exchange, or if such stock is not listed on such exchange, on the principal
United States securities exchanges registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if such stock is not listed
on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the thirty-day period preceding the date in
question on the National Association of Securities Dealers, Inc., Automated
Quotation System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors at a meeting
of the Board of Directors at which a quorum consisting of at least a
majority of the Continuing Directors is present; and
(b) In the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by a majority
of the Continuing Directors at a meeting of the Board of Directors at which
a quorum consisting of at least a majority of the Continuing Directors is
present.
(11) "Subsidiary" means any corporation of which Voting Stock having a
majority of the votes entitled to be cast is owned, directly or indirectly,
by the Company.
(12) "Voting Stock" means shares of capital stock of a corporation
entitled to vote generally in the election of its directors.
B. MINIMUM SHARE VOTE REQUIREMENTS FOR APPROVAL OF BUSINESS COMBINATIONS.
(1) In addition to any vote otherwise required by law or these Articles of
Incorporation, a Business Combination shall be recommended by the Board of
Directors of the Company and approved by the affirmative vote of at least:
(a) Eighty percent (80%) of the votes entitled to be cast by outstanding
shares of Voting Stock of the Company, voting together as a single voting
group, and
(b) Two-thirds of the votes entitled to be cast by holders of Voting Stock
other than Voting Stock beneficially owned by the Interested Shareholder
who is, or whose Affiliate is, a party to the Business Combination or by an
Affiliate or Associate of such Interested Shareholder, voting together as a
single voting group.
(2) Unless a Business Combination is exempted from the operation of this
Paragraph B in accordance with Paragraph C of this Article Seventh, the
failure to comply with the voting requirements of Subsection (1) of this
Paragraph B shall render such Business Combination void.
C. EXEMPTIONS FROM MINIMUM SHARE VOTE REQUIREMENTS.
(1) For purposes of Section (2) of this Paragraph C
(a) "Announcement Date" means the first general public announcement of the
proposal or intention to make a proposal of the Business Combination or the
first communication generally to shareholders of the Company, whichever is
earlier.
(b) "Determination Date" means the date on which an Interested Shareholder
first became an Interested Shareholder, and
(c) "Valuation Date" means:
1. For a Business Combination voted upon by shareholders, the latter of
the day prior to the date of the shareholders' vote or the date twenty (20)
days prior to the consummation of the Business Combination; and
2. For a Business Combination not voted upon by shareholders, the date of
the consummation of the Business Combination.
(2) The vote required by Paragraph B of this Article Seventh does not
apply to a Business Combination if each of the following conditions is met:
(a) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination is at least equal to
the highest of the following:
1. The highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by the Interested
Shareholder for any shares of Common Stock of the same class or series
acquired by it:
a. Within the two-year period immediately prior to the Announcement Date
of the proposal of the Business Combination; or
b. In the transaction in which it became an Interested Shareholder,
whichever is higher; or
2. The Market Value per share of Common Stock of the same class or series
on the Announcement Date or on the Determination Date, whichever is higher;
or
3. The price per share equal to the Market Value per share of Common Stock
of the same class or series determined pursuant to clause 2 of this
Subsection (a), multiplied by the fraction of:
a. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of Common Stock of the same class or series
acquired by it within the two-year period immediately prior to the
Announcement Date ever.
b. The Market Value per share of Common Stock of the same class or series
on the first day in such two-year period on which the Interested
Shareholder acquired any shares of Common Stock.
(b) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding stock other than
Common Stock is at least equal to the highest of the following, whether or
not the Interested Shareholder has previously acquired any shares of a
particular class or series of stock:
1. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of such class of stock acquired by it.
a. Within the two-year period immediately prior to the Announcement Date
of the proposal of the Business Combination; or
b. In the transaction in which it became an Interested Shareholder,
whichever is higher; or
2. The highest preferential amount per share to which the holders of
shares of such class of stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company; or
3. The Market Value per share of such class of stock on the Announcement
Date or on the Determination Date, whichever is higher; or
4. The price per share equal to the Market Value per share of such class
of stock determined pursuant to clause 3 of this Subsection (b), multiplied
by the fraction of:
a. The highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Shareholder for any shares of any class of Voting Stock acquired by it
within the two-year period immediately prior to the Announcement Date, over
b. The Market Value per share of the same class of Voting Stock on the
first day in such two-year period on which the Interested Shareholder
acquired any shares of the same class of Voting Stock.
