<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
LG&E ENERGY CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
[LOGO]
March 13, 1996
Dear LG&E Energy Corp. shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
LG&E Energy Corp. to be held Tuesday, April 23, 1996, at 10:00 a.m., E.D.T. at
the Hyatt Regency Louisville, 320 W. Jefferson Street, Louisville, Kentucky.
There are numerous items to be considered at the Annual Meeting. Proposal
No. 2 provides for an increase in the authorized shares of Common Stock of the
Company. The Board of Directors believes the adoption of this proposal is
necessary in order to provide the Company with flexibility in structuring future
financings and achieving other proper corporate purposes, as more fully
described in the accompanying proxy statement. Proposal Nos. 3 and 4 are
designed primarily to comply with the provisions of Section 162(m) of the
Internal Revenue Code regarding deductibility of executive compensation. Many
other companies have modified their executive compensation plans to comport with
Section 162. In addition to considering these and other proposals, we will also
report on the progress of LG&E Energy, and shareholders will have the
opportunity to present questions of general interest.
We encourage you to read the proxy statement carefully and complete, sign
and return your proxy in the envelope provided, even if you plan to attend the
meeting. Returning your proxy to us will not prevent you from voting in person
at the meeting, or from revoking your proxy and changing your vote at the
meeting, if you are present and choose to do so.
If you plan to attend the Annual Meeting, please check the box on the proxy
card indicating that you plan to attend the meeting. Please bring the Admission
Ticket, which forms the top portion of the form of proxy, to the meeting with
you. If you wish to attend the meeting but do not have an Admission Ticket, you
will be admitted to the meeting after presenting personal identification and
evidence of ownership.
The directors and officers of LG&E Energy appreciate your continuing
interest in the business of LG&E Energy. We hope you can join us at the meeting.
Sincerely,
[SIGNATURE]
Roger W. Hale
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of LG&E Energy Corp. ("LG&E Energy"), a
Kentucky corporation, will be held at the Hyatt Regency Louisville, 320 West
Jefferson Street, Louisville, Kentucky, on Tuesday, April 23, 1996, at 10:00
a.m., E.D.T. At the Annual Meeting, shareholders will be asked to consider and
vote upon the following matters, which are more fully described in the
accompanying proxy statement:
1. A proposal to elect four directors, each for a three-year term expiring
in 1999;
2. A proposal to amend the Articles of Incorporation of LG&E Energy, as
amended, to increase the number of shares of Common Stock that the
Company is authorized to issue from 75 million shares to 125 million
shares;
3. A proposal to approve the Amended and Restated LG&E Energy Corp. Omnibus
Long-Term Incentive Plan, including the issuance of an additional
1,200,000 shares (2,400,000 shares as adjusted for the Authorized Stock
Split (as defined herein)) of Common Stock thereunder, a copy of which is
attached as Exhibit A to the accompanying proxy statement;
4. A proposal to approve the LG&E Energy Corp. Short-Term Incentive Plan, a
copy of which is attached as Exhibit B to the accompanying proxy
statement;
5. A proposal to amend the LG&E Energy Corp. Common Stock Purchase Plan to
authorize the issuance of an additional 500,000 shares (1,000,000 shares
as adjusted for the Authorized Stock Split (as defined herein)) of Common
Stock thereunder;
6. A proposal to approve and ratify the appointment of Arthur Andersen LLP
as independent auditors of LG&E Energy for 1996; and
7. To transact such other business as may properly come before the meeting.
The close of business on February 15, 1996, has been fixed by the Board of
Directors as the record date for determination of shareholders entitled to
notice of and to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE
REPLY ENVELOPE AS SOON AS POSSIBLE. Your cooperation in signing and promptly
returning your proxy is greatly appreciated.
By Order of the Board of Directors,
John R. McCall, Secretary
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
March 13, 1996
<PAGE>
PROXY STATEMENT
--------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 23, 1996
----------------------
The Board of Directors of LG&E Energy hereby solicits your proxy, and asks
that you vote, sign, date and promptly mail the enclosed proxy card for use at
the Annual Meeting of Shareholders to be held April 23, 1996, and at any
adjournment of such meeting. The meeting will be held at the Hyatt Regency
Louisville, 320 West Jefferson Street, Louisville, Kentucky. This proxy
statement and the accompanying proxy were first mailed to shareholders on or
about March 13, 1996.
If you plan to attend the meeting, please check the box on the proxy card
indicating that you plan to attend the meeting. Also, please bring the Admission
Ticket, which forms the top portion of the form of proxy, to the meeting with
you. Shareholders who do not have an Admission Ticket, including beneficial
owners whose accounts are held by brokers or other institutions, will be
admitted to the meeting upon presentation of personal identification and, in the
case of beneficial owners, proof of ownership.
At the close of business on February 15, 1996, the record date for the
Annual Meeting, there were 33,122,674 shares of Common Stock of LG&E Energy
outstanding and entitled to vote. LG&E Energy has no other voting securities.
Subsequent to the record date for the Annual Meeting, the Board of Directors
declared a 2-for-1 stock split to be effected by a one hundred percent stock
dividend on April 15, 1996 (the "Authorized Stock Split"). Because the
Authorized Stock Split will take place after the record date for the Annual
Meeting, the number of shares which you are entitled to vote, and the total
number of shares of Common Stock of the Company outstanding for purposes of the
vote at the Annual Meeting, are unaffected by the Authorized Stock Split. PLEASE
NOTE THAT UNLESS OTHERWISE INDICATED ALL REFERENCES HEREIN TO SHARES OF COMMON
STOCK OF THE COMPANY ARE BASED ON PRE-STOCK SPLIT SHARE TOTALS AND PRICES.
Owners of record of LG&E Energy Common Stock at the close of business on
February 15, 1996, are entitled to one vote per share for each matter presented
at the Annual Meeting or any adjournment thereof. In addition, each shareholder
has cumulative voting rights with respect to the election of directors.
Accordingly, in electing directors, each shareholder is entitled to as many
votes as the number of shares of stock owned multiplied by the number of
directors to be elected. All such votes may be cast for a single nominee or may
be distributed among two or more nominees. The persons named as proxies reserve
the right to cumulate votes represented by proxies which they receive and to
distribute such votes among one or more of the nominees at their discretion.
You may revoke your proxy at any time before it is voted by giving written
notice of its revocation to the Secretary of LG&E Energy, by delivery of a later
dated proxy, or by attending the Annual Meeting and voting in person. Signing a
proxy does not preclude you from attending the meeting in person.
The Annual Report to Shareholders of LG&E Energy (the "Annual Report"),
including financial statements, is enclosed with this proxy statement. The
following portions of the Annual Report are incorporated herein and made a part
hereof: the information under the caption Management's Discussion and Analysis
of Results of Operations and Financial Condition; the consolidated financial
statements and notes thereto, including the Report of Management and the Report
of Independent Public Accountants; and the information under the caption
Selected Quarterly Data (Unaudited).
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of LG&E Energy presently consists of ten members. The
directors are classified into three classes, as nearly equal in number as
possible, with respect to the time for which they are to hold office. One class
of directors is elected at each year's Annual Meeting to serve for three-year
terms and to continue in office until their successors are elected and
qualified.
At this Annual Meeting, the following four persons are proposed for election
to the Board of Directors for three-year terms expiring at the 1999 Annual
Meeting: Roger W. Hale, David B. Lewis, Anne H. McNamara and Donald C. Swain.
All of the nominees are presently directors of LG&E Energy and Louisville Gas
and Electric Company ("LG&E"), the principal subsidiary of LG&E Energy.
The Board of Directors does not know of any nominee who will be unable to
stand for election or otherwise serve as a director. If for any reason any
nominee becomes unavailable for election, the Board of Directors may designate a
substitute nominee, in which event the shares represented on the proxy cards
returned to LG&E Energy will be voted for such substitute nominee, unless an
instruction to the contrary is indicated on the proxy card.
Directors are elected by a plurality of the votes cast by the holders of
LG&E Energy Common Stock at a meeting at which a quorum is present. "Plurality"
means that the individuals who receive the largest number of votes are elected
as directors up to the maximum number of directors to be chosen at the meeting.
Consequently, any shares not voted (whether by withholding authority, broker
nonvote or otherwise) have no impact on the election of directors except to the
extent the failure to vote for an individual results in another individual
receiving a larger number of votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION
OF THE FOUR NOMINEES FOR DIRECTOR.
INFORMATION ABOUT DIRECTORS AND NOMINEES
The following contains certain information as of February 15, 1996,
concerning the nominees for director, as well as the directors whose terms of
office continue after the 1996 Annual Meeting.
2
<PAGE>
NOMINEES FOR DIRECTOR WITH TERMS EXPIRING AT 1999 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
ROGER W. HALE (AGE 52)
Mr. Hale has been a Director and Chairman of the Board, President and
Chief Executive Officer of LG&E Energy since August 1990. Mr. Hale has
[PHOTO1] also been Chief Executive Officer and a Director of LG&E since June
1989, Chairman of the Board of LG&E since February 1, 1990, and served
as President of LG&E from June 1989 until January 1, 1992. Prior to his
coming to LG&E, Mr. Hale served as Executive Vice President of Bell
South Enterprises, Inc. Mr. Hale is a graduate of the University of
Maryland, and received a master's degree in management from the
Massachusetts Institute of Technology, Sloan School of Management. Mr.
Hale is also a member of the Board of Directors of PNC Bank, Kentucky,
Inc. and H&R Block, Inc.
DAVID B. LEWIS (AGE 51)
Mr. Lewis is a founding partner of the law firm of Lewis, White & Clay,
a Professional Corporation, in Detroit, Michigan. Since 1972, Mr. Lewis
[PHOTO2] has served as Chairman of the Board and a Director of the firm. Mr.
Lewis is a graduate of Oakland University and received his law degree
from the University of Michigan Law School. He also received a master's
degree in business administration from the University of Chicago
Graduate School of Business. Mr. Lewis has been a director of LG&E
Energy and LG&E since November 1992. Mr. Lewis is also a member of the
Board of Directors of Consolidated Rail Corporation (Conrail), and TRW,
Inc., and serves or has served as a board member for numerous
educational, cultural and civic organizations in the Detroit and
Washington, D.C. areas.
ANNE H. MCNAMARA (AGE 48)
Mrs. McNamara has been Senior Vice President and General Counsel of AMR
Corporation and its subsidiary, American Airlines, Inc., since June
[PHOTO3] 1988. Mrs. McNamara is a graduate of Vassar College, and received her
law degree from Cornell University. She has been a director of LG&E
Energy and LG&E since November 1991.
DONALD C. SWAIN (AGE 64)
Dr. Swain served as President of the University of Louisville from
April 1981 to June 1995, and has served as President Emeritus since
[PHOTO4] July 1995. Dr. Swain is a graduate of the University of Dubuque. He
received his master's and doctoral degrees in history from the
University of California at Berkeley. He has been a director of LG&E
Energy since August 1990 and of LG&E since May 1985. Dr. Swain is also
a member of the Board of Directors of PNC Bank, Kentucky, Inc.
</TABLE>
3
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE AT 1997 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
WILLIAM C. BALLARD, JR. (AGE 55)
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll &
McDonald since May 1992. He served as Executive Vice President and
[PHOTO5] Chief Financial Officer from 1978 until May 1992, of Humana, Inc., a
healthcare services company. Mr. Ballard is a graduate of the
University of Notre Dame, and received his law degree, with honors,
from the University of Louisville School of Law. He also received a
Master of Law degree in taxation from Georgetown University. Mr.
Ballard has been a director of LG&E Energy since August 1990 and of
LG&E since May 1989. Mr. Ballard is also a member of the Board of
Directors of United Healthcare Corp., MidAmerica Bancorp, Vencor, Inc.
and American Safety Razor, Inc.
S. GORDON DABNEY (AGE 67)
Mr. Dabney was President of Standard Foods, Inc., which is engaged in
the food processing business, from 1955 until he retired in 1995. Mr.
[PHOTO6] Dabney is currently a business consultant. He attended the University
of Florida. He has been a director of LG&E Energy since August 1990 and
of LG&E since January 1987.
T. BALLARD MORTON, JR. (AGE 63)
Mr. Morton has been Executive in Residence at the College of Business
and Public Administration of the University of Louisville since 1983.
[PHOTO7] Mr. Morton is a graduate of Yale University. Mr. Morton has been a
director of LG&E Energy since August 1990 and of LG&E since May 1967.
Mr. Morton is also a member of the Board of Directors of PNC Bank,
Kentucky, Inc. and the Kroger Company.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE AT 1998 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
OWSLEY BROWN II (AGE 53)
Mr. Brown has been the Chairman and Chief Executive Officer of Brown-
Forman Corporation, a consumer products company, since July 1995, and
[PHOTO8] was President of Brown-Forman Corporation from 1987 to 1995. Mr. Brown
was first named Chief Executive Officer of Brown-Forman Corporation in
July 1994. Mr. Brown is a graduate of Yale University, and received his
master's degree in business administration from Stanford University. He
has been a director of LG&E Energy since August 1990 and of LG&E since
May 1989. Mr. Brown is also a member of the Board of Directors of
Brown-Forman Corporation, Hilliard Lyons Trust Company and NACCO
Industries, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
GENE P. GARDNER (AGE 66)
Mr. Gardner has been Chairman of Beaver Dam Coal Company, which is
engaged in the ownership and development of coal properties, since
[PHOTO9] April 1983. Mr. Gardner is a graduate of the University of Louisville
and of the Advanced Management Program of the University of Virginia,
Colgate-Darden Graduate School of Business. Mr. Gardner has been a
director of LG&E Energy since August 1990 and of LG&E since July 1979.
He is also a member of the Board of Directors of Commonwealth Bank and
Trust Company, Commonwealth Financial Corporation and Thomas
Industries, Inc.
J. DAVID GRISSOM (AGE 57)
Mr. Grissom has been Chairman of Mayfair Capital, Inc., a private
investment firm, since April 1989. He served as Chairman and Chief
[PHOTO10] Executive Officer of Citizens Fidelity Corporation from April 1977
until March 31, 1989. Upon the acquisition of Citizens Fidelity
Corporation by PNC Financial Corp. in February 1987, Mr. Grissom served
as Vice Chairman and as a Director of PNC Financial Corp. until March
1989. Mr. Grissom is a graduate of Centre College and the University of
Louisville School of Law. Mr. Grissom has been a director of LG&E
Energy since August 1990 and of LG&E since January 1982. He is also a
member of the Board of Directors of Providian Corporation, Churchill
Downs, Inc., Columbia/HCA Healthcare Corporation and Regal Cinemas,
Inc.
</TABLE>
5
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
Each member of the Board of Directors of LG&E Energy is also a director of
LG&E. The committees of the Board of Directors of LG&E Energy include an Audit
Committee, a Compensation Committee and a Nominating and Development Committee.
The directors who are members of the various committees of LG&E Energy serve in
the same capacity for purposes of the LG&E Board of Directors.
During 1995, there were eight regular meetings and two special meetings of
the LG&E Energy Board. All directors attended 75% or more of the total number of
meetings of the Board of Directors and Committees of the Board on which they
served.
COMPENSATION OF DIRECTORS
Directors who are also officers of LG&E Energy or its subsidiaries receive
no compensation in their capacities as directors. During 1995, directors
received a retainer of $1,500 per month, or $18,000 annually ($19,000 annually
for committee chairmen), a fee for Board meetings of $1,000 per meeting and a
fee for each committee meeting of $750. Non-employee directors residing out of
the Louisville area received reimbursement for expenses incurred in traveling to
meetings, and received an additional $800 compensation for each Board meeting
they attended. The foregoing amounts represent the aggregate fees paid to
directors in their capacities as directors of LG&E Energy and LG&E during 1995.