(c) In making any price calculation under Section (2) of this Paragraph C,
appropriate adjustments shall be made to reflect any reclassification,
including any reverse stock split; recapitalization; reorganization; or any
similar transaction which has the effect of reducing the number of
outstanding shares of the stock. The consideration to be received by
holders of any class or series of outstanding stock is to be in cash or in
the same form as the Interested Shareholder has previously paid for shares
of the same class or series of stock. If the Interested Shareholder has
paid for shares of any class of stock with varying forms of consideration,
the form of consideration for such class of stock shall be either cash or
the form used to acquire the largest number of shares of such class or
series of stock previously acquired by it.
(d) 1. After the Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination.
a. There shall have been no failure to declare and pay at the regular date
therefor any full period dividends, whether or not cumulative, on any
outstanding preferred stock of the Company;
b. There shall have been no reduction in the annual rate of dividends paid
on any class or series of stock of the Company that is not preferred stock,
except as necessary to reflect any subdivision of the stock, and an
increase in such annual rate of dividends as necessary to reflect any
reclassification, including any reverse stock split, recapitalization,
reorganization, or any similar transaction which has the effect of reducing
the number of outstanding shares of the stock;
c. The Interested Shareholder shall not become the Beneficial Owner of any
additional shares of stock of the Company except as part of the transaction
which resulted in such Interested Shareholder becoming an Interested
Shareholder or by virtue of proportionate stock splits or stock dividends.
2. The provisions of subclauses a and b of clause 1 do not apply if no
Interested Shareholder or an Affiliate or Associate of the Interested
Shareholder voted as a director of the Company in a manner inconsistent
with such subclauses and the Interested shareholder, within ten (10) days
after any act or failure to act inconsistent with such subclauses, notifies
the Board of Directors of the Company in writing that the Interested
Shareholder disapproves thereof and requests in good faith that the Board
of Directors rectify such act or failure to act.
(e) After the Interested Shareholder has become an Interested Shareholder,
the Interested Shareholder may not have received the benefit, directly or
indirectly, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges or other financial assistance provided by the
Company or any Subsidiary, whether in anticipation of or in connection with
such Business Combination or otherwise.
(3) (a) The vote required by Paragraph B of this Article Seventh does not
apply to any Business Combination that is approved by a majority of
Continuing Directors at a meeting of the Board of Directors at which a
quorum consisting of at least a majority of the Continuing Directors is
present.
(b) Unless by its terms a resolution adopted under the foregoing
subsection (a) of this Section (3) is made irrevocable, it may be altered
or repealed by the Board of Directors, but this shall not affect any
Business Combinations that have been consummated, or are the subject of an
existing agreement entered into, prior to the alteration or repeal.
D. POWERS OF THE BOARD OF DIRECTORS. A majority of the Continuing
Directors of the Company shall have the power and duty to determine, on the
basis of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article Seventh, including
without limitation, (a) whether a person is an Interested Shareholder, (b)
the number of shares of Voting Stock beneficially owned by any person, (c)
whether a person is an Affiliate or Associate of another, (d) whether the
assets which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by
the Company or any Subsidiary in any Business Combination has, an aggregate
book value or Market Value of five percent (5%) or more of the total Market
Value of the outstanding stock of the Company or of its net worth, and
(e) whether the requirements of Paragraph C of this Article Seventh have
been met.
E. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS. Nothing
contained in this Article Seventh shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
F. AMENDMENT OR REPEAL. Notwithstanding any other provisions of this
Article Seventh or of any other Article hereof, or of the By-Laws of the
Company (and notwithstanding the fact that a lesser percentage may be
specified from time to time by law, this Article Seventh, any other Article
hereof, or the By-Laws of the Company), the provisions of this Article
Seventh may not be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the
holders of at least: (i) 80% of the combined voting power of the then
outstanding Voting Stock of the Company, voting together as a single class
and (ii) 66 2/3% of the combined voting power of the then outstanding
Voting Stock (which is not beneficially owned by an Interested
Shareholder), voting together as a single class.
EIGHTH. A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The business of the
Company shall be managed by a Board of Directors. The number of directors
of the Company shall be fixed from time to time by or pursuant to the By-
Laws of the Company. Except as otherwise provided in or fixed by or
pursuant to the provisions of Article Fourth hereof relating to the rights
of the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, the directors shall be classified, with respect to
the time for which they severally hold office, into three classes, as
nearly equal in number as possible, as shall be provided in the manner
specified in the By-Laws of the Company. One class shall be originally
elected for a term expiring at the annual meeting of shareholders to be
held in 1991, another class shall be originally elected for a term expiring
at the annual meeting of shareholders to be held in 1992, and another class
shall be originally elected for a term expiring at the annual meeting of
shareholders to be held in 1993, with each member of each class to hold
office until a successor is elected and qualified. At each annual meeting
of shareholders of the Company and except as otherwise provided in or fixed
by or pursuant to the provisions of Article Fourth hereof relating to the
rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, the successors of the class of
directors whose term expires at that meeting shall be elected to hold
office for a term of three years.
B. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES AND INTRODUCTION OF
BUSINESS. Advance notice of shareholder nominations for the election of
directors, and advance notice of business to be brought by shareholders
before an annual meeting of shareholders, shall be given in the manner
provided in the By-Laws of the Company.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
required by law and except as otherwise provided in or fixed by or pursuant
to the provisions of Article Fourth hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect directors under
specified circumstances: (i) newly created directorships resulting from
any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors; (ii) any director elected in accordance with the
preceding clause (i) shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been
elected and qualified; and (iii) no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
D. REMOVAL. Except as otherwise provided in or fixed by or pursuant to
the provisions of Article Fourth hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect directors under
specified circumstances, any director may be removed from office, with or
without cause, only by the affirmative vote of the holders of at least 80%
of the combined voting power of the then outstanding shares of the
Company's stock entitled to vote generally, voting together as a single
class. Notwithstanding the foregoing provisions of this Paragraph D, if at
any time any shareholders of the Company have cumulative voting rights with
respect to the election of directors and less than the entire Board of
Directors is to be removed, no director may be removed from office if the
votes cast against removal would be sufficient to elect the person as a
director if cumulatively voted at an election of the class of directors of
which such person is a part. Whenever in this Article Eighth or in Article
Ninth hereof or in Article Tenth hereof, the phrase, "the then outstanding
shares of the Company's stock entitled to vote generally" is used, such
phrase shall mean each then outstanding share of any class or series of the
Company's stock that is entitled to vote generally in the election of the
Company's directors.
E. AMENDMENT OR REPEAL. Notwithstanding any other provisions of this
Article Eighth or of any other Article hereof or of the By-Laws of the
Company (and notwithstanding the fact that a lesser percentage may be
specified from time to time by law, this Article Eighth, any other Article
hereof, or the By-Laws of the Company), the provisions of this Article
Eighth may not be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of at
least 80% of the combined voting power of the then outstanding shares of
the Company's stock entitled to vote generally, voting together as a single
class.