Non-employee directors of LG&E Energy and its subsidiaries may elect to
defer all or a part of their fees (including retainers, fees for attendance at
regular and special meetings, committee meetings and travel compensation)
pursuant to the LG&E Energy Corp. Deferred Stock Compensation Plan (the
"Deferred Stock Plan"). Each deferred amount is credited by LG&E Energy to a
bookkeeping account and then is converted into a stock equivalent on the date
the amount is credited. The number of stock equivalents credited to the director
is based upon the average of the high and the low sale price of LG&E Energy
Common Stock on the New York Stock Exchange for the five trading days prior to
the conversion. Additional stock equivalents will be added to stock accounts at
the time that dividends are declared on LG&E Energy Common Stock, in an amount
equal to the amount of LG&E Energy Common Stock that could be purchased with
dividends that would be paid on the stock equivalents if converted to LG&E
Energy Common Stock. In the event that LG&E Energy is a party to any
consolidation, recapitalization, merger, share exchange or other business
combination in which all or a part of the outstanding LG&E Energy Common Stock
is changed into or exchanged for stock or other securities of the other entity
or LG&E Energy, or for cash or other property, the stock account of a
participating director shall be converted to such new securities or
consideration equal to the amount each share of LG&E Energy Common Stock
receives, multiplied by the number of share equivalents in the stock account.
A director will be eligible to receive a distribution from his or her
account only upon termination of service, death, retirement or otherwise.
Following departure from the Board, the distribution will occur, at the
director's election, either in one lump sum or in no more than five annual
installments. The distribution will be made, at the director's election, either
in LG&E Energy Common Stock or in cash equal to the then-market price of the
LG&E Energy Common Stock allocated to the director's stock account. At February
15, 1996, six directors were participating in the Deferred Stock Plan.
Non-employee directors also receive stock options pursuant to the LG&E
Energy Corp. Stock Option Plan for Non-Employee Directors (the "Directors'
Option Plan"), which was approved by the shareholders at the 1994 Annual
Meeting. Under the terms of the Directors' Option Plan, upon initial election or
appointment to the Board, each new director, who has not been an employee or
officer of the Company within the preceding three years, receives an option
grant for 2,000 shares of LG&E Energy Common Stock. Following these initial
grants, eligible directors will receive an annual grant of an option for 2,000
shares on the first Wednesday of each February. The option exercise price per
share
6
<PAGE>
for each share of LG&E Energy Common Stock is the fair market value on the grant
date. Options granted are not exercisable during the first twelve months from
the date of grant and will terminate 10 years from the date of grant. In the
event of a tender offer or an exchange offer for shares of LG&E Energy Common
Stock, all then exercisable, but unexercised options granted under the
Directors' Option Plan will continue to be exercisable for thirty days following
the first purchase of shares pursuant to such tender or exchange offer.
The Directors' Option Plan authorizes the issuance of up to 250,000 shares
of LG&E Energy Common Stock, of which 54,000 are subject to existing options at
a weighted average per share price of $40.15. Information on the number of
exercisable options held by each non-employee director is shown in footnote 3
under "Ownership of LG&E Energy Common Stock" on page 8 of this proxy statement.
The number of shares subject to the Directors' Option Plan and subject to awards
outstanding under the plan will adjust with any stock dividend or split,
recapitalization, reclassification, merger, consolidation, combination or
exchange of shares, or any similar corporate change, including the Authorized
Stock Split.
AUDIT COMMITTEE
The Audit Committee of the Board is composed of Messrs. Dabney, Brown,
Gardner and Lewis, Dr. Swain and Mrs. McNamara. During 1995, the Audit Committee
maintained direct contact with the independent auditors and LG&E Energy's
Internal Auditor to review the following matters: the adequacy of LG&E Energy's
and its subsidiaries' accounting and financial reporting procedures; the
adequacy and effectiveness of LG&E Energy's and its subsidiaries' system of
internal accounting controls; the scope and results of the annual audit and any
other matters relative to the audit of LG&E Energy's and its subsidiaries'
accounts and its financial affairs that the Committee, the Internal Auditor, or
the independent auditors deemed necessary. The Audit Committee met twice during
1995.
COMPENSATION COMMITTEE
The Compensation Committee, composed of non-employee directors, approves the
compensation of the Chief Executive Officer and the executive officers of LG&E
Energy and its subsidiaries. The Committee makes recommendations to the full
Board regarding benefits provided to executive officers and the establishment of
various employee benefit plans. The members of the Compensation Committee are
Messrs. Ballard, Dabney, Gardner, Grissom and Morton and Mrs. McNamara. The
Compensation Committee met five times during 1995.
NOMINATING AND DEVELOPMENT COMMITTEE
The Nominating and Development Committee is composed of the Chairman of the
Board and certain other directors. The Committee reviews and recommends to the
Board of Directors nominees to serve on the Board and their compensation. The
Committee considers nominees suggested by other members of the Board, by members
of management and by shareholders. To be considered for inclusion in the slate
of nominees proposed by the Board of Directors at an annual meeting, shareholder
recommendations must be submitted in writing to the Secretary of LG&E Energy not
later than 120 days prior to the meeting. In addition, the Articles of
Incorporation and Bylaws of LG&E Energy contain procedures governing shareholder
nominations for election of directors at a shareholders' meeting. The Chairman
of the Annual Meeting may refuse to acknowledge the nomination of any person not
made in compliance with these procedures. The Nominating and Development
Committee also provides advice and counsel as necessary to executive management
concerning business development activities of LG&E Energy. The members of the
Nominating and Development Committee are Messrs. Morton, Ballard, Brown,
Grissom, Hale and Lewis and Dr. Swain. The Nominating and Development Committee
met three times during 1995.
7
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OWNERSHIP OF LG&E ENERGY COMMON STOCK
LG&E Energy does not know of any shareholder who, as of February 15, 1996,
beneficially owned more than five percent of LG&E Energy's outstanding Common
Stock.
The table below shows information as of February 15, 1996, concerning
beneficial ownership by each director, each nominee for director, each executive
officer named in the Summary Compensation Table beginning on page 29 of this
proxy statement (the "Summary Compensation Table"), and all directors and
executive officers as a group. Unless otherwise indicated, each person has sole
investment and voting power (or shares such powers with a member of his or her
family) with respect to the shares set forth on the following table.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED
NAME OF BENEFICIAL OWNER (1)(2)(3)
- ------------------------------------------------------------------ ------------
<S> <C>
William C. Ballard, Jr. 10,402
Owsley Brown II 5,000
Edward J. Casey, Jr. 690
S. Gordon Dabney 6,800
Gene P. Gardner 8,850
J. David Grissom 6,867
Roger W. Hale 44,271
David B. Lewis 4,400
John R. McCall 3,574
Michael L. McInnis 7,126
Anne H. McNamara 4,300
T. Ballard Morton, Jr. 7,000
Victor A. Staffieri 9,464
Donald C. Swain 4,300
Stephen R. Wood 15,113
All Directors and Executive Officers as a group (4) 167,513
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) Does not include the following shares of LG&E Energy Common Stock credited
to participating director's accounts under the Deferred Stock Plan as of
February 15, 1996: Mr. Brown, 758.005 shares; Mr. Dabney, 3,493.092 shares;
Mr. Gardner, 3,512.674 shares; Mrs. McNamara, 1,360.843 shares; Mr. Morton,
3,462.032 shares; and Dr. Swain, 947.716 shares.
(2) Includes shares subject to stock options granted under LG&E Energy's
Omnibus Long-Term Incentive Plan, exercisable within 60 days following
February 15, 1996, as follows: Mr. Hale, 21,607 shares; Mr. McCall, 3,474
shares; Mr. McInnis, 4,990 shares; Mr. Staffieri, 8,284 shares; and Mr.
Wood, 11,515 shares.
(3) Includes 4,000 shares subject to stock options granted under the Directors'
Option Plan, exercisable within 60 days following February 15, 1996, for
each of Messrs. Ballard, Brown, Dabney, Gardner, Grissom, Lewis and Morton,
and Mrs. McNamara and Dr. Swain.
(4) For each director and nominee, the number of shares of LG&E Energy Common
Stock beneficially owned as of February 15, 1996, is less than four tenths
of one percent of the total LG&E Energy Common Stock outstanding on that
date, and the total number of shares beneficially owned by all directors
and executive officers as a group is less than six tenths of one percent of
the then-outstanding LG&E Energy Common Stock. In the case of executive
officers, the share total shown includes 1,417 shares of LG&E Energy Common
Stock representing an interest in shares held in trust under LG&E's
Employee Stock Ownership Plan, with respect to which such officers have
voting power but not investment power, and 72,615 stock options granted
under LG&E Energy's Omnibus Long-Term Incentive Plan, exercisable within 60
days of February 15, 1996.
</TABLE>
8
<PAGE>
PROPOSAL NO. 2
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF SHARES
OF AUTHORIZED COMMON STOCK FROM 75 MILLION SHARES
TO 125 MILLION SHARES
On December 6, 1995, the Board of Directors adopted, subject to shareholder
approval, an amendment to the Company's Amended and Restated Articles of
Incorporation, as amended, which provides for an increase in the number of
shares of authorized LG&E Energy Common Stock ("Common Stock") from 75,000,000
shares to 125,000,000 shares. As of February 15, 1996, 33,122,674 shares of
Common Stock were issued and outstanding. After giving effect to the issuance of
approximately 33,150,000 shares of Common Stock pursuant to the Authorized Stock
Split, there will be approximately 8,700,000 shares of Common Stock available
for issuance, of which (after making appropriate adjustments to reflect the
Authorized Stock Split, but excluding those shares of Common Stock authorized
for issuance by the Board of Directors and subject to the approval of
shareholders at the Annual Meeting) approximately 3,000,000 shares are reserved
for issuance under the Company's dividend reinvestment plan, non-employee
directors stock option plan, non-employee directors deferred stock compensation
plan and other executive and employee benefit plans, leaving approximately
5,700,000 shares authorized, unissued and unreserved.
The additional shares of Common Stock for which authorization is sought
would be part of the existing class of Common Stock and, if and when issued,
would have the same rights and privileges (including the associated Rights to
Purchase Series A Preferred Stock) as the shares of Common Stock presently
outstanding. Adoption of the proposed amendment would not affect the rights of
the holders of currently outstanding Common Stock of the Company. However, any
issuance of additional authorized shares could result in the dilution of each
existing shareholder's voting power, and could have the effect of diluting the
earnings per share or book value per share of outstanding shares of Common
Stock. Holders of the Common Stock do not have the preemptive right to subscribe
for the purchase of any part of any new or additional issue of stock or
securities convertible into stock.
The Board of Directors believes that it is in the best interest of the
Company to increase the authorized shares of Common Stock to provide the Company
with flexibility in structuring future financings and achieving other proper
corporate purposes, including without limitation, stock splits, stock dividends,
financings, acquisitions, providing additional equity incentives to employees,
officers or directors, and/or establishing strategic relationships with other
companies. Other than the Authorized Stock Split, the dividend reinvestment plan
and the employee benefit plans discussed above, the Company has no current plans
to issue shares of Common Stock relating to these or other matters, although the
Company from time to time evaluates such matters and acknowledges that one or
more could occur in the near term.
If the proposed amendment is approved, the Board of Directors could
generally issue such additional shares without further shareholder action,
unless such action is then required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed. The proposed
amendment, if adopted, would cause the Company's authorized capital stock to
consist of: (i) 125,000,000 shares of Common Stock and (ii) 5,000,000 shares of
preferred stock, without par value (the "Preferred Stock"). The Preferred Stock,
none of which is currently outstanding, may be issued in the future in such
series as may be designated by the Board of Directors. In creating any such
series, the Board of Directors has the authority to fix the rights and
preferences of each such series with respect to, among other things, the
dividend rate, redemption provisions, liquidation preferences, sinking fund
provisions and voting and conversion rights. The increase in the amount of
authorized Common Stock was not proposed with the intention of discouraging
tender offers or takeover attempts of the Company. However, the availability of
additional authorized shares of Common Stock for
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issuance, along with the power of the Board over the terms of the Preferred
Stock and certain other provisions, could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of the
Company. These other provisions include the Company's Rights Agreement and
certain provisions of its Articles of Incorporation, which provide for, among
other things, the classified board of directors, supermajority voting and fair
price provisions. Pursuant to the Company's Rights Agreement, which was adopted
in 1990, following the Authorized Stock Split each share of Common Stock will
have one-third of a "right" entitling the holder to purchase from the Company
one-one hundredth of a share of new preferred stock of the Company under certain
circumstances. The rights may be exercised if a person or group announces its
intention to acquire, or does acquire 15% or more of the Company's Common Stock.
Under certain circumstances, the holders of the rights will be entitled to
purchase either shares of Common Stock of the Company or common stock of the
acquirer at a reduced percentage of market value.
The Company has no knowledge, however, of any effort to accumulate the
Company's Common Stock or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
VOTE REQUIRED. The affirmative vote of a majority of the shares of Common
Stock entitled to vote and present in person or by proxy at the Annual Meeting
is required for the approval of the adoption of the amendment to the Amended and
Restated Articles of Incorporation, as amended. Abstentions from voting on this
matter are treated as votes against, while broker nonvotes are treated as shares
not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS
AMENDED.
PROPOSAL NO. 3
PROPOSAL TO APPROVE THE AMENDED AND RESTATED
LG&E ENERGY CORP. OMNIBUS LONG-TERM INCENTIVE PLAN,
INCLUDING THE ISSUANCE OF AN ADDITIONAL 1,200,000 SHARES
(2,400,000 SHARES AS ADJUSTED FOR THE
AUTHORIZED STOCK SPLIT) THEREUNDER
On December 6, 1995, the Board of Directors of LG&E Energy amended, restated
and extended the Louisville Gas and Electric Company 1990 Omnibus Long-Term
Incentive Plan (the "Original Long-Term Plan"), which was initially approved by
the shareholders at the 1990 Annual Meeting. The Amended and Restated Omnibus
Long-Term Incentive Plan (the "1996 Long-Term Plan") became effective January 1,
1996, subject to shareholder approval. The amendments, which are embodied in the
1996 Long-Term Plan, include (i) amending the plan to maintain the Company's tax
deduction for certain performance-based compensation, and (ii) increasing the
number of shares reserved for issuance thereunder from the lesser of 300,000
shares or 1% of the outstanding Common Stock of the Company to the lesser of
1,500,000 shares or 5% of the outstanding Common Stock of the Company. In
connection with approving the Authorized Stock Split, the Board of Directors
also made the appropriate adjustments to the 1996 Long-Term Plan to reflect the
Authorized Stock Split, including increasing the number of shares reserved for
issuance thereunder to the lesser of 3,000,000 shares or 5% of the outstanding
Common Stock. As with the Original Long-Term Plan, the 1996 Long-Term Plan
permits a committee of the Company to grant non-qualified stock options (NQSOs),
incentive stock options (ISOs), restricted stock, stock appreciation rights
(SARs), performance units and performance shares to executive officers and other
key employees.
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The 1996 Long-Term Plan has been designed to comply with Section 162(m) of
the Internal Revenue Code of 1986 (the "Code"), which generally denies a
corporate tax deduction for annual compensation exceeding $1,000,000 paid to the
chief executive officer and the four other most highly compensated officers of a
public company ("Covered Employees"). Certain types of compensation, including
performance-based compensation, are generally excluded from this deduction
limit. In an effort to ensure that stock awards under the plan will qualify as
performance-based compensation, the 1996 Long-Term Plan is being submitted to
shareholders for approval at the Annual Meeting. While the Company believes that
compensation payable pursuant to the 1996 Long-Term Plan generally will be
deductible for federal income tax purposes, under certain circumstances such as
death, disability and change in control, compensation not qualified under
Section 162(m) of the Code may be payable pursuant to the provisions of the 1996
Long-Term Plan. By approving the 1996 Long-Term Plan, the shareholders will be
approving, among other things, the performance measures, eligibility
requirements and limits on various stock awards contained therein.
In February 1996, the Committee granted NQSOs and performance units to
executive officers under the 1996 Long-Term Plan. The number of shares subject
to options granted to the named executives in 1996 generally is significantly
higher than the number granted to the same executives in 1995 and prior years.
This is a direct result of the implementation of a recommendation of the
independent compensation consultant that, as described in the Compensation
Committee Report beginning on page 23 of this proxy statement, was engaged to
review the Company's compensation programs for 1996 and beyond. These awards are
subject to the approval of the 1996 Long-Term Plan by the shareholders at the
Annual Meeting. In the event that shareholders do not approve the 1996 Long-Term
Plan, the plan shall automatically terminate and the option grants and
performance unit grants made to current participants shall be canceled.