NINTH. Any action required or permitted to be taken by the shareholders of
the Company at a meeting of such holders may be taken without such a
meeting only by written consent by all of the shareholders entitled to vote
on the subject matter thereof. Except as otherwise mandated by Kentucky
law and except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof relating to the rights of the holders
of any class or series of stock having a preference over the Common Stock
as to dividends or upon liquidation to elect directors under specified
circumstances, special meetings of shareholders of the Company may be
called only by the Board of Directors pursuant to a resolution approved by
a majority of the entire Board of Directors or by the President of the
Company. Notwithstanding any other provisions of this Article Ninth or of
any other Article hereof or of the By-Laws of the Company (and
notwithstanding the fact that a lesser percentage may be specified from
time to time by law, this Article Ninth, any other Article hereof, or the
By-Laws of the Company), the provisions of this Article Ninth may not be
altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment,
repeal or adoption is approved by the affirmative vote of the holders of at
least 80% of the combined voting power of the then outstanding shares of
the Company's stock entitled to vote generally, voting together as a single
class.
TENTH. The Board of Directors shall have power to adopt, amend and repeal
the By-Laws of the Company to the maximum extent permitted from time to
time by Kentucky law; provided, however, that any By-Laws adopted by the
Board of Directors under the powers conferred hereby may be amended or
repealed by the Board of Directors or by the holders of at least a majority
of the combined voting power of the outstanding shares of the Company's
stock entitled to vote generally, voting together as a single class, except
that, and notwithstanding any other provisions of this Article Tenth or of
any other Article hereof or of the By-Laws of the Company (and
notwithstanding the fact that a lesser percentage may be specified from
time to time by law, this Article Tenth, any other Article hereof or the By-
Laws of the Company), no provision of Section 2, Section 5 or Section 6 of
Article I of the By-Laws or of Section 1 of Article II of the By-Laws or of
Article VIII of the By-Laws may be altered, amended or repealed in any
respect, nor may any provision inconsistent therewith be adopted, unless
such alteration, amendment, repeal or adoption is approved by the
affirmative vote of the holders of at least 80% of the combined voting
power of the then outstanding shares of the Company's stock entitled to
vote generally, voting together as a single class. Notwithstanding any
other provisions of this Article Tenth or of any other Article hereof or of
the By-Laws of the Company (and notwithstanding the fact that a lesser
percentage may be specified from time to time by law, this Article Tenth,
any other Article hereof, or the By-Laws of the Company), the provisions of
this Article Tenth may not be altered, amended or repealed in any respect,
nor may any provision inconsistent therewith be adopted, unless such
alteration, amendment, repeal or adoption is approved by the affirmative
vote of the holders of at least 80% of the combined voting power of the
then outstanding shares of the Company's stock entitled to vote generally,
voting together as a single class.
ELEVENTH. A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of his duties
as a director, except for liability (i) for any transaction in which the
director's personal financial interest is in conflict with the financial
interests of the Company or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or are known to
the director to be a violation of law, (iii) under Kentucky Revised
Statutes 271B.8-330, or (iv) for any transaction from which the director
derived any improper personal benefit. If the Kentucky Business
Corporation Act as amended after approval by the shareholders of this
Article to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by
the Kentucky Business Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph by the shareholders
of the Company shall not adversely affect any right or protection of a
director of the Company existing at the time of such repeal or
modification.
TWELFTH. A. RIGHT TO INDEMNIFICATION. Each person who was or is a
director of the Company and who was or is made a party or is threatened to
be made a party to or as otherwise involved (including, without limitation,
as a witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of
the fact that he or she is or was a director or officer of the Company or
is or was serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "Indemnified
Director"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by
the Company to the fullest extent permitted by the Kentucky Business
Corporation Act, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than such law
permitted the Company to provide prior to such amendment), against all
liability, all reasonable expense and all loss (including, without
limitation, judgments, fines, reasonable attorneys' fees, ERISA excise
taxes or penalties and amounts paid in settlement) incurred or suffered by
such Indemnified Director in connection therewith and such indemnification
shall continue as to an Indemnified Director who has ceased to be a
director and shall inure to the benefit of the Indemnified Director's
heirs, executors and administrators. Each person who was or is an officer
of the Company and not a director of the Company and who was or is made a
party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any proceeding, by reason
of the fact that he or she is or was an officer of the Company or is or was
serving at the request of the Company as a director, officer, partner,
trustee, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
an employee benefit plan (hereinafter an "Indemnified Officer"), whether
the basis of such proceeding is alleged action in an official capacity as
an officer or in any other capacity while serving as an officer, shall be
indemnified and held harmless by the Company against all liability, all
reasonable expense and all loss (including, without limitation, judgments,
fines, reasonable attorneys' fees, ERISA excise taxes or penalties and
amounts paid in settlement) incurred or suffered by such Indemnified
Officer to the same extent and under the same conditions that the Company
must indemnify an Indemnified Director pursuant to the immediately
preceding sentence and to such further extent as is not contrary to public
policy and such indemnification shall continue as to an Indemnified Officer
who has ceased to be an officer and shall inure to the benefit of the
Indemnified Officer's heirs, executors and administrators. Notwithstanding
the foregoing and except as provided in Paragraph B of this Article Twelfth
with respect to proceedings to enforce rights to indemnification, the
Company shall indemnify any Indemnified Director or Indemnified Officer in
connection with a proceeding (or part thereof) initiated by such
Indemnified Director or Indemnified Officer only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Company. As
hereinafter used in this Article Twelfth, the term "indemnitee" means any
Indemnified Director or Indemnified Officer. Any person who is or was a
director or officer of a subsidiary of the Company shall be deemed to be
serving in such capacity at the request of the Company for purposes of this
Article Twelfth. The right to indemnification conferred in this Article
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Kentucky Business Corporation Act requires, an advancement of expenses
incurred by an indemnitee who at the time of receiving such advance is a
director of the Company shall be made only upon: (i) delivery to the
Company of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately
be determined by final judicial decision from which there is no further
right to appeal (hereinafter, a "final adjudication") that such indemnitee
is not entitled to be indemnified for such expenses under this Article or
otherwise; (ii) delivery to the Company of a written affirmation of the
indemnitee's good faith belief that he or she has met the standard of
conduct that makes indemnification by the Company permissible under the
Kentucky Business Corporation Act; and (iii) a determination that the facts
then known to those making the determination would not preclude
indemnification under the Kentucky Business Corporation Act. The right to
indemnification and advancement of expenses conferred in this Paragraph A
shall be a contract right.
B. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Paragraph A of
this Article Twelfth is not paid in full by the Company within sixty days
after a written claim has been received by the Company (except in the case
of a claim for an advancement of expenses, in which case the applicable
period shall be twenty days), the indemnitee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit or in a suit brought by
the Company to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee also shall be entitled to be paid the
expense of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (other than
a suit to enforce a right to an advancement of expenses brought by an
indemnitee who will not be a director of the Company at the time such
advance is made) it shall be a defense that, and in (ii) any suit by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking the Company shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the standard that makes
it permissible hereunder or under the Kentucky Business Corporation Act
(the "applicable standard") for the Company to indemnify the indemnitee for
the amount claimed. Neither the failure of the Company (including its
Board of Directors, a committee of the Board of Directors, independent
legal counsel or its shareholders) to have made a determination prior to
the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard, nor an actual determination by the Company (including its Board
of Directors, a committee of the Board of Directors, independent legal
counsel or its shareholders) that the indemnitee has not met the applicable
standard, shall create a presumption that the indemnitee has not met the
applicable standard or, in the case of such a suit brought by the
indemnitee, shall be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Company to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of
expenses under this Article Twelfth or otherwise shall be on the Company.
C. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article Twelfth shall not be
exclusive of any other right which any person may have or hereinafter
acquire under any statute, these Restated Articles of Incorporation, any By-
Law, any agreement, any vote of shareholders or disinterested directors or
otherwise.
D. INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company
or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the Kentucky Business Corporation Act.
E. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to the
extent authorized from time to time by the Board of Directors, grant rights
to indemnification and to the advancement of expenses to any employee or
agent of the Company and to any person serving at the request of the
Company as an agent or employee of another corporation or of a joint
venture, trust or other enterprise to the fullest extent of the provisions
of this Article Twelfth with respect to the indemnification and advancement
of expenses of either directors or officers of the Company.
F. REPEAL OR MODIFICATION. Any repeal or modification of any provision of
this Article Twelfth shall not adversely affect any rights to
indemnification and to advancement of expenses that any person may have at
the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
G. SEVERABILITY. In case any one or more of the provisions of this
Article Twelfth, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions in this Article Twelfth, and any other application
thereof, shall not in any way be affected or impaired thereby.
THIRTEENTH. The name and mailing address of the sole incorporator is:
Charles A. Markel III
LG&E Energy Corp.
220 West Main Street
P.O. Box 32030
Louisville, KY 40232
FOURTEENTH. SERIES A PREFERRED STOCK.
Designation and Amount. There shall be a series of the Preferred Stock
designated as "Series A Preferred Stock". The number of shares
constituting such series shall be 750,000 and such series shall have the
preferences, limitations and relative rights set forth below.
Section 1. Dividends and Distributions.
(A) Subject to the possible prior and superior rights of the holders of
any shares of any other series of Preferred Stock or any other shares of
preferred stock of the Company ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, each holder of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for that purpose:
(i) quarterly dividends payable in cash on the first day of January, April,
July, and October in each year (each such date being a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of such share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$5.00 or (b) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends declared on
shares of the Common Stock of the Company, without par value (the "Common
Stock"), since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of a share of Series A Preferred Stock, and (ii) subject to
the provision for adjustment hereinafter set forth, quarterly distributions
(payable in kind) on each Quarterly Dividend Payment Date in an amount per
share equal to 100 times the aggregate per share amount of all non-cash
dividends or other distributions (other than a dividend payable in shares
of Common Stock or a subdivision of the outstanding shares of Common Stock,
by reclassification or otherwise) declared on shares of Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or with respect
to the first Quarterly Dividend Payment Date, since the first issuance of a
share of Series A Preferred Stock. If the Quarterly Dividend Payment Date
is a Saturday, Sunday or legal holiday, then such Quarterly Dividend
Payment Date shall be the first immediately preceding calendar day which is
not a Saturday, Sunday or legal holiday. In the event that the Company
shall at any time after December 5, 1990, (the "Rights Declaration Date")
(i) declare any dividend on outstanding shares of Common Stock payable in
shares of Common Stock (ii) subdivide outstanding shares of Common Stock,
or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case, the amount to which the holder of a
share of Series A Preferred Stock was entitled immediately prior to such
event pursuant to the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which shall be the number of
shares of Common Stock that are outstanding immediately after such event,
and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on shares of
Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the shares of Common Stock
(other than a dividend payable in shares of Common Stock); provided,
however, that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $5.00 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding share of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of such share of Series A
Preferred Stock, unless the date of issuance of such share is prior to the
record date for the first Quarterly Dividend Payment Date, in which case,
dividends on such share shall begin to accrue from the date of issuance of
such share, or unless the date of issuance is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date in either of which events
such dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on shares of Series A Preferred Stock in an
amount less than the aggregate amount of all such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all shares of Series A Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
(D) Dividends payable on the Series A Preferred Stock for the initial
dividend period and for any period less than a full quarterly period, shall
be computed on the basis of a 360-day year of 30-day months.
Section 2. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the shareholders
of the Company and, to the extent required by law, to cumulative voting in
all elections of directors by shareholders.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of
shareholders of Company.