Set forth below is a summary of certain important features of the 1996
Long-Term Plan, which summary is qualified in its entirety by reference to the
actual plan attached as Exhibit A to this proxy statement. All capitalized terms
which are not defined herein are defined in the 1996 Long-Term Plan.
DESCRIPTION OF THE 1996 LONG-TERM PLAN
BACKGROUND. The Original Long-Term Plan was established by the Company's
primary subsidiary, LG&E, effective January 1, 1990. The plan was approved by
the Board of Directors of LG&E in 1989 and was approved by LG&E's shareholders
in June 1990 and assumed by LG&E Energy in 1990. The 1996 Long-Term Plan was
unanimously approved by the Board of Directors of LG&E Energy in December 1995
and became effective January 1, 1996, subject to the approval of the Company's
shareholders at the Annual Meeting.
PURPOSE. The purpose of the 1996 Long-Term Plan is to promote the success
of the Company and its Subsidiaries by providing incentives to key employees
that link their compensation to the long-term financial success of the Company
and its Subsidiaries and to growth in shareholder value. The plan is designed to
provide flexibility to the Company and its Subsidiaries in their ability to
motivate, attract and retain the services of key employees upon whose judgment,
interest and special effort the successful conduct of their operations is
largely dependent.
ADMINISTRATION. The 1996 Long-Term Plan will be administered by a committee
(the "Committee") of the Board of Directors which will be composed solely of not
less than three directors, who, to the extent required by Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act"), qualify as "disinterested
persons" for purposes of Rule 16b-3 and who, to the extent required by Section
162(m), also qualify as "outside directors" for purposes of Section 162(m) of
the Code. Among other things, the Committee will have the authority to select
officers and employees to whom awards may be granted, to determine the type of
award as well as the number of shares of LG&E Energy Common Stock to be covered
by each award, and to determine the terms and conditions of any such awards. The
Committee will also have the authority to construe and interpret the plan,
establish,
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amend or waive rules and regulations for its administration, accelerate the
exercisability of any award, and amend the terms and conditions of any
outstanding option, stock appreciation right or other award. However, the
Committee shall have no authority to adjust upward any amounts payable to a
Covered Employee with respect to a particular award or to take any action to the
extent that such action or the Committee's ability to take such action would
cause any award to any Covered Employee to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code. All decisions made by the
Committee will be final and binding.
ELIGIBILITY. Participants in the plan will be employees of the Company or
any Subsidiary, including officers of the Company or any Subsidiary who, in the
opinion of the Committee, contribute significantly to the growth and
profitability of the Company and its Subsidiaries.
NUMBER OF SHARES. As a result of the Authorized Stock Split, the 1996
Long-Term Plan authorizes the issuance of up to 3,000,000 shares of Common
Stock, or 5% of the outstanding shares of Common Stock of the Company, whichever
is less, pursuant to the grant or exercise of stock options, including ISOs and
NQSOs, SARs, restricted stock, performance units and performance shares, but no
more than one-half of such aggregate number may be issued as restricted stock
and no more than 200,000 shares may be issued upon the exercise of ISOs. No
single participant may be granted options (NQSOs or ISOs) for in excess of
200,000 shares of Common Stock in any calendar year, or SARs for in excess of
200,000 shares of Common Stock in any calendar year. Also, no Covered Employee
may be granted any performance unit or performance share award with respect to
any performance period (i) in an aggregate amount payable in cash in excess of
$1,000,000, or (ii) in excess of 100,000 shares. The exercise of SARs, whether
paid in cash or Common Stock, is an issuance of shares under the 1996 Long-Term
Plan. The payment of performance shares or performance units is an issuance of
shares under the plan only to the extent payment is made in Common Stock.
Subject to the foregoing limits, the shares available under the 1996 Long-Term
Plan can be divided among the various types of awards and among the participants
as the Committee sees fit. Such shares are to be made available from authorized
but unissued shares of Common Stock or treasury stock of the Company. The number
of shares subject to the 1996 Long-Term Plan and subject to awards outstanding
under the plan will adjust with any stock dividend or split, recapitalization,
reclassification, merger, consolidation, combination or exchange of shares, or
similar corporate change.
DESCRIPTION OF AWARDS
STOCK OPTIONS. The 1996 Long-Term Plan permits the award of ISOs and NQSOs.
Each option granted under the plan must be evidenced by a written agreement
specifying terms, including the type, the number of shares covered, the exercise
price, when it is exercisable, any restriction on transferability of shares
obtained from the exercise of the option and the duration. No employee may be
granted an ISO first exercisable in any calendar year if the Fair Market Value
(i.e., the average of the highest and lowest price at which the Common Stock was
traded, as reported on the composite tape of the New York Stock Exchange) of the
underlying stock on the date of grant exceeds $100,000. The purchase price per
share of Common Stock covered by an option shall be determined by the Committee,
but in the case of an ISO, may not be less than 100% of the Fair Market Value of
the underlying Common Stock on the date of grant, and in the case of a NQSO, may
not be less than 100% of the market price of such Common Stock on the date of
grant. No ISOs shall be exercisable more than ten years after their date of
grant. Payment of an option may be made with cash, with previously owned shares
of Common Stock, by foregoing compensation in accordance with Committee rules or
by a combination of these. The principal difference between ISOs and NQSOs is
their tax treatment. See " -- Federal Income Tax Consequences."
STOCK APPRECIATION RIGHTS. The 1996 Long-Term Plan authorizes the Committee
to grant SARs in lieu of options, in addition to options, independent of options
or as a combination of the foregoing. A holder of SARs is entitled upon exercise
to receive a number of shares of Common Stock, or cash or a combination of both,
as the Committee may determine, equal in value on the date of exercise to the
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amount by which the Fair Market Value of one share of Common Stock on the date
of exercise exceeds the exercise price fixed by the Committee on the date of
grant multiplied by the number of shares in respect of which the SARs are
exercised. If granted in lieu of an option, the SAR is exercisable at the same
time as the related option and, when exercised, the related option must be
surrendered and ceases to be exercisable. If granted in addition to an option,
the exercise of the related option causes the SAR also to be exercised. If
granted independently of an option, the SAR will be exercisable at such time as
the Committee determines and its exercise will be unrelated to any option. The
term of any SAR will not exceed ten years.
RESTRICTED STOCK. The 1996 Long-Term Plan authorizes the Committee to grant
restricted stock to individuals with such Periods of Restriction as the
Committee may designate. In the case of Covered Employees, the Committee may
condition the vesting or lapse of such Periods of Restriction upon the
attainment of one or more performance goals established by the Committee within
the time period prescribed by Section 162(m) of the Code. These performance
goals must be based on the attainment, by the Company or its Subsidiaries, of
certain objective performance measures, which shall include one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy production
availability performance measures (the "Performance Goals"). Such Performance
Goals may also be based upon the attainment of specified levels of performance
of the Company or one or more Subsidiaries relative to the performance of other
corporations. With respect to Covered Employees, all Performance Goals shall be
objective performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m)(4)(C) of the Code. It is
contemplated that restricted stock grants will be made only in extraordinary
situations of performance, promotion, retention or recruitment.
Each grant of restricted stock will be evidenced by a restricted stock
agreement that shall specify the Period of Restriction, the number of shares of
restricted stock granted and such other provisions determined by the Committee.
Generally, all rights with respect to the restricted stock granted to a
participant under the 1996 Long-Term Plan shall be exercisable only during his
lifetime and only by the participant. Restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered. During the Period of
Restriction, participants holding restricted stock may exercise full voting
rights with respect to the shares and are entitled to all dividends and other
distributions paid on those shares. Upon the lapse of the applicable Period of
Restriction, the shares of restricted stock will become freely transferrable.
PERFORMANCE UNITS AND PERFORMANCE SHARES. The 1996 Long-Term Plan
authorizes the Committee to grant performance units and performance shares which
may be earned if specified long-term corporate goals are achieved over a period
of time selected by the Committee (a "Performance Period"). Prior to the grant
of performance units or performance shares, the Committee must establish the
Performance Goals (from among the objective performance measures described above
relating to restricted stock) that must be satisfied before a payout of such
awards is made. At the conclusion of a particular Performance Period, the
Committee will determine the extent to which the Performance Goals have been
met. It will then determine the applicable percentage (which may exceed 100%) to
be applied to, and will apply such percentage to, the value of the performance
units or performance shares awarded to determine the payout to be received by
the participant; provided that no payout will be made thereunder except upon
written certification by the Committee that the applicable Performance Goal(s)
have been satisfied to a particular extent. As a result, depending upon the
Company's performance in relation to the Performance Goals, a participant may
earn less or more than the number of performance shares or performance units
initially awarded. In addition, to the extent that the value of a performance
share or performance unit is related to a share of Common Stock, the value of
any payout will be dependent upon the changing value of the Common Stock.
Payments may be made in cash, Common Stock or a combination as determined by the
Committee.
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With respect to Covered Employees, all Performance Goals will be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m)(4)(C).
CHANGE IN CONTROL. Upon a change in control of the Company, all stock-based
awards, such as ISOs, NQSOs, SARs and restricted stock shall vest 100%, and all
performance-based awards, such as performance units and performance shares,
shall immediately be paid out in cash, based upon the extent, as determined by
the Committee, to which the Performance Goals have been met through the
effective date of the change in control or based upon the assumed achievement of
such goals, whichever is higher.
LIMITS ON TRANSFERABILITY AND EXERCISABILITY. No award granted under the
1996 Long-Term Plan may be sold, transferred, assigned, pledged or hypothecated,
other than by will or by the laws of descent and distribution. All rights to any
award granted to an employee shall be exercisable during the employee's lifetime
only by the employee or the employee's guardian or legal representative. All
awards granted under the plan will be forfeited immediately if the employee is
terminated for cause. Generally, upon termination of any employee due to death,
disability or retirement, all options and SARs will be immediately exercisable
and remain so until their expiration date, any Restricted Period with respect to
restricted stock will lapse and restricted stock will become freely
transferrable, and outstanding performance units and performance shares will
entitle the employee to receive pro-rated payments based upon the full months of
service during the Performance Period. Upon the termination of any employee for
any other reason (other than for cause), the employee generally may exercise
then exercisable options or SARs for 90 days or until their expiration date, and
restricted stock, performance units and performance shares will be forfeited
(subject, in each case, to the discretion of the Committee).
AMENDMENT AND DISCONTINUANCE. The 1996 Long-Term Plan may be amended,
altered or discontinued by the Board of Directors, but except as specifically
provided therein, no amendment, alteration or discontinuance may be made which
would in any manner adversely affect any award theretofore granted under the
Plan, without the written consent of the participant. Except as expressly
provided in the 1996 Long-Term Plan, the plan may not be amended without
shareholder approval to the extent such approval is required by law or
agreement.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion is intended only
as a brief discussion of the federal income tax rules relevant to stock options,
SARs, restricted stock and performance units. The laws governing the tax aspects
of awards are highly technical and such laws are subject to change.
NQSOS AND SARS. Upon the grant of a NQSO (with or without an SAR), the
optionee will not recognize any taxable income and the Company will not be
required to record an expense. Upon the exercise of such an option or an SAR,
the excess of the fair market value of the shares acquired on the exercise of
the option over the purchase price (the "spread"), or the consideration paid to
the optionee upon the exercise of the SAR, will constitute compensation taxable
to the optionee as ordinary income. In determining the amount of the spread or
the amount of consideration paid to the optionee, the fair market value of the
stock on the date of exercise is used, except that in the case of an optionee
subject to the six month short-swing profit recovery provisions of Section 16(b)
of the Exchange Act (generally officers and directors), the fair market value
will be determined six months after the date on which the option was granted (if
such date is later than the exercise date) unless such optionee elects to be
taxed based on the fair market value at the date of exercise. Any such election
(a "Section 83(b) election") must be made and filed with the Internal Revenue
Service within 30 days after exercise in accordance with the regulations under
Section 83(b) of the Code. The Company, in computing its federal income tax,
will generally be entitled to a deduction in an amount equal to the compensation
taxable to the optionee.
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ISOS. An optionee will not recognize taxable income on the grant or
exercise of an ISO. However, the spread at exercise will constitute an item
includible in alternative minimum tax. Such alternative minimum tax may be
payable even though the optionee receives no cash upon the exercise of his ISO
with which to pay such tax. Upon the disposition of shares of stock acquired
pursuant to the exercise of an ISO after the later of (i) two years from the
date of grant of the ISO or (ii) one year after the transfer of the shares to
the optionee (the "ISO Holding Period"), the optionee will recognize long-term
capital gain or loss, as the case may be, measured by the difference between the
stock's selling price and the exercise price. The Company is not entitled to any
tax deduction by reason of the grant or exercise of an ISO, or by reason of a
disposition of stock received upon exercise of an ISO if the ISO Holding Period
is satisfied. Different rules apply if the optionee disposes of the shares of
stock acquired pursuant to the exercise of an ISO before the expiration of the
ISO Holding Period.
RESTRICTED STOCK. A participant who is granted restricted stock may make a
Section 83(b) election to have the grant taxed as compensation income at the
date of receipt, with the result that any future appreciation (or depreciation)
in the value of the shares of stock granted shall be taxed as capital gain (or
loss) upon a subsequent sale of the shares. However, if the participant does not
make a Section 83(b) election, the grant will be taxed as compensation income at
the full fair market value on the date that the restrictions imposed on the
shares expire. Unless a participant makes a Section 83(b) election, any
dividends paid on stock subject to the restrictions are compensation income to
the participant and compensation expense to the Company. The Company is
generally entitled to a tax deduction for any compensation income taxed to the
participant, subject to the provisions of Section 162(m) of the Code.
PERFORMANCE UNITS AND PERFORMANCE SHARES. A participant who has been
granted a performance unit or performance share award will not realize taxable
income until the applicable Performance Period expires and the participant is in
receipt of the Common Stock and/or cash distributed in payment of the award, at
which time such participant will realize ordinary income equal to the fair
market value of the shares delivered or the amount of cash paid. At that time,
the Company generally will be allowed a corresponding tax deduction equal to the
compensation taxable to the award recipient, subject to the provisions of
Section 162(m) of the Code.
NEW PLAN BENEFITS. Apart from the grant of NQSOs and performance units
granted in February 1996 and described below, it cannot be determined at this
time what benefits or amounts, if any, will be received by or allocated to any
persons or group of persons under the 1996 Long Term Plan if the plan is
adopted. Except for Mr. Hale, such determinations are subject to the discretion
of the Committee. The minimum level of Mr. Hale's awards are dictated by his
employment agreement. See "Compensation Committee Interlocks and Insider
Participation -- Employment Contract and Termination of Employment Arrangements
and Change in Control Provisions" on page 33. However, the benefits and amounts
that were paid or allocated under the Original Long-Term Plan with respect to
1995 and prior years are described in the Summary Compensation Table, Option/SAR
Grants Table and Option/SAR Exercises, Year-End Value Table and Long-Term
Incentive Plan Awards Table on pages 29-31 of this proxy statement.
1996 AWARDS. Subject to shareholder approval, the Committee in February
1996 awarded performance units to the following individuals and groups described
on page 8, that are presently employees of the Company: Roger W. Hale, 12,175
units; John R. McCall, 1,432 units; Michael L. McInnis, 2,116 units; Victor A.
Staffieri, 2,469 units; Stephen R. Wood, 1,401 units; all executive officers as
a group, 24,755 units; and all employees (excluding executive officers), zero
units. These performance units were granted for the Performance Period
commencing January 1, 1996, and ending December 31, 1998. The Committee also
decided to grant NQSOs to purchase the following number of shares of Common
Stock to the individuals and groups described on page 8 who are currently
employees of the Company: Roger W. Hale, 27,500 shares; John R. McCall, 7,549
shares; Michael L. McInnis, 11,152 shares; Victor A. Staffieri, 13,011 shares;
Stephen R. Wood, 7,386 shares; all executive officers as a group, 113,807
shares; and all employees (excluding executive officers), 53,398 shares.
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The NQSOs will become exercisable one year from the date of grant at a purchase
price of $42.44 per share. Subject to shareholder approval of the Long-Term
Plan, the number of performance units and NQSOs awarded in February 1996 and set
forth above will be adjusted to reflect the Authorized Stock Split.