(C) If at the time of any annual meeting of shareholders for the election
of directors a "default in preference dividends" on the Series A Preferred
Stock shall exist, the holders of the Series A Preferred Stock shall have
the right at such meeting, voting together as a single class, to the
exclusion of the holders of Common Stock, to elect two (2) directors of the
Company. Such right shall continue until there are no dividends in arrears
upon the Series A Preferred Stock. Either or both of the two directors to
be elected by the holders of the Series A Preferred Stock may be to fill a
vacancy or vacancies created by an increase by the Board of Directors in
the number of directors constituting the Board of Directors. Each director
elected by the holders of Preferred Stock (a "Preferred Director") shall
continue to serve as such director for the full term for which he or she
shall have been elected, notwithstanding that prior to the end of such term
a default in preference dividends shall cease to exist. Any Preferred
Director may be removed by, and shall not be removed except by, the vote of
the holders of record of the outstanding Series A Preferred Stock voting
together as a single class, at a meeting of the shareholders or of the
holders of Preferred Stock called for the purpose. So long as a default in
preference dividends on the Series A Preferred Stock shall exist, (i) any
vacancy in the office of a Preferred Director may be filled (except as
provided in the following clause (ii)) by an instrument in writing signed
by the remaining Preferred Director and filed with the Company and (ii) in
the case of the removal of any Preferred Director, the vacancy may be
filled by the vote of the holders of the outstanding Series A Preferred
Stock voting together as a single class, at the same meeting at which such
removal shall be voted. Each director appointed as aforesaid by the
remaining Preferred Director shall be deemed, for all purposes hereof, to
be a Preferred Director. For the purposes hereof, a "default in preference
dividends" on the Preferred Stock shall be deemed to have occurred whenever
the amount of accrued and unpaid dividends upon the Series A Preferred
Stock shall be equivalent to six (6) full quarterly dividends or more, and
having so occurred, such default shall be deemed to exist thereafter until,
but only until, all accrued dividends on all Series A Preferred Stock then
outstanding shall have been paid to the end of the last preceding quarterly
dividend period. The provisions of this paragraph (C) shall govern the
election of Directors by holders of Series A Preferred Stock during any
default in preference dividends notwithstanding any provisions of these
Articles of Incorporation to the contrary.
(D) Except as set forth herein, holders of shares of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
shares of Common Stock as set forth herein) for taking any corporate
action.
Section 3. Certain Restrictions.
(A) Until all accrued and unpaid dividends and distributions, whether or
not declared, on outstanding shares of Series A Preferred Stock shall have
been paid in full, the Company shall not:
(i) Declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) Declare or pay dividends on or make any other distributions on any
shares of parity stock, except dividends paid ratably on shares of Series A
Preferred Stock and shares of all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of such Series A Preferred Stock and all such shares are then
entitled;
(iii) Redeem or purchase or otherwise acquire for consideration shares of
any junior stock, provided, however, that the Company may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any other junior stock;
(iv) Purchase or otherwise acquire for consideration any shares of Series
A Preferred Stock or any shares of parity stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company
unless the Company could, under paragraph (A) of this Section 3, purchase
or otherwise acquire such shares at such time and in such manner.
Section 4. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All
such shares shall, upon their cancellation, become authorized but unissued
Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth in
the Articles of Incorporation of the Company creating a series of Preferred
Stock or any similar shares or as otherwise required by law.
Section 5. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, no distributions shall be made (i) to the holders of
shares of junior stock unless the holders of Series A Preferred Stock shall
have received, subject to adjustment as hereinafter provided in paragraph
(B), the greater of either (a) $100.00 per share plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, or (b) an amount per share equal to
100 times the aggregate per share amount to be distributed to holders of
shares of Common Stock or (ii) to the holders of shares of parity stock,
unless simultaneously therewith distributions are made ratably on shares of
Series A Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of shares of Series A
Preferred Stock are entitled under clause (i)(a) of this sentence and to
which the holders of shares of such parity stock are entitled, in each
case, upon such liquidation, dissolution or winding up.