VOTE REQUIRED. The affirmative vote of a majority of the votes entitled to
be cast by the holders of the Company's Common Stock present or represented at
the Annual Meeting and entitled to vote thereon is required to approve the 1996
Long-Term Plan with respect to Section 162(m) of the Code and with respect to
the amendment to increase the number of shares authorized for issuance under the
plan. Abstentions from voting on this matter are treated as votes against, while
broker nonvotes are treated as shares not voted. Such vote will also satisfy the
shareholder approval requirements of Section 422 of the Code with respect to the
grant of ISOs and Rule 16b-3 under the Securities Exchange Act.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE AMENDED AND RESTATED OMNIBUS LONG-TERM INCENTIVE PLAN.
PROPOSAL NO. 4
PROPOSAL TO APPROVE THE LG&E ENERGY CORP.
SHORT-TERM INCENTIVE PLAN
Shareholders are being asked to approve the LG&E Energy Corp. Short-Term
Incentive Plan (the "Short-Term Plan"). The Board of Directors of LG&E Energy
Corp. unanimously adopted the Short-Term Plan on December 6, 1995, and the Board
of Directors of LG&E unanimously canceled the Louisville Gas and Electric
Company Short-Term Incentive Plan on that same date, subject to the payout of
short-term awards to plan participants in February 1996 based upon the 1995 plan
year.
Set forth below is a summary of certain important features of the Short-Term
Plan, which summary is qualified in its entirety by reference to the actual plan
attached as Exhibit B to this proxy statement. All capitalized terms which are
not defined herein are defined in the Short-Term Plan.
BACKGROUND. The LG&E Short-Term Incentive Plan was adopted by the Board of
Directors of LG&E effective January 1, 1990. In December 1995, the Board of
Directors of LG&E canceled its Short-Term Incentive Plan, subject to the payout
of short-term awards to plan participants in February 1996 based upon the 1995
plan year. Simultaneous with such cancellation, the Board of Directors of LG&E
Energy unanimously approved the LG&E Energy Corp. Short-Term Incentive Plan,
effective January 1, 1996.
PURPOSE. The purpose of the Short-Term Plan is to provide key employees of
the Company and its Subsidiaries with a meaningful annual incentive opportunity
geared toward the achievement of specific corporate, business unit, line of
business, and/or individual goals. The Short-Term Plan provides for the grant of
Company Performance Awards and Individual Performance Awards.
The Short-Term Plan is designed to take into account Section 162(m) of the
Code, which generally denies a corporate tax deduction for annual compensation
exceeding $1,000,000 paid to the chief executive officer and the four other most
highly compensated officers of a public company ("Covered Employee"). Certain
types of compensation, including performance-based compensation, are generally
excluded from this deduction limit. In an effort to ensure that certain
compensation payable under the plan will qualify as performance-based
compensation, the Short-Term Plan is being submitted to shareholders for
approval at the Annual Meeting. By approving the Short-Term Plan, the
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shareholders will be approving, among other things, the performance measures,
eligibility requirements and limits on annual incentive awards contained therein
relating to the Company Performance Awards.
As stated above, the Short-Term Plan also provides for the establishment and
payment of Individual Performance Awards. Individual Performance Awards payable
under the Short-Term Plan will not qualify as "performance-based compensation"
under Section 162(m) of the Code, and thus, will count toward the annual
$1,000,000 deduction limit. The Company will continue to pay at least a portion
of its executive compensation based on individual performance of key employees.
If the shareholders approve the Amended and Restated Omnibus Long-Term Incentive
Plan and the Short-Term Incentive Plan, the Committee believes that all
compensation paid to executives will continue to be deductible by the Company,
and the payment of the Individual Performance Awards will not affect the
deductibility of such executive compensation in the foreseeable future.
ADMINISTRATION. The Short-Term Plan will be administered by a committee of
three or more persons appointed by the Board of Directors (the "Committee"). To
the extent required to comply with Section 162(m) of the Code, each such member
will qualify as an "outside director" for purposes of Section 162(m) of the
Code. Among other things, the Committee will have the authority to select
officers and employees to whom awards may be granted and to determine the terms
and conditions of any such awards. The Committee will also have the authority to
construe and interpret the plan, and establish, amend or waive rules and
regulations for its administration. However, the Committee shall have no
authority to adjust upward any amounts payable to a Covered Employee with
respect to a particular award or to take any action to the extent that such
action or the Committee's ability to take such action would cause any award to
any Covered Employee to fail to qualify as "performance-based compensation"
under Section 162(m) of the Code. All decisions made by the Committee will be
final and binding.
ELIGIBILITY. Officers and salaried employees of the Company and its
Subsidiaries who, in the opinion of the Chief Executive Officer, can contribute
significantly to the growth and profitability of the Company and its
Subsidiaries are eligible to be selected by the Committee to be granted awards
under the Short-Term Plan. Specific criteria for participation shall be
established by the Committee prior to the beginning of each incentive period
(generally a calendar year), and selected employees will be notified in writing
of their selection, and of their performance goals and related Company
Performance Awards and Individual Performance Awards, as soon as practicable.
Under certain circumstances, individuals who become eligible after an incentive
period has commenced may participate in the plan. The Committee may withdraw its
approval for participation in the plan with respect to an incentive period at
any time during such period (except where a change in control occurs during an
incentive period), and the employee will not be entitled to the payment of any
Award for such incentive period. No participant or other employee shall have the
right to participate in the Short-Term Plan for any incentive period, despite
having been selected in a previous incentive period. No right or interest of any
participant in the Short-Term Plan may be assigned, transferred, pledged or
encumbered.
DESCRIPTION OF AWARDS
COMPANY PERFORMANCE AWARDS. The Short-Term Plan permits the award of
Company Performance Awards (expressed as a percentage of base salary), which are
established independent of the Individual Performance Awards discussed below. On
or before the 90th day of each incentive period and in any event before 25% or
more of the incentive period has elapsed, the Committee shall establish for each
participant the Company Performance Award and specific objective performance
goals for the incentive period, which will be based on one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy
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production availability performance measures ("Company Performance Goals"). At
the time Company Performance Awards are established, the Committee will specify
the manner in which the Company Performance Goal(s) will be calculated. In so
doing, the Committee may exclude the impact of certain specified events from the
calculation of the Company Performance Goal(s). For example, if a Company
Performance Goal was earnings per share, the Committee could, at the time the
Company Performance Goal is established, specify that earnings per share are to
be calculated without regard to any subsequent change in accounting standards
required by the Financial Accounting Standards Board. Company Performance Goals
may also be based on the attainment of specified performance levels of the
Company relative to other corporations. Upon establishing the Company
Performance Awards, the Committee will establish a minimum level of achievement
of the Company Performance Goals that must be met in order to receive any
portion of such award.
The level of achievement of the Company Performance Goals at the end of the
incentive period will determine the amount of each participant's Company
Performance Award that such participant will receive (the "Earned Company
Award"), which may exceed 100% of the participant's Company Performance Award.
If the minimum level of achievement of Company Performance Goals for an
incentive period is not met, no payment of an Earned Company Award will be made
to the particular participant during the incentive period. To the extent that
minimum achievement levels are met or surpassed, and upon certification by the
Committee that the Company Performance Goals have been satisfied and that any
other material terms and conditions of the Company Performance Awards are met,
payment of an Earned Company Award will be made to the participant for that
incentive period. The payment of all Earned Company Awards is subject to
reduction by the Committee, in its sole discretion. However, the Committee will
have no additional discretion to modify the terms of Company Performance Awards.
The maximum amount payable to a participant during any fiscal year will not
exceed $1,000,000.
INDIVIDUAL PERFORMANCE AWARDS. The Short-Term Plan permits the award of
Individual Performance Awards (expressed as a percentage of base salary), which
are established independent of the Company Performance Awards discussed above.
At the beginning of each incentive period, the Chief Executive Officer will
establish individual performance goals for each plan participant; provided that
the Committee will establish the performance goals for the Chief Executive
Officer. The level of achievement of the individual performance goals at the end
of the incentive period will determine the amount of each participant's
Individual Performance Award that such participant will receive (the "Earned
Individual Award"), which may range from 0% to 175% of the participant's
Individual Performance Award. The payment of all Earned Individual Awards is
subject to approval by the Committee, and will in no way be contingent upon the
attainment of, or the failure to attain, the Company Performance Goals for the
Company Performance Awards granted to participants.
Because the individual performance goals described above are not objective
in nature, the award of Individual Performance Awards and the payout of Earned
Individual Awards do not qualify as "performance-based compensation" as defined
in Section 162(m) of the Code. Thus, the Earned Individual Award payouts will
count toward the $1 million cap on the deductibility of executive compensation
paid by the Company. However, the Committee desires to retain the ability to
evaluate key employees on a subjective basis in order to promote effective
management of the Company.
TERMINATION OF EMPLOYMENT. In the event of termination due to death, total
and permanent disability or retirement, any Earned Awards (Earned Individual
Awards and/or Earned Company Awards) will be prorated to reflect participation
prior to termination. In the event of termination for any other reason, all of a
participant's rights to an Earned Award for the incentive period then in
progress will be forfeited; provided that the Committee may, in its discretion,
pay a prorated award for the portion of the incentive period that the
participant was employed.
CHANGE IN CONTROL. If any participant is terminated for any reason other
than for Cause, within 24 months after a Change in Control of the Company or its
Subsidiaries, all awards previously
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deferred (with earnings) will be paid to the participant; along with a Company
Performance Award and Individual Performance Award established for the
participant for the incentive period in progress at the time of termination,
which is prorated for the portion of the incentive period the participant is
employed.
AMENDMENT AND DISCONTINUANCE. The Board of Directors of the Company has
absolute discretion to modify or amend the Short-Term Plan in whole or in part,
or suspend or terminate the plan entirely. However, no such modification,
amendment, suspension or termination after an incentive period may, without the
consent of the participant, reduce the participant's right to a payment or
distribution to which the participant is entitled for such incentive period.
NEW PLAN BENEFITS. Although the Committee has awarded Company Performance
Awards and Individual Performance Awards to certain individuals (see 1996
Awards, below), it cannot be determined at this time what benefits or amounts,
if any, will be allocated to or received by any persons or group of persons
under the Short-Term Plan if the plan is adopted. Such determinations as to
allocations (except with respect to Mr. Hale) are at the discretion of the
Committee and as to receipt of payouts is dependent upon future performance. The
minimum levels of awards to Mr. Hale are dictated by his employment agreement.
However, the benefits and amounts payable under the LG&E short-term plan for
1995 and prior years are set forth in the bonus column of the Summary
Compensation Table on page 29 of this proxy statement.
1996 AWARDS. Subject to shareholder approval, the Committee in February
1996 awarded Company Performance Awards and Individual Performance Awards to the
following individuals and group described on page 8 that are presently employees
of the Company: Roger W. Hale in an aggregate amount equal to 60% of base
salary; John R. McCall in an aggregate amount equal to 40% of base salary;
Michael L. McInnis in an aggregate amount equal to 50% of base salary; Victor A.
Staffieri in an aggregate amount equal to 50% of base salary; Stephen R. Wood in
an aggregate amount equal to 40% of base salary; and other selected executive
officers. These awards were granted for the incentive period commencing January
1, 1996, and ending December 31, 1996, and their payout is dependent upon
individual and company performance. In the event that the Short-Term Plan is not
approved by the shareholders at the Annual Meeting, these awards and the
Short-Term Plan will be canceled and the Board of Directors will consider what
other actions, if any, will be necessary to effectuate the Company's executive
compensation program.
VOTE REQUIRED. The affirmative vote of a majority of the shares of Common
Stock entitled to vote and present in person or by proxy at the Annual Meeting
is required for the approval of the adoption of the Short-Term Plan with respect
to Section 162 of the Code. Abstentions from voting on this matter are treated
as votes against, while broker nonvotes are treated as shares not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE SHORT-TERM INCENTIVE PLAN.
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PROPOSAL NO. 5
PROPOSAL TO APPROVE AN AMENDMENT TO THE LG&E ENERGY CORP.
EMPLOYEE COMMON STOCK PURCHASE PLAN TO AUTHORIZE THE ISSUANCE OF AN ADDITIONAL
500,000 SHARES (1,000,000 SHARES AS ADJUSTED FOR THE AUTHORIZED STOCK SPLIT) OF
COMMON STOCK THEREUNDER
Shareholders are being asked to approve an amendment to the Company's
Employee Common Stock Purchase Plan (the "Employee Stock Plan") to approve the
issuance of an additional 1,000,000 shares of the Company's Common Stock under
the Employee Stock Plan. The Board of Directors of the Company unanimously
approved an amendment to the Employee Stock Plan authorizing the issuance of
500,000 shares of Common Stock on December 6, 1995. On March 6, 1996, the Board
of Directors approved the issuance of an additional 500,000 shares of Common
Stock pursuant to the Employee Stock Plan to reflect the Authorized Stock Split.
The Employee Stock Plan permits eligible employees to purchase Common Stock of
the Company through payroll deductions at a discount from market value.
The Employee Stock Plan was initially approved by the shareholders of LG&E
in 1967. In 1980, the shareholders of LG&E approved amendments to the Employee
Stock Plan that authorized the issuance of an additional 300,000 shares of
Common Stock pursuant to the plan. In May 1987, the shareholders of LG&E
approved amendments to the Employee Stock Plan that authorized the issuance of
another 300,000 shares of Common Stock pursuant to the plan. At February 15,
1996, 49,290 shares (98,580 shares as adjusted for the Authorized Stock Split)
remained reserved for issuance pursuant to the plan. The Company estimates that
the remaining shares will be issued pursuant to the plan within the next 12
months.
On December 6, 1995, the Board of Directors approved two additional
amendments to the Employee Stock Plan to extend the term of the plan from
September 15, 1996, to September 15, 2001, and to change the sponsor of the
Employee Stock Plan from LG&E to LG&E Energy. There have been no material
amendments to the Employee Stock Plan since 1987.
The Board of Directors believes that the Employee Stock Plan has been useful
in increasing employee ownership of the Company's Common Stock, thereby
increasing employee interest in the operating results of the Company. In
addition, the Board believes that the Employee Stock Plan also has enhanced the
Company's ability to retain and motivate its employees. For these reasons, the
Board of Directors has adopted, subject to shareholder approval, a proposal to
increase by 1,000,000 the number of authorized shares to be sold pursuant to the
plan. If the shareholders do not approve this proposal, the Employee Stock Plan
will be discontinued following the issuance of the remaining shares of Common
Stock authorized in 1987 for sale pursuant to the plan.
Any shareholder desiring a copy of the Employee Stock Plan may obtain one by
writing John R. McCall, Secretary, LG&E Energy Corp., 220 West Main Street,
Louisville, Kentucky 40202. The following description of the Employee Stock Plan
is qualified in its entirety by reference to the text of the plan.
DESCRIPTION OF THE EMPLOYEE STOCK PLAN
ELIGIBILITY. All full-time regular employees, including officers, of the
Company, or of any corporation or business organization whose employees are
authorized by LG&E Energy's Board of Directors to participate in the Employee
Stock Plan (a "Participating Corporation"), who have been employed by a
Participating Corporation for at least a year may participate in the Employee
Stock Plan. Of the approximately 2,950 employees of the Company eligible to
participate in the Employee Stock Plan at February 15, 1996, approximately 950
were participating. Directors of the Company are not eligible unless they are
employees of the Company.
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COMMON STOCK PURCHASES. The Employee Stock Plan permits participating
employees to purchase Common Stock of the Company through payroll deductions.
Payroll deductions are made and accumulated under the plan and Common Stock is
purchased twice each year, at the close of the six-month periods ending March 15
and September 15. The price to the employee for each share of Common Stock is
90% of market value on the first day of each payroll deduction period (March 16
and September 16) or the date of purchase for such period (September 15 and
March 15), whichever price is lower, but in no event less than 85% of the market
value on the date of purchase (the "Purchase Date"). Any eligible employee who
was eligible to participate in the Employee Stock Plan at the beginning of a
payroll deduction period may enter the plan at any time, and he may withdraw
from the plan at any time during such period.
NUMBER OF SHARES. If the proposal to increase the number of shares of
Common Stock to be issued under the Employee Stock Plan is approved by
shareholders, the Plan will provide for the issuance by the Company of a maximum
of 1,000,000 additional shares of Common Stock (subject to further proportional
adjustment to reflect stock dividends, stock splits and similar changes) plus
the 49,290 shares (98,580 shares as adjusted for the Authorized Stock Split) of
its Common Stock that were previously authorized but not issued at February 15,
1996.
TERM, AMENDMENT AND TERMINATION. The Employee Stock Plan will continue in
effect through September 15, 2001. However, shareholders should recognize that
the Board of Directors at any time may terminate the plan or may extend the plan
without shareholder approval. The Board may also amend the Employee Stock Plan,
except that the Board may not reduce the price per share to less than 90% of the
market value per share determined in the manner previously described and except
that shareholder approval is required to change the designation of corporations
whose employees may participate in the plan (other than those of any subsidiary
of the Company which is wholly-owned, directly or indirectly) or to increase the
aggregate number of shares which may be issued under the plan.
TAX CONSEQUENCES. The Employee Stock Plan is qualified as an "employee
stock purchase plan" under the federal income tax laws. Taxable income (federal
or Commonwealth of Kentucky) will not be realized at the time of purchase by the
employee. However, under the present law, the employee may realize taxable
income at the time such employee disposes of shares of Common Stock purchased
under the Plan. If such employee disposes of such shares after holding them for
at least two years from the Purchase Date or dies owning the stock: (a) the
lesser of (i) the excess of the fair market value of the stock on the Purchase
Date over the purchase price or (ii) the excess of the fair market value at the
time of the disposition or death over the purchase price is taxable as ordinary
income; (b) further gain is taxable as a capital gain; and (c) loss, if any, is
treated as a capital loss. If he disposes of the stock having held it for less
than two years: (a) the excess of fair market value of the stock on the Purchase
Date over the purchase price is taxable as ordinary income, and (b) any gain or
loss using a basis of the fair market value of the stock on the Purchase Date is
treated as a capital gain or loss.
If an employee disposes of stock purchased under the Employee Stock Plan
which he has held for less than two years from the Purchase Date, the Company
will be entitled to a deduction from income, for income tax purposes, of the
same amount as that for which the employee is taxed as ordinary income.
VOTE REQUIRED. The affirmative vote of a majority of the shares of Common
Stock entitled to vote and present in person or by proxy at the Annual Meeting
is required for the approval of the amendment to the Employee Stock Plan to
reserve an additional 1,000,000 shares of Common Stock for issuance under the
plan. Abstentions from voting on this matter are treated as votes against, while
broker nonvotes are treated as shares not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE EMPLOYEE COMMON STOCK PURCHASE PLAN.
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PROPOSAL NO. 6
APPROVAL OF INDEPENDENT AUDITORS FOR 1996
Based upon the recommendation of the Audit Committee, the Board of
Directors, subject to ratification by shareholders, has selected Arthur Andersen
LLP as independent auditors to audit the accounts of LG&E Energy and LG&E for
the fiscal year ending December 31, 1996. Arthur Andersen has audited the
accounts of LG&E Energy since its organization in 1990, and has audited the
accounts of LG&E for many years. The shareholders previously approved the
employment of the firm at the Annual Meeting on April 25, 1995.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting. Such representatives will be given the opportunity to make a statement
if they so desire, and will be available to respond to appropriate questions.
The affirmative vote of a majority of shares of LG&E Energy Common Stock
represented at the Annual Meeting is required for the approval of the
independent auditor. Abstentions from voting on any such matter are treated as
votes against, while broker nonvotes are treated as shares not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is comprised
wholly of non-employee directors, makes all decisions regarding the compensation
of LG&E Energy's executive officers, including the setting of base pay and the
administration of the long-term and short-term incentive plans. The executive
compensation program was developed and implemented after consultation with a
highly respected independent executive compensation consultant. That consultant
has concluded that the structure of the executive compensation program and the
target awards and opportunities provided to executives are consistent with the
compensation and pay programs of comparable companies, including utilities and
utility holding companies nationwide. The Compensation Committee and the Board
of Directors have continued access to this compensation consultant and other
compensation consultants as desired, and are provided with independent
compensation data for their review. Set forth below is a report submitted by the
members of the Compensation Committee addressing LG&E Energy's compensation
policies for 1995 which affect the executive officers of LG&E Energy, including
the executive officers named in the following tables.
COMPENSATION PHILOSOPHY
This report reflects LG&E Energy's compensation philosophy as set by the
Compensation Committee and the Board of Directors, and as reflected in the
salaries and awards paid to the executive officers of LG&E Energy and its
subsidiaries during 1995. There are three major components of LG&E Energy's
executive compensation program: (1) base salary; (2) short-term or annual
incentives; and (3) long-term incentives. LG&E Energy developed its executive
compensation program to focus on both short-term and long-term business
objectives which are designed to enhance overall shareholder value. The
short-term and long-term incentives are premised on the belief that the
interests of executives should be closely aligned with those of LG&E Energy's
shareholders. Based on this philosophy, these two portions of each executive's
total compensation package are placed at risk and are linked to the
accomplishment of specific results that are designed to benefit LG&E Energy's
shareholders in both the short-term and long-term. Under this
pay-for-performance approach, a highly competitive level of compensation can be
earned in years of strong performance; conversely, in years of below-average
performance, compensation may decline below competitive benchmarks.
The executive compensation program also recognizes that LG&E Energy's
compensation practices must be competitive with utilities, utility holding
companies, and other industries to ensure that a stable and successful
management team can be recruited and retained. The Compensation Committee
believes that the Company's most direct competitors for executive talent are not
limited to the companies that would be included in the utility industry index
against which shareholder returns may be compared. For this reason, the
compensation peer group is not the same as the utility industry index in the
Comparison of Five-Year Total Return graph included on page 28 of this Proxy
Statement.
In order to establish competitive compensation levels for all executive
positions for 1995, the Compensation Committee established salaries and
short-term incentive levels based upon compensation data from three utility and
three all-industry surveys (the "Survey Group"), the latter of which primarily
consists of non-utility businesses with annual revenues of $0.5 billion to $2.5
billion. Long-term incentive levels, however, were established by the
Compensation Committee based upon compensation data from a survey of utilities
and utility holding companies (the "Long-Term Survey Group") compiled by a
national compensation consulting firm. In 1995, there were 61 utilities and
utility holding companies in the Long-Term Survey Group. The Compensation
Committee utilized the Long-Term Survey Group for purposes of establishing
long-term incentive levels because the long-term financial performance goals of
the Company could be measured more effectively against the utilities in the
Long-Term Survey Group, rather than the Survey Group. Additionally, the
Compensation Committee established a target salary (the "Position Rate") for
each executive for 1995 at
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approximately the 65th percentile of the range for executives in similar
positions with companies in the Survey Group. Salaries, short-term and long-term
incentives for 1995 were based on this Position Rate as described below.
The 1995 compensation information set forth in other sections of this proxy
statement, particularly with respect to the tabular information presented,
reflects the considerations set forth in this report. The Base Salary,
Short-Term Incentives, and Long-Term Incentives sections that follow address the
compensation philosophy for 1995 for all executive officers except for Mr. Roger
W. Hale. Mr. Hale's compensation is determined in accordance with the terms of
his Employment Agreement (see Chief Executive Officer Compensation on page 26 of
this proxy statement for a description of his 1995 compensation).
BASE SALARY
The base salaries for LG&E Energy executive officers for 1995 were designed
to be competitive with the Survey Group. The Position Rate represented the
maximum base salary that an executive officer could receive and, as stated
above, approximated the salary at the 65th percentile of the range for
executives in similar positions with companies in the Survey Group. Actual base
salaries were determined based on individual performance and experience.
SHORT-TERM INCENTIVES
The short-term incentives for 1995 provided direct financial compensation to
executives and rewarded them for meeting performance measures which were
established at the beginning of the 1995 performance year. The performance goals
were set with consideration for economic and business factors known to Company
management and the Compensation Committee at the time the goals were
established. The factors included external competition, inflation, financial and
market data and trends, as well as certain standards of excellence consistent
with core company values. In 1995, short-term incentive payments for executive
officers were based from 50% to 75% on Net Income Available for Common Stock
(NIAC), 25% on Management Effectiveness, and from 10% to 25% on Customer
Satisfaction. The percentages varied within the executive officer group based
upon the nature of each individual's functional responsibilities, with more
senior officers having a greater percentage of their short-term incentives based
on NIAC. This component of the 1995 executive compensation program focused
executives on the tasks most immediately at hand and were based upon priorities
which were tailored for the 1995 performance year.
In 1995, the short-term incentive targets (the "targeted amounts") ranged
from 26% to 44% of Position Rate for each executive officer and approached the
65th percentile of the level of such awards granted to comparable executives
employed by companies in the Survey Group. The individual officers were entitled
to receive from 0% to 150% of their targeted amounts, dependent upon Company and
individual performance during 1995 as measured by NIAC, Management Effectiveness
and Customer Satisfaction. Based on such performances, payouts of the short-term
awards for 1995 ranged from 27% to 48% of Position Rate.
LONG-TERM INCENTIVES
On June 11, 1990, the shareholders of LG&E Energy approved the Omnibus
Long-Term Incentive Plan (the "Long-Term Plan"). The Long-Term Plan is
administered by a committee of not less than three directors of LG&E Energy who
are appointed by the Board of Directors. At this time, the Compensation
Committee administers the Long-Term Plan. The Long-Term Plan provides for the
grant of any or all of the following types of awards: stock options, stock
appreciation rights, restricted stock, performance units and performance shares.
To date, the Compensation Committee has chosen to award stock options, stock
appreciation rights and performance units to executive officers.
The Compensation Committee established an aggregate amount of long-term
incentives by grouping the executives into four categories, based on job
description and content. The Compensation Committee set within each group the
percentage of an individual's Position Rate to be paid in options
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and the amount to be paid in performance units. The aggregate value of the stock
options and performance units (expressed as a percentage of Position Rate) was
intended to approach the amount of long-term incentives (expressed as a
percentage of salary) payable to executives in similar positions with utilities
and utility holding companies in the 65th percentile of the Long-Term Survey
Group, depending upon achievement of targeted Company performance.
Stock options were granted to executive officers during the first quarter of
1995 at an exercise price equal to the fair market value at the date of the
grant and were subject to a one-year vesting requirement. Since options were
granted with an exercise price equal to the market value of the Common Stock at
the time of grant, they provide no value unless the Company's stock price
increases after the grants are awarded. Once the options vest, they are
exercisable over a nine-year term. These awards are thus tied to stock price
appreciation in excess of the stock's value at time of grant, rewarding
executives as if they shared in the ownership of LG&E Energy. The number of
shares subject to options was determined by taking the percentage of the
executive's Position Rate to be paid in options, as determined above, and
dividing that amount by the fair market value of LG&E Energy Common Stock on the
date of the grant. Prior awards were not considered when making new grants.
The number of performance units granted was determined by taking the amount
of the executive's Position Rate to be paid in performance units, as determined
above, and dividing that amount by the fair market value of LG&E Energy Common
Stock on the date of the grant. The value of the performance units is
substantially dependent upon the changing value of LG&E Energy's Common Stock in
the marketplace. Each executive officer is entitled to receive from 0% to 150%
of the performance units contingently awarded to the executive based on the
Company's:
(1) total shareholder return over a three-year period (defined as share
price increase plus dividends paid, divided by share price at beginning
of the period) measured against the total shareholder return for such
period by a peer group selected by the Committee; and
(2) return on invested capital ("ROIC") over a three-year period measured
against a pre-established, internally set goal.
For performance units granted prior to 1995, the peer group for measuring
the Company's total shareholder return consists of the utility holding companies
and gas and electric utilities in the Salomon Brothers Electric Utility Index
(the "Salomon Utility Index") at the time the Long-Term Plan was established in
1990. For performance units granted in 1995 for the three-year performance
period ending December 31, 1997, the Compensation Committee approved a change in
the peer group to the Edison Electric Institute 100 Index (the "EEI Index").
While the companies in the EEI Index and Salomon Utility Index are substantially
the same, the Committee believes that the EEI Index represents a more
appropriate peer group for compensation due to industry recognition of the EEI
Index.(1)
Payouts of long-term incentive awards in February 1996 were based on Company
performance during the 1993-1995 period. During such period, LG&E Energy
substantially exceeded the target level for Total Shareholder Return, and was
slightly above target in its ROIC performance. Performance was at the 74th
percentile of its comparison group with respect to Total Shareholder Return, and
at 104% of targeted ROIC performance, resulting in payouts of 124% of the
contingent awards. The performance units are payable 50% in LG&E Energy Common
Stock and 50% in cash.
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(1)While similar, the utilities and holding companies that were in the Salomon
Utility Index in 1990 and that are in the EEI Index are not necessarily the
same as those in the Standard & Poor's Utility Index used in the Company
Performance Graph on page 26 of the proxy statement. Nevertheless, in the
judgment of the Compensation Committee, the companies in the Salomon Utility
Index and EEI Index continue to represent appropriate peer groups for
compensation purposes for the periods in which such indices are being used.
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CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer of LG&E Energy, Mr. Roger W.
Hale, is governed by the terms of an employment agreement. Mr. Hale originally
entered into an employment agreement with LG&E in April 1989. That agreement was
developed to induce him to move to LG&E from another company, and was updated by
Board action in 1990. The term of Mr. Hale's original employment agreement was
to expire by its terms on December 31, 1994.
In recognition of Mr. Hale's continued importance to the performance of LG&E
Energy and his significant contributions to LG&E Energy, including particularly
his leadership role in transforming LG&E, a local utility company, into LG&E
Energy, a national (and, increasingly, international) diversified energy
services company, the Compensation Committee in late 1993 negotiated with Mr.
Hale to retain his services beyond the term of his original agreement.
Consequently, Mr. Hale entered into a new employment agreement with LG&E Energy,
effective in November 1993. The term of this new agreement (the "Agreement")
extends through December 31, 1998. The Agreement provides for an increase in Mr.
Hale's minimum base salary, and provides that Mr. Hale may elect to retire and
commence payment of his retirement benefits on or after age 50 (see pages 32 and
33 of this proxy statement).
The Agreement dictates the level of Mr. Hale's minimum compensation, but the
Compensation Committee retains discretion to increase such compensation. For
1995, the Compensation Committee compared Mr. Hale's compensation to that of
chief executive officers of companies contained in the Survey Group, as well as
approximately 20 electric and gas utilities and utility holding companies, with
comparable revenues, market capitalization and asset size. In setting long-term
awards, the Company also considered survey data from various compensation
consulting firms. Details of Mr. Hale's 1995 compensation are set forth below.
BASE SALARY. Mr. Hale was paid a base salary of $436,500 during 1995. The
Agreement provides that his salary shall not be less than his 1993 salary of
$385,000 and is to be reviewed as of each January 1 by the Compensation
Committee. The Compensation Committee, in determining the annual salary
increase for 1995, focused on Mr. Hale's individual performance (including
his management effectiveness, as described below) and the level of increases
provided to other LG&E Energy and LG&E employees. The 1995 increase was
6.3%.
SHORT-TERM INCENTIVE. Mr. Hale's target short-term incentive award was 50%
of base salary, as dictated by the Agreement. Like all other executive
officers receiving short-term incentive awards, Mr. Hale was eligible to
receive from 0 to 150% of the targeted amount, based on Company performance
and individual performance. His 1995 short-term incentive payout was based
75% on corporate NIAC performance, and 25% on Management Effectiveness.
The resulting payout for 1995 performance was 70% of base salary. The
Compensation Committee considered Mr. Hale's management effectiveness in
several areas in determining the final 1995 award. These included the
increased profitability of LG&E Energy and LG&E, profitability of other LG&E
Energy subsidiaries, customer satisfaction rating, and other measures.
LONG-TERM INCENTIVE GRANT. In 1995, Mr. Hale received 6,646 options and
11,076 performance units for the 1995-1997 performance period. These amounts
were determined in accordance with the terms of his Agreement, which
provides that his long-term incentive awards shall include target awards of
performance units with a value not less than 100% of base salary, and stock
options with a market value at grant of not less than 45% of base salary.
The terms of the options and performance units (including the manner in
which performance units are earned) for Mr. Hale are the same as for other
executive officers, as described under the heading "Long-Term Incentives."