(B) In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case, the aggregate amount to
which holders of Series A Preferred Stock were entitled immediately prior
to such event pursuant to clause (i)(b) of paragraph (A) of this Section 5
shall be adjusted by multiplying such amount by a fraction, the numerator
of which shall be the number of shares of Common Stock that are outstanding
immediately after such event, and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 6. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or converted into other stock
or securities, cash and/or any other property, then in any such case,
shares of Series A Preferred Stock shall at the same time be similarly
exchanged for or converted into an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is converted or exchanged. In the event the Company shall at any
time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
shares of Common Stock into a smaller number of shares, then in each such
case, the amount set forth in the immediately preceding sentence with
respect to the exchange or conversion of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator
of which shall be the number of shares of Common Stock that are outstanding
immediately after such event, and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 8. Ranking. The shares of Series A Preferred Stock shall rank
junior to all other series of the Preferred Stock and to any other class of
preferred stock that hereafter may be issued by the Company as to the
payment of dividends and the distribution of assets, unless the terms of
any such series or class shall provide otherwise.
Section 9. Amendment. These Restated Articles of Incorporation shall not
hereafter be amended, either directly or indirectly, or through merger or
consolidation with another corporation, in any manner that would alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least a majority of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
Section 10. Fractional Shares. The Series A Preferred Stock may be issued
in fractions of a share, which fractions shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions, and to have the benefit of
all other rights of holders of Series A Preferred Stock.
Section 11. Certain Definitions. As used herein with respect to the
Series A Preferred Stock, the following terms shall have the following
meanings:
(A) The term "junior stock" (i) as used in Section 3, shall mean the
Common Stock and any other class or series of capital stock of the Company
hereafter authorized or issued over which the Series A Preferred Stock has
preference or priority as to the payment of dividends, and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of
capital stock of the Company over which the Series A Preferred Stock has
preference or priority in the distribution of assets on any liquidation,
dissolution or winding up of the Company.
(B) The term "parity stock" (i) as used in Section 3, shall mean any class
or series of stock of the Company hereafter authorized or issued ranking
pari passu with the Series A Preferred Stock as to dividends, and (ii) as
used in Section 5, shall mean any class or series of stock of the Company
ranking pari passu with the Series A Preferred Stock in the distribution of
assets on any liquidation, dissolution or winding up."
The undersigned hereby certifies that the Amended and Restated Articles of
Incorporation correctly set forth the corresponding Articles of
Incorporation as amended and that these Amended and Restated Articles of
Incorporation supersede the original Articles of Incorporation and any
amendments and corrections thereto.
LG&E Energy Corp.
By: /s/ John R. McCall
John R. McCall, Executive Vice
President, Secretary and General Counsel
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,665,075
<OTHER-PROPERTY-AND-INVEST> 316,421
<TOTAL-CURRENT-ASSETS> 569,896
<TOTAL-DEFERRED-CHARGES> 109,540
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,660,932
<COMMON> 465,072 <F1>
<CAPITAL-SURPLUS-PAID-IN> (4)<F2>
<RETAINED-EARNINGS> 347,499
<TOTAL-COMMON-STOCKHOLDERS-EQ> 812,567
0
95,328
<LONG-TERM-DEBT-NET> 646,836
<SHORT-TERM-NOTES> 158,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 948,201
<TOT-CAPITALIZATION-AND-LIAB> 2,660,932
<GROSS-OPERATING-REVENUE> 2,479,642
<INCOME-TAX-EXPENSE> 43,945
<OTHER-OPERATING-EXPENSES> 2,312,211 <F3>
<TOTAL-OPERATING-EXPENSES> 2,356,156
<OPERATING-INCOME-LOSS> 123,486
<OTHER-INCOME-NET> 3,353
<INCOME-BEFORE-INTEREST-EXPEN> 126,839
<TOTAL-INTEREST-EXPENSE> 36,966
<NET-INCOME> 89,873
3,438
<EARNINGS-AVAILABLE-FOR-COMM> 86,435
<COMMON-STOCK-DIVIDENDS> 55,866
<TOTAL-INTEREST-ON-BONDS> 30,107
<CASH-FLOW-OPERATIONS> 154,811
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<FN>
<F1>Includes common stock expense of $1,257.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$11,313.
</FN>
</TABLE>