LONG-TERM INCENTIVE PAYOUT. In the 1993-1995 period, LG&E Energy exceeded
the target for Total Shareholder Return, and was slightly above target in
its ROIC performance. Performance was at the 74th percentile of its
comparison group in Total Shareholder Return, and at 104% of
26
<PAGE>
targeted ROIC performance. That resulted in a payout equal to 124% of the
approved target. In addition, the market value per share of LG&E Energy
Common Stock increased from $36.04 at grant to $42.25 during the performance
period. This further increased the value of the payout of the performance
units originally awarded to Mr. Hale in 1993.
OTHER BENEFITS. Mr. Hale receives LG&E Energy contributions to thrift and
savings plans, similar to those of other employees.
TAX MATTERS
Section 162(m) of the Code was enacted in 1993 and generally prohibits the
Company from deducting executive compensation in excess of $1,000,000.
Qualifying "performance based compensation" is not subject to this deduction
limitation if certain requirements are satisfied. As a result of transition
rules adopted by the Internal Revenue Service, the new law did not impact the
Company's executive compensation practices in 1995. It is the Compensation
Committee's intent to preserve the deductibility of executive compensation to
the extent reasonably practicable and to the extent consistent with its other
compensation objectives. For this reason and the reasons discussed in Proposal
No. 3 and Proposal No. 4 herein, the Compensation Committee determined that the
Company should modify its long-term and short-term incentive plans beginning in
1996 so that certain compensation payable thereunder would qualify for the
"performance based compensation" exception to the $1,000,000 deduction limit,
thereby ensuring that such compensation will continue to be deductible by the
Company.
Accordingly, the Board of Directors of the Company has amended and restated,
effective January 1, 1996, its current long-term incentive plan and adopted,
effective January 1, 1996, a new short-term incentive plan, in each case subject
to shareholder approval at this Annual Meeting. These plans are discussed in
more detail in Proposal No. 3 and Proposal No. 4, respectively, on pages 10 to
19 herein. Although not all of the compensation paid to executive officers under
these two plans will constitute "performance based compensation," the
Compensation Committee anticipates that, if the shareholders approve the two
plans, all compensation paid to executive officers in 1996 will continue to be
deductible under the Code.
CONCLUSION
The Compensation Committee believes that the Company's executive
compensation system served the interests of the Company and its shareholders
effectively during 1995. The Compensation Committee takes very seriously its
responsibilities with respect to the Company's executive compensation system,
and it will continue to monitor and revise the compensation policies as
necessary to ensure that the Company's compensation system continues to meet the
needs of the Company and its shareholders. In this regard, the Compensation
Committee and the Board of Directors in 1995 retained a highly respected
independent executive compensation consultant to review the Company's
compensation program for future years. That consultant made several
recommendations, and the Compensation Committee and the Board of Directors
approved the necessary steps for the Company to revise its executive
compensation program beginning in 1996 to remain competitive and to retain the
deductibility of the Company's executive compensation for federal income tax
purposes, subject to shareholder approval as further described in Proposal No. 3
and Proposal No. 4, on pages 10 to 19 of this proxy statement.
MEMBERS OF THE COMPENSATION COMMITTEE
William C. Ballard, Jr., Chairman
S. Gordon Dabney
Gene P. Gardner
J. David Grissom
Anne H. McNamara
T. Ballard Morton, Jr.
27
<PAGE>
COMPANY PERFORMANCE
The following graph reflects a comparison of the cumulative total return
(change in stock price plus reinvested dividends) to shareholders of LG&E Energy
Common Stock from December 31, 1990, through December 29, 1995, with the
Standard & Poor's 500 Composite Index and the Standard & Poor's Utility Index.
The comparisons in this table are required by the Securities and Exchange
Commission and, therefore, are not intended to forecast or be indicative of
possible future performance of LG&E Energy Common Stock.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LG&E ENERGY S&P 500 S&P UTILITIES
<S> <C> <C> <C>
12/31/90 100 100 100
1991 127 130 115
1992 149 140 124
1993 182 155 142
1994 175 157 131
1995 212 215 185
<FN>
- ------------------------
(1) Total Shareholder Return assumes $100 invested on December 31, 1990, with
quarterly reinvestment of dividends.
</TABLE>
28
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows the cash compensation paid or to be paid by LG&E
Energy or any of its subsidiaries, as well as certain other compensation paid or
accrued for those years, to the Chief Executive Officer and the next four
highest compensated executive officers who were serving as such at December 31,
1995, and one former executive officer, Mr. Casey, who would have been one of
such four most highly compensated executive officers during 1995 had he not
resigned before the end of the year, of LG&E Energy in all capacities in which
they served during 1993, 1994 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------
OTHER SECURITIES PAYOUTS
ANNUAL UNDERLYING -------- ALL OTHER
COMPEN- OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) ($)
- -------------------------------------------------- ---- ------------ -------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 1995 $ 436,500 $303,859 $14,716 6,646 $559,686 13,901(1)
Chairman of the Board, 1994 410,500 266,825 10,822 4,787 506,584 12,819
President and CEO 1993 385,000 261,800 9,387 4,807 604,341 11,417
Victor A. Staffieri 1995 230,764 134,695 6,215 3,197 49,137 7,149(1)
President -- Distribution Services 1994 213,000 120,750 4,771 23,000 35,515 2,947
Division and President -- Louisville Gas 1993 175,000 75,097 3,883 2,087 0 1,462
and Electric Company
Edward J. Casey, Jr. 1995 228,234 0 6,280 3,311 0 8,061(1)
Former Group President -- 1994 235,000 142,945 6,058 28,200 55,504 7,661
LG&E Energy Services 1993 193,000 120,566 441 2,553 48,195 6,874
John R. McCall 1995 220,000 106,848 5,791 2,284 0 8,696(1)
Executive Vice President, 1994 155,000(2) 48,891 1,961 1,190 0 4,340
General Counsel and Corporate
Secretary
Stephen R. Wood 1995 212,000 106,848 9,084 2,284 49,137 7,484(1)
Executive Vice President and Chief 1994 197,000 101,007 5,974 2,229 44,957 6,604
Administrative Officer 1993 174,000 71,572 5,727 2,087 54,878 4,588
Michael L. McInnis 1995 205,948 77,802 367 1,205 37,349 14,719(1)
President -- Power Marketing 1994 138,000 59,168 43,712(3) 894 15,822 5,716
Division 1993 123,000 52,822 40,842(3) 1,312 0 16,818
</TABLE>
- ------------------------
(1) Includes employer contributions to 401(k) plan, nonqualified thrift plan and
employer paid life insurance premiums in 1995 as follows: Mr. Hale $2,970,
$5,673 and $5,258, respectively; Mr. Staffieri $1,376, $3,975 and $1,798,
respectively; Mr. Casey $2,970, $4,391 and $700, respectively; Mr. McCall
$2,970, $1,386 and $4,340, respectively; Mr. McInnis $10,500, $3,140 and
$1,079, respectively; and Mr. Wood $2,350, $3,848 and $1,286, respectively.
(2) Reported compensation is only for a portion of the year. Mr. McCall joined
LG&E Energy on July 1, 1994.
(3) Includes cost of living adjustment of $43,360 in 1994 and $40,842 in 1993.
29
<PAGE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN 1995 FISCAL YEAR
The following table contains information at December 31, 1995, with respect
to grants of stock options and stock appreciation rights (SARs) to the named
executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------- REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL
SECURITIES TOTAL EXERCISE RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION
OPTIONS/SARS GRANTED TO PRICE FOR OPTION TERM
GRANTED EMPLOYEES IN ($/ EXPIRATION ------------------------------
NAME (#) (1) FISCAL YEAR SHARE) DATE 0%($) 5%($) 10%($)
- ---------------------------------------- ------------ ------------ -------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 6,646 11.6% $ 39.41 2/2/2005 0 $ 164,719 $ 417,431
Victor A. Staffieri 3,197 5.6 39.41 2/2/2005 0 79,237 200,802
Edward J. Casey, Jr. 3,311 5.8 39.41 2/2/2005 0 82,062 207,962
John R. McCall 2,284 4.0 39.41 2/2/2005 0 56,608 143,457
Stephen R. Wood 2,284 4.0 39.41 2/2/2005 0 56,608 143,457
Michael L. McInnis 1,205 2.1 39.41 2/2/2005 0 29,866 75,685
</TABLE>
- ------------------------
(1) Options are awarded at fair market value at time of grant; unless otherwise
indicated, options vest in one year and are exercisable over a ten-year
term.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN 1995 FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options and/or SARs during 1995
and the value of unexercised options and SARs held by them as of December 31,
1995:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS AT
ON VALUE AT FY-END (#) FY-END ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Roger W. Hale 0 N/A 14,961/6,646 $110,111/$18,875
Victor A. Staffieri 1,887 $ 20,474 5,087/23,197 23,940/106,479
Edward J. Casey, Jr. 12,971 134,698 0/28,311 0/131,153
John R. McCall 0 N/A 1,190/2,284 7,259/6,487
Stephen R. Wood 1,529 24,391 9,231/2,284 87,322/6,487
Michael L. McInnis 0 N/A 3,785/1,205 32,882/3,422
</TABLE>
- ------------------------
(1) Dollar amounts reflect market value of LG&E Energy Common Stock at year-end,
minus the exercise price.
30
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN 1995 FISCAL YEAR
The following table provides information concerning awards made in 1995 to
the named executive officers under the Long-Term Plan.
<TABLE>
<CAPTION>
NUMBER PERFORMANCE
OF OR ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OTHER PERIOD NON-STOCK PRICE BASED PLANS
UNITS OR UNTIL (NUMBER OF SHARES) (1)
OTHER MATURATION -------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
- ------------------------------------------------------------ --------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Roger W. Hale 11,076 12/31/97 4,984 11,076 16,614
Victor A. Staffieri 2,030 12/31/97 914 2,030 3,045
Edward J. Casey, Jr. 2,284 12/31/97 1,028 2,284 3,426
John R. McCall 1,142 12/31/97 514 1,142 1,713
Stephen R. Wood 1,142 12/31/97 514 1,142 1,713
Michael L. McInnis 482 12/31/97 217 482 723
</TABLE>
- ------------------------
(1) The table indicates the number of performance units which are paid 50% in
stock and 50% in cash at maturation.
Each performance unit awarded represents the right to receive an amount
payable 50% in LG&E Energy Common Stock and 50% in cash on the date of payout,
the latter portion being payable in cash in order to facilitate the payment of
taxes by the recipient. The amount of the payout is determined by the then-fair
market value of LG&E Energy Common Stock. The Long-Term Plan rewards executives
on a three-year rolling basis dependent upon: (1) the total shareholder return
for shareholders and (2) return on capital. The target for award eligibility
requires that LG&E Energy shareholders earn a total return at a preset level in
comparison to that of the utility holding companies and gas and electric
utilities in the EEI Index. The return on capital component of the Long-Term
Plan is triggered by the actual return on capital exceeding preset levels of
achievement established by the Compensation Committee prior to commencement of
the period. The Committee sets a contingent award for each management level
selected to participate in the Plan and such amount is the basis upon which
incentive compensation is determined. Depending on the level of achievement, the
participant can receive from zero to 150% of the contingent award amount.
Payments made under the Long-Term Plan in 1995 are reported in the summary
compensation table for the year of payout.
31
<PAGE>
PENSION PLANS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under LG&E Energy's qualified
defined benefit pension plans, as well as non-qualified supplemental pension
plans that provide benefits that would otherwise be denied participants by
reason of certain Internal Revenue Code limitations for qualified plan benefits,
based on the remuneration that is covered under the plan and years of service
with the Company and its subsidiaries:
1995 PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 $ 49,612 $ 49,612 $ 49,612 $ 56,290
$150,000 $ 81,612 $ 81,612 $ 81,612 $ 85,990
$200,000 $ 113,612 $ 113,612 $ 113,612 $ 113,612
$250,000 $ 145,612 $ 145,612 $ 145,612 $ 145,612
$300,000 $ 177,612 $ 177,612 $ 177,612 $ 177,612
$350,000 $ 209,612 $ 209,612 $ 209,612 $ 209,612
$400,000 $ 241,612 $ 241,612 $ 241,612 $ 241,612
$450,000 $ 273,612 $ 273,612 $ 273,612 $ 273,612
$500,000 $ 305,612 $ 305,612 $ 305,612 $ 305,612
$550,000 $ 337,612 $ 337,612 $ 337,612 $ 337,612
$600,000 $ 369,612 $ 369,612 $ 369,612 $ 369,612
$650,000 $ 401,612 $ 401,612 $ 401,612 $ 401,612
$700,000 $ 433,612 $ 433,612 $ 433,612 $ 433,612
$750,000 $ 465,612 $ 465,612 $ 465,612 $ 465,612
$800,000 $ 497,612 $ 497,612 $ 497,612 $ 497,612
</TABLE>
A participant's remuneration covered by the Retirement Income Plan (the
"Retirement Income Plan") is his or her average base salary and short-term
incentive payment (as reported in the Summary Compensation Table) for the five
calendar plan years during the last ten years of the participant's career for
which such average is the highest. The estimated years of service for each named
executive employed by the Company at December 31, 1995, is as follows: 29 years
for Mr. Hale; 1 year for Mr. McCall; 20 years for Mr. McInnis; 3 years for Mr.
Staffieri; and 6 years for Mr. Wood. Benefits shown are computed as a straight
life single annuity beginning at age 65.
Current Federal law prohibits paying benefits under the Retirement Income
Plan in excess of $120,000 per year. Officers of LG&E Energy and LG&E with at
least one year of service with either company are eligible to participate in
LG&E's Supplemental Executive Retirement Plan (the "Supplemental Executive
Retirement Plan"), which is an unfunded supplemental plan that is not subject to
the $120,000 limit. Presently, participants in the Supplemental Executive
Retirement Plan consist of all of the eligible officers of LG&E Energy and LG&E.
This plan provides generally for retirement benefits equal to 64% of average
current earnings during the final 36 months prior to retirement, reduced by
Social Security benefits, by amounts received under the Retirement Income Plan
and by benefits from other employers. As part of its employment agreement with
Mr. Hale, LG&E established a separate Supplemental Executive Retirement Plan.
The special plan generally provides for a retirement benefit for Mr. Hale of 2%
for each of his first 20 years of service with LG&E Energy, LG&E or with certain
prior employers, 1.5% for each of the next 10 years of service and 1% for each
remaining year of service completed prior to age 65, all multiplied by Mr.
Hale's final 60 months average compensation, less benefits payable from the
Retirement Income Plan, benefits payable from any other qualified or
nonqualified plan sponsored by LG&E Energy, LG&E or certain prior employers,
32
<PAGE>
and primary Social Security benefits. Under Mr. Hale's employment agreement (see
page 26 of this proxy statement), he may elect to commence payment of his
retirement benefits at age 50. If he retires prior to age 65, Mr. Hale's
benefits will be reduced by factors set forth in the employment agreement.
The estimated annual benefits to be received under the Retirement Income
Plan and the Supplemental Executive Retirement Plans upon normal retirement at
age 65 and after deduction of Social Security benefits will be $455,664 for Mr.
Hale; $189,864 for Mr. McCall; $167,844 for Mr. McInnis; $226,776 for Mr.
Staffieri; and $197,448 for Mr. Wood.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Ballard, Dabney, Gardner, Grissom and Morton and Mrs. McNamara
served as members of the Compensation Committee during 1995. None of the members
of the Compensation Committee are or were officers or employees of LG&E Energy
or its subsidiaries. Mr. Ballard is of counsel to the law firm of Greenebaum
Doll & McDonald, which provides legal services to LG&E Energy from time to time.
EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS
In November 1993, Mr. Hale entered into a new employment agreement with LG&E
Energy superseding the prior agreement. The new agreement was effective upon its
execution, and extends through December 31, 1998. Under the new agreement, Mr.
Hale is entitled to an annual base salary of not less than $385,000, subject to
annual review by the Compensation Committee, and to participate in the
Short-Term Plan and the Long-Term Plan. Mr. Hale's arrangement with LG&E Energy
provides for a stock option target award of not less than 45% of base salary and
a long-term incentive target award of not less than 100% of base salary. LG&E
Energy's Board of Directors may terminate the agreement at any time and, if it
does so for reasons other than cause, LG&E Energy must pay Mr. Hale's base
salary for two years.
In the event of a change in control, all officers of LG&E Energy shall be
entitled to the following payments if, within twenty-four months after such
change in control, they are terminated for reasons other than cause or
disability, or their employment responsibilities are altered: (i) all accrued
compensation; (ii) a severance amount equal to 2.99 times the sum of (a) his or
her annual base salary and (b) his or her "target" award pursuant to the
Short-Term Plan. However, except for Mr. Hale, in no event is the payment to the
executive to equal or exceed an amount which would constitute a nondeductible
payment pursuant to Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or be subject to an excise tax imposed by Section 4999 of
the Code. The executive is entitled to receive such amounts in a lump-sum
payment within thirty days of termination. A change in control encompasses
certain mergers and acquisitions, changes in Board membership and acquisitions
of voting securities of LG&E Energy.
Also upon a change in control of LG&E Energy, all stock-based awards shall
vest 100%, and all performance-based awards, such as performance units and
performance shares, shall immediately be paid out in cash, based upon the extent
to which the performance goals have been met through the effective date of the
change in control or based upon the assumed achievement of such goals, whichever
amount is higher.
33
<PAGE>
SHAREHOLDER PROPOSALS
FOR 1997 ANNUAL MEETING
Any shareholder may submit a proposal for consideration at the 1997 Annual
Meeting. Any shareholder desiring to submit a proposal for inclusion in the
proxy statement for consideration at the 1997 Annual Meeting should forward the
proposal so that it will be received at LG&E Energy's principal executive
offices no later than November 12, 1996. Proposals received by that date that
are proper for consideration at the Annual Meeting and otherwise conforming to
the rules of the Securities and Exchange Commission will be included in the 1997
proxy statement.
OTHER MATTERS
At the Annual Meeting, it is intended that the first six items set forth in
the accompanying notice and described in this proxy statement will be presented.
Should any other matter be properly presented at the Annual Meeting, the persons
named in the accompanying proxy will vote upon them in accordance with their
best judgment. The Board of Directors knows of no other matters which may be
presented at the meeting.
LG&E Energy will bear the costs of this proxy solicitation. LG&E Energy will
provide copies of this proxy statement, the accompanying proxy and the Annual
Report to brokers, dealers, banks and voting trustees, and their nominees, for
mailing to beneficial owners, and upon request therefor, will reimburse such
record holders for their reasonable expenses in forwarding solicitation
materials. In addition to using the mails, proxies may be solicited by
directors, officers and regular employees of LG&E Energy or its subsidiaries, in
person or by telephone. LG&E Energy and LG&E have retained D.F. King & Co.,
Inc., a firm of professional proxy solicitors, to assist in the solicitations at
an estimated fee of $7,500 plus reimbursement of reasonable expenses.
ANY SHAREHOLDER MAY OBTAIN WITHOUT CHARGE A COPY OF LG&E ENERGY'S ANNUAL
REPORT ON FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE YEAR 1995, BY SUBMITTING A REQUEST IN WRITING TO: JOHN R. MCCALL, SECRETARY,
LG&E ENERGY CORP., P.O. BOX 32030, 220 WEST MAIN STREET, LOUISVILLE, KENTUCKY
40232.
34
<PAGE>
EXHIBIT A
LG&E ENERGY CORP.
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Louisville Gas and Electric Company
(hereinafter referred to as "LG&E"), a Kentucky corporation, established,
effective January 1, 1990, an incentive compensation plan known as the "Omnibus
Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), which permits
the grant of Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Units and Performance Shares.
The Plan was originally approved by the Board of Directors of LG&E in 1989, and
was ratified by a majority of the shareholders of LG&E on June 11, 1990.
As part of the restructuring of LG&E pursuant to which LG&E Energy Corp.
(hereinafter referred to as the "Company") became the parent holding company of
LG&E, and pursuant to the authority granted by the Board of Directors of LG&E
and the Board of Directors of the Company, the Plan was amended and restated,
effective August 18, 1990, to provide for the issuance under the Plan of common
stock of the Company in lieu of common stock of LG&E and to provide for the
assumption of the Plan by the Company, which actions were also approved by the
shareholders of LG&E as part of their approval of the restructuring.
The Plan is hereby amended and restated, effective January 1, 1996; provided
that the Plan, as amended and restated, shall be approved by the affirmative
vote of a majority of the shares of common stock of the Company present or
represented and entitled to vote at a meeting of the Company's shareholders. The
Plan is being amended and restated, among other things, to extend the term of
the Plan, to increase the number of shares of common stock of the Company that
may be delivered under the Plan, and to comply with the performance-based
compensation exemption under the proposed regulations to Internal Revenue Code
Section 162(m) issued by the Department of Treasury.
This Plan as amended and restated includes adjustments made to reflect the
effects of a 2-for-1 stock split authorized by the Board of Directors on March
6, 1996.
All Awards granted prior to the amendment and restatement of the Plan are
hereby ratified and shall remain in full force and effect, subject to possible
amendment, adjustment, modification or termination as hereinafter provided.
1.2. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success of the Company and its Subsidiaries by providing incentives to Key
Employees that will link their personal interests to the long-term financial
success of the Company and its Subsidiaries and to growth in shareholder value.
The Plan is designed to provide flexibility to the Company and its Subsidiaries
in their ability to motivate, attract, and retain the services of Key Employees
upon whose judgment, interest, and special effort the successful conduct of
their operations is largely dependent.
1.3. DURATION OF THE PLAN. The Plan commenced on January 1, 1990, as
described in Section 1.1 herein. The Plan shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 13 herein, until all Shares subject to it shall have been purchased or
acquired according to the provisions herein. However, in no event may an Award
be granted under the Plan on or after January 1, 2001, which is the fifth (5th)
anniversary of the effective date of this amendment and restatement of the Plan.
A-1
<PAGE>
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
(a) "Award" means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units, or Performance Shares.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act.
(c) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(d) "Cause" shall mean the occurrence of any one of the following:
(i) The willful and continued failure by a Participant to substantially
perform his/her duties (other than any such failure resulting from
the Participant's disability), after a written demand for substantial
performance is delivered to the Participant that specifically
identifies the manner in which the Company or any of its
Subsidiaries, as the case may be, believes that the Participant has
not substantially performed his/her duties, and the Participant has
failed to remedy the situation within ten (10) business days of
receiving such notice; or
(ii) the Participant's conviction for committing a felony in connection
with the employment relationship; or
(iii) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company or any of its
Subsidiaries. However, no act, or failure to act, on the
Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that his/her action or omission was in the best
interest of the Company or any of its Subsidiaries.
(e) "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
(i) any Person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of
its Subsidiaries, or a corporation owned directly or indirectly by
the common shareholders of the Company in substantially the same
proportions as their ownership of Stock of the Company), is or
becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning
of such period constitute the Board and any new director, whose
election by the Board or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the shareholders of the Company approve (A) a plan of complete
liquidation of the Company; or (B) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (C)
a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the
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surviving entity), at least 50% of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change in Control transaction. The
Participant shall be deemed "part of a purchasing group..." for purposes
of the preceding sentence if the Participant is an equity participant or
has agreed to become an equity participant in the purchasing company or
group (except for (i) passive ownership of less than 5% of the voting
securities of the purchasing company or (ii) ownership of equity
participation in the purchasing company or group which is otherwise not
deemed to be significant, as determined prior to the Change in Control by
a majority of the nonemployee continuing members of the Board).
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the committee appointed by the Board to administer the
Plan pursuant to Article 3 herein.
(h) "Company" means LG&E Energy Corp., a Kentucky corporation, or any
successor thereto as provided in Article 15 herein.
(i) "Covered Employee" means any Participant designated prior to the grant
of Restricted Stock, Performance Units or Performance Shares by the
Committee who is or may be a "covered employee" within the meaning of
Section 162(m)(3) of the Code in the year in which such Restricted Stock,
Performance Units or Performance Shares are taxable to such Participant.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(k) "Fair Market Value" means the average of the highest price and lowest
price at which the Stock was traded on the relevant date, or on the most
recent date on which the Stock was traded prior to such date, as reported
on the composite tape of the New York Stock Exchange.
(l) "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Article 6 herein, which is designated as an incentive stock
option and is intended to meet the requirements of Section 422 of the
Code.
(m) "Key Employee" means an employee of the Company or any of its
Subsidiaries, including an employee who is an officer or a director of
the Company or any of its Subsidiaries, who, in the opinion of the
Committee, can contribute significantly to the growth and profitability
of the Company and its Subsidiaries.
"Key Employee" also may include any other employee, identified by the
Committee, in special situations involving extraordinary performance,
promotion, retention, or recruitment. The granting of an Award under this
Plan shall be deemed a determination by the Committee that such employee
is a Key Employee, but shall not create a right to remain a Key Employee.
(n) "Nonqualified Stock Option" or "NQSO" means an option to purchase Stock,
granted under Article 6 herein, which is not intended to be an Incentive
Stock Option.
(o) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(p) "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the
regulations issued thereunder.
(q) "Participant" means a Key Employee who has been granted an Award under
the Plan.
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(r) "Performance Share" means an Award, designated as a performance share,
granted to a Participant pursuant to Article 9 herein.
(s) "Performance Unit" means an Award, designated as a performance unit,
granted to a Participant pursuant to Article 9 herein.
(t) "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, during which the Participant is
subject to a substantial risk of forfeiture, pursuant to Article 8
herein.
(u) "Person" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
(v) "Plan" means this Omnibus Long-Term Incentive Plan of LG&E Energy Corp.,
as herein described and as hereafter from time to time amended.
(w) "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Article 8 herein.
(x) "Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock at the time outstanding is owned,
directly or indirectly, by the Company.
(y) "Stock" or "Shares" means the common stock without par value of the
Company.
(z) "Stock Appreciation Right" or "SAR" means an Award, designated as a
Stock appreciation right, granted to a Participant pursuant to Article 7
herein.
(aa) "Voting Stock" shall mean securities of any class or classes of stock
of a corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors.
2.2. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three directors who shall be appointed
from time to time by, and shall serve at the discretion of, the Board of
Directors. To the extent required to comply with Rule 16b-3 under the Exchange
Act, each member of the Committee shall qualify as a "disinterested person" as
defined in Rule 16b-3 or any successor definition adopted by the Securities and
Exchange Commission. To the extent required to comply with Code Section 162(m),
each member of the Committee also shall be an Outside Director.
3.2. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; to
accelerate the exercisability of any Award or the end of a performance period or
the termination of any Period of Restriction or any award agreement, or any
other instrument relating to an Award under the Plan; and (subject to the
provisions of Article 13 herein) to amend the terms and conditions of any
outstanding Option, Stock Appreciation Right or other Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Notwithstanding the foregoing, the Committee shall have no authority
to adjust upwards the amount payable to a Covered Employee with respect to a
particular Award, to take any of the foregoing actions
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or to take any other action to the extent that such action or the Committee's
ability to take such action would cause any Award under the Plan to any Covered
Employee to fail to qualify as "performance-based compensation" within the
meaning of Code Section 162(m)(4) and the regulations issued thereunder. Also
notwithstanding the foregoing, no action of the Committee (other than pursuant
to Section 4.3 hereof or Section 9.4 hereof) may, without the consent of the
person or persons entitled to exercise any outstanding Option or Stock
Appreciation Right or to receive payment of any other outstanding Award,
adversely affect the rights of such person or persons.
3.3. SELECTION OF PARTICIPANTS. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Key Employees (including
officers and directors who are employees) as may be selected by it. The
Committee shall select Participants from among those who they have identified as
being Key Employees.
3.4. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive and binding on
all persons, including the Company and its Subsidiaries, its shareholders,
employees, and Participants and their estates and beneficiaries, and such
determinations and decisions shall not be reviewable.
3.5. DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its
sole discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no such
delegation by the Committee shall be made with respect to the administration of
the Plan as it affects directors of the Company or officers of the Company or
its Subsidiaries and provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. The
Committee may delegate to the Chief Executive Officer of the Company its
authority under this Article 3 to grant Awards to Key Employees who are not
Covered Employees or who are not directors of the Company or officers of the
Company or its Subsidiaries subject to the reporting requirements of Section
16(a) of the Exchange Act. All authority delegated by the Committee under this
Section 3.5 shall be exercised in accordance with the provisions of the Plan and
any guidelines for the exercise of such authority that may from time to time be
established by the Committee.
3.6. PROCEDURES OF THE COMMITTEE. All determinations of the Committee
shall be made by not less than a majority of its members present at the meeting
(in person or otherwise) at which a quorum is present. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Any action
required or permitted to be taken at a meeting of the Committee may be taken
without a meeting if a unanimous written consent, which sets forth the action,
is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee. Service on the Committee shall constitute service
as a director of the Company so that members of the Committee shall be entitled
to indemnification, limitation of liability and reimbursement of expenses with
respect to their services as members of the Committee to the same extent that
they are entitled under the Company's Articles of Incorporation and Kentucky law
for their services as directors of the Company.
3.7. AWARD AGREEMENTS. Each Award under the Plan shall be evidenced by an
award agreement which shall be signed by an authorized officer of the Company
and by the Participant, and shall contain such terms and conditions as may be
approved by the Committee. Such terms and conditions need not be the same in all
cases.
3.8. RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Board or the Committee may impose such conditions on any Award
(including, without limitation, the right of the Board or the Committee to limit
the time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 (or any successor rule), under the Exchange Act
("Rule 16b-3").
Notwithstanding any other provisions of the Plan, all Awards under this Plan
shall be subject to the following conditions, as and to the extent required by
Rule 16b-3:
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(i) Except in the case of disability or death, no SAR, ISO, NQSO or
other option granted pursuant to Article 6 shall be exercisable for
at least six months after its grant; and
(ii) Except in the case of disability or death, no Restricted Stock,
Performance Unit or Performance Share (or a Share issued in payment
thereof) shall be sold for at least six months after its acquisition.
ARTICLE 4. STOCK SUBJECT TO THE PLAN
4.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares that may be delivered under the Plan at
any time shall not exceed the lesser of (i) five percent (5%) of the total
outstanding Shares of common stock of the Company at such time or (ii) three
million (3,000,000) Shares of common stock of the Company. No more than one-half
of such aggregate number of such Shares shall be issued as Restricted Stock
under Article 8 of the Plan and no more than two hundred thousand (200,000)
shares shall be issued upon exercise of Incentive Stock Options under Article 6
of the Plan. Stock delivered under the Plan may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares. The exercise of a Stock
Appreciation Right, whether paid in cash or Stock, shall be deemed to be an
issuance of Stock under the Plan. The payment of Performance Shares or
Performance Units shall not be deemed to constitute an issuance of Stock under
the Plan unless payment is made in Stock, in which case only the number of
Shares issued in payment of the Performance Share or Performance Unit Award
shall constitute an issuance of Stock under the Plan.
4.2. LAPSED AWARDS. If any Award (other than Restricted Stock) granted
under this Plan terminates, expires, or lapses for any reason, any Stock subject
to such Award again shall be available for the grant of an Award under the Plan,
subject to Section 7.2 herein.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, Stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Stock, such adjustment shall be made in
the number and class of shares which may be delivered under the Plan, and in the
number and class of and/or price of shares subject to outstanding Options, Stock
Appreciation Rights, Restricted Stock Awards, Performance Shares, and
Performance Units granted under the Plan, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of shares subject to any
Award shall always be a whole number. Any adjustment of an Incentive Stock
Option under this paragraph shall be made in such a manner so as not to
constitute a modification within the meaning of Section 425(h)(3) of the Code.
In addition, notwithstanding any provision in this Plan or an award agreement to
the contrary, the Committee, in connection with the holding company
restructuring consummated on August 17, 1990, may make any adjustment that it
deems appropriate in its sole discretion in the number and class of shares which
may be delivered under the Plan and in the number and class of and/or price of
shares subject to outstanding Options, Stock Appreciation Rights, Restricted
Stock Awards, Performance Shares and Performance Units granted under the Plan,
including providing that Shares of the Company and no shares of LG&E or any
other Subsidiary shall be issued.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include all
employees of the Company and its Subsidiaries who, in the opinion of the
Committee, are Key Employees. "Key Employees" may include employees who are
members of the Board, but may not include directors who are not employees.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Employees to whom Awards shall
be granted and determine the nature and amount of each Award. No employee shall
have any right to be granted an Award under this Plan even if previously granted
an Award.
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ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Key Employees at any time and from time to time as
shall be determined by the Committee. The maximum number of Shares subject to
Options granted to any individual Participant in any calendar year shall be two
hundred thousand (200,000) Shares. The Committee shall have the sole discretion,
subject to the requirements of the Plan, to determine the actual number of
Shares subject to Options granted to any Participant. The Committee may grant
any type of Option to purchase Stock that is permitted by law at the time of
grant including, but not limited to, ISOs and NQSOs. However, no employee may
receive an Award of Incentive Stock Options that are first exercisable during
any calendar year to the extent that the aggregate Fair Market Value of the
Stock (determined at the time the options are granted) exceeds $100,000. Nothing
in this Article 6 shall be deemed to prevent the grant of NQSOs in excess of the
maximum established by Section 422 of the Code. Unless otherwise expressly
provided at the time of grant, Options granted under the Plan will be NQSOs.
6.2. OPTION AGREEMENT. Each Option grant shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of Shares to which the Option pertains, and
such other provisions as the Committee shall determine. The Option agreement
shall specify whether the Option is intended to be an Incentive Stock Option
within the meaning of Section 422 of the Code, or a Nonqualified Stock Option
whose grant is not intended to be subject to the provisions of Code Section 422.
6.3. OPTION PRICE. The purchase price per share of Stock covered by an
Option shall be determined by the Committee but, in the case of an ISO, shall
not be less than 100% of the Fair Market Value of such Stock on the date the
option is granted and, in the case of a NQSO, shall be not less than 100% of the
market price of such Stock on the date of grant.
An Incentive Stock Option granted to an Employee who, at the time of grant,
owns (within the meaning of Section 425(d) of the Code) Stock possessing more
than 10% of the total combined voting power of all classes of Stock of the
Company, shall have an exercise price which is at least 110% of the Fair Market
Value of the Stock subject to the Option.
6.4. DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant provided, however, that no ISO
shall be exercisable later than the tenth (10th) anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options granted
under the Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance approve,
which need not be the same for all Participants.
6.6. PAYMENT. Options shall be exercised by the delivery of a written
notice to the Company setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the Shares. The
Option price upon exercise of any Option shall be payable to the Company in full
either (a) in cash or its equivalent, (b) by tendering shares of previously
acquired Stock having a Fair Market Value at the time of exercise equal to the
total Option price, (c) by foregoing compensation under rules established by the
Committee, or (d) by a combination of (a), (b), or (c). The proceeds from such a
payment shall be added to the general funds of the Company and shall be used for
general corporate purposes. As soon as practicable, after receipt of written
notification and payment, the Company shall deliver to the Participant Stock
certificates in an appropriate amount based upon the number of Options
exercised, issued in the Participant's name.
6.7. RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities law, under the requirements of
any stock exchange upon which such Shares are then listed and under any blue sky
or state securities laws applicable to such Shares.
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6.8. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event the employment of a Participant is terminated by reason of death, any
of such Participant's outstanding Options shall become immediately exercisable
at any time prior to the expiration date of the Options or within one year after
such date of termination of employment, whichever period is shorter, by such
person or persons as shall have acquired the Participant's rights under the
Option pursuant to Article 10 hereof or by will or by the laws of descent and
distribution. In the event the employment of a Participant is terminated by
reason of disability (as defined under the then established rules of the Company
or any of its Subsidiaries, as the case may be), any of such Participant's
outstanding Options shall become immediately exercisable, at any time prior to
the expiration date of the Options or within one year after such date of
termination of employment, whichever period is shorter. In the event the
employment of a Participant is terminated by reason of retirement, any of such
Participant's outstanding Options shall become immediately exercisable (subject
to Section 3.8 herein) at any time prior to the expiration date of the Options.
In the case of Incentive Stock Options, the favorable tax treatment prescribed
under Section 422 of the Internal Revenue Code of 1986, as amended, may not be
available if the Options are not exercised within the Code Section 422
prescribed time period after termination of employment for death, disability, or
retirement.
6.9. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than death, disability,
retirement or for Cause, the Participant shall have the right to exercise such
Participant's outstanding Options within the 90 days after the date of his
termination, but in no event beyond the expiration of the term of the Options
and only to the extent that the Participant was entitled to exercise the Options
at the date of his termination of employment. In its sole discretion, the
Committee may extend the 90 days to up to one year but, however, in no event
beyond the expiration date of the Option.
If the employment of the Participant shall terminate for Cause, all of the
Participant's outstanding Options shall be immediately forfeited back to the
Company.
6.10. NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions of the Plan, Stock Appreciation Rights may be granted to
Participants, at the discretion of the Committee, in any of the following forms:
(a) In lieu of Options;
(b) In addition to Options;
(c) Independent of Options; or
(d) In any combination of (a), (b), or (c).
The maximum numbers of Shares subject to SARs granted to any individual
Participant in any calendar year shall be two hundred thousand (200,000) Shares.
Subject to the immediately preceding sentence, the Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine the actual
number of Shares subject to SARs granted to any Participant.
7.2. EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of Options
may be exercised for all or part of the Shares subject to the related Option
upon the surrender of the related Options representing the right to purchase an
equivalent number of Shares. The SAR may be exercised only
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with respect to the Shares of Stock for which its related Option is then
exercisable. Option Stock with respect to which the SAR shall have been
exercised may not be subject again to an Award under the Plan.
Notwithstanding any other provision of the Plan to the contrary, with
respect to an SAR granted in lieu of an Incentive Stock Option, (i) the SAR will
expire no later than the expiration of the underlying Incentive Stock Option;
(ii) the SAR amount may be for no more than one hundred percent (100%) of the
difference between the exercise price of the underlying Incentive Stock Option
and the Fair Market Value of the Stock subject to the underlying Incentive Stock
Option at the time the SAR is exercised; and (iii) the SAR may be exercised only
when the Fair Market Value of the Stock subject to the Incentive Stock Option
exceeds the exercise price of the Incentive Stock Option.
7.3. EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options. The deemed exercise of SARs granted in addition to Options shall not
necessitate a reduction in the number of related Options.
7.4. EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to Section 3.8
herein and Section 7.5 herein, SARs granted independently of Options may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon the SARs, including, but not limited to, a
corresponding proportional reduction in previously granted Options.
7.5. PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount determined by multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the price fixed by the Committee at the date of grant
(which price shall not be less than 100% of the market price of a Share
on the date of grant) (the Exercise Price); by
(b) The number of Shares with respect to which the SAR is exercised.
7.6. FORM AND TIMING OF PAYMENT. Payment to a Participant, upon SAR
exercise, will be made in cash or stock, at the discretion of the Committee,
within ten calendar days of the exercise.
7.7. TERM OF SAR. The term of an SAR granted under the Plan shall not
exceed ten years.
7.8. TERMINATION OF EMPLOYMENT. In the event the employment of a
Participant is terminated by reason of death, disability, retirement, or any
other reason, the exercisability of any outstanding SAR granted in lieu of or in
addition to an Option shall terminate in the same manner as its related Option
as specified under Sections 6.8 and 6.9 herein. The exercisability of any
outstanding SARs granted independent of Options also shall terminate in the
manner provided under Sections 6.8 and 6.9 hereof.
7.9. NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
SARs granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock under the Plan to such Participants and in such amounts as it
shall determine. In the case of Covered Employees, the Committee may condition
the vesting or lapse of the Period of Restriction established pursuant to
Section 8.3 upon the attainment of one or more of the performance goals utilized
for purposes of Performance Units and Performance Shares pursuant to Article 9
hereof. It is contemplated that Restricted Stock grants will be made only in
extraordinary situations of performance, promotion, retention, or recruitment.
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8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or periods, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8 or in Section
3.8 herein, the Shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
termination of the applicable Period of Restriction or for such period of time
as shall be established by the Committee and as shall be specified in the
Restricted Stock Agreement, or upon earlier satisfaction of other conditions
(including any performance goals) as specified by the Committee in its sole
discretion and set forth in the Restricted Stock Agreement. All rights with
respect to the Restricted Stock granted to a Participant under the Plan shall be
exercisable during his lifetime only by such Participant.
8.4. OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions under
applicable Federal or state securities laws, and the Committee may legend
certificates representing Restricted Stock to give appropriate notice of such
restrictions.
8.5. CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in the Omnibus
Long-Term Incentive Plan of LG&E Energy Corp., in the rules and
administrative procedures adopted pursuant to such Plan, and in a
Restricted Stock Agreement dated . A copy of the Plan, such
rules and procedures, and such Restricted Stock Agreement may be obtained
from the Secretary of LG&E Energy Corp."
8.6. REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article, Shares of Restricted Stock covered by each Restricted Stock grant made
under the Plan shall become freely transferable by the Participant after the
last day of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.5 removed from his Stock certificate.
8.7. VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions are
paid in Shares, the Shares shall be subject to the same restrictions on
transferability as the Shares of Restricted Stock with respect to which they
were paid.
8.9. TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries because of normal retirement (as defined under the then established
rules of the Company or any of its Subsidiaries, as the case may be), any
remaining Period of Restriction applicable to the Restricted Stock pursuant to
Section 8.3 hereof shall automatically terminate and, except as otherwise
provided in Section 8.4 or Section 3.8 hereof, the Shares of Restricted Stock
shall thereby be free of restrictions and be freely transferable. In the event
that a Participant terminates his employment with the Company or any of its
Subsidiaries because of early retirement (as defined under the then established
rules of the Company or any of its Subsidiaries, as the case may be), the
Committee in its sole discretion (subject to Section 3.8 herein) may waive the
restrictions remaining on any or all Shares of Restricted Stock pursuant to
Section 8.3 herein and add such new restrictions to those Shares of Restricted
Stock as it deems appropriate.
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8.10. TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a
Participant's employment is terminated because of death or disability (as
defined under the then established rules of the Company or any of its
Subsidiaries, as the case may be) during the Period of Restriction, any
remaining Period of Restriction applicable to the Restricted Stock pursuant to
Section 8.3 herein shall automatically terminate and, except as otherwise
provided in Section 8.4. herein, the shares of Restricted Stock shall thereby be
free of restrictions and be fully transferable.
8.11. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries for any reason other than for death, disability, or retirement, as
set forth in Sections 8.9 and 8.10 herein, during the Period of Restriction,
then any shares of Restricted Stock still subject to restrictions as of the date
of such termination shall automatically be forfeited and returned to the
Company; provided, however, that in the event of an involuntary termination of
the employment of a Participant by the Company or any of its Subsidiaries other
than for Cause, the Committee, in its sole discretion (subject to Section 3.8
herein), may waive the automatic forfeiture of any or all such Shares and may
add such new restrictions to such Shares of Restricted Stock as it deems
appropriate.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS OR PERFORMANCE SHARES. Subject to the
terms and provisions of the Plan, Performance Units or Performance Shares may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant.
9.2. VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. The Committee
shall set performance goals over certain periods to be determined in advance by
the Committee ("Performance Periods"). Prior to each grant of Performance Units
or Performance Shares, the Committee shall establish an initial value for each
Performance Unit and an initial number of Shares for each Performance Share
granted to each Participant for that Performance Period. Prior to each grant of
Performance Units or Performance Shares, the Committee also shall set the
performance goals that will be used to determine the extent to which the
Participant receives a payment of the value of the Performance Units or number
of Shares for the Performance Shares awarded for such Performance Period. These
goals will be based on the attainment, by the Company or its Subsidiaries, of
certain objective performance measures, which shall include one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy production
availability performance measures. Such performance goals also may be based upon
the attainment of specified levels of performance of the Company or one or more
Subsidiaries under one or more of the measures described above relative to the
performance of other corporations. With respect to each such performance measure
utilized during a Performance Period, the Committee shall assign percentages to
various levels of performance which shall be applied to determine the extent to
which the Participant shall receive a payout of the values of Performance Units
and number of Performance Shares awarded. With respect to Covered Employees, all
performance goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code, and shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
9.3. PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After a
Performance Period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the
Committee. The Committee shall make this determination by first determining the
extent to which the performance goals set pursuant to Section 9.2 have been met.
It will then determine the applicable percentage (which may exceed 100%) to be
applied to, and will
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apply such percentage to, the value of Performance Units or number of
Performance Shares to determine the payout to be received by the Participant. In
addition, with respect to Performance Units and Performance Shares granted to
any Covered Employee, no payout shall be made hereunder except upon written
certification by the Committee that the applicable performance goal or goals
have been satisfied to a particular extent. The maximum amount payable in cash
to any Covered Employee with respect to any Performance Period pursuant to any
Performance Unit or Performance Share award shall be $1,000,000, and the maximum
number of Shares that may be issued to any Covered Employee with respect to any
Performance Period pursuant to any Performance Unit or Performance Share award
is one hundred thousand (100,000) (subject to adjustment as provided in Section
4.3).
9.4. COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section 3.2
regarding Awards to Covered Employees, the Committee shall have the authority to
modify, amend or adjust the terms and conditions of any Performance Unit award
or Performance Share award, at any time or from time to time, including but not
limited to the performance goals.
9.5. FORM AND TIMING OF PAYMENT. The payment described in Section 9.3
herein shall be made in cash, Stock, or a combination thereof as determined by
the Committee. Payment may be made in a lump sum or installments as prescribed
by the Committee. If any payment is to be made on a deferred basis, the
Committee may provide for the payment of dividend equivalents or interest during
the deferral period. Any stock issued in payment of a Performance Unit or
Performance Share shall be subject to the restrictions on transfer in Section
3.8 herein.
9.6. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the case of death, disability, or retirement (each of disability and retirement
as defined under the established rules of the Company or any of its
Subsidiaries, as the case may be), the holder of a Performance Unit or
Performance Share shall receive a prorated payment based on the Participant's
number of full months of service during the Performance Period, further adjusted
based on the achievement of the performance goals during the entire Performance
Period, as computed by the Committee. Payment shall be made at the time payments
are made to Participants who did not terminate service during the Performance
Period.
9.7. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates employment with the Company or any of its Subsidiaries
for any reason other than death, disability, or retirement, all Performance
Units and Performance Shares shall be forfeited; provided, however, that in the
event of an involuntary termination of the employment of the Participant by the
Company or any of its Subsidiaries other than for Cause, the Committee in its
sole discretion may waive the automatic forfeiture provisions and pay out on a
prorata basis.
9.8. NONTRANSFERABILITY. No Performance Units or Performance Shares
granted under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution until the termination of the applicable Performance Period. All
rights with respect to Performance Units and Performance Shares granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively and who may
include a trustee under a will or living trust) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation or if all designated
beneficiaries predecease the Participant, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
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ARTICLE 11. RIGHTS OF EMPLOYEES
11.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company or any of its Subsidiaries.
11.2. PARTICIPATION. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
11.3. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the Company nor any
of its Subsidiaries shall be required or be liable to make any payment under the
Plan.
11.4. NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company or any of its Subsidiaries whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company or any of its Subsidiaries, in its
sole discretion, may set aside in anticipation of a liability hereunder. Any
benefits which become payable hereunder shall be paid from the general assets of
the Company or the applicable subsidiary. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company or any of its Subsidiaries. Nothing contained in the Plan
constitutes a guarantee by the Company or any of its Subsidiaries that the
assets of the Company or the applicable subsidiary shall be sufficient to pay
any benefit to any person.
ARTICLE 12. CHANGE IN CONTROL
12.1. STOCK BASED AWARDS. Notwithstanding any other provisions of the
Plan, in the event of a Change in Control, all Stock based awards granted under
this Plan shall immediately vest 100% in each Participant (subject to Section
3.8 herein), including Incentive Stock Options, Nonqualified Stock Options,
Stock Appreciation Rights, and Restricted Stock.
12.2. PERFORMANCE BASED AWARDS. Notwithstanding any other provisions of
the Plan, in the event of a Change in Control, all performance based awards
granted under this Plan shall be immediately paid out in cash, including
Performance Units and Performance Shares. The amount of the payout shall be
based on the higher of: (i) the extent, as determined by the Committee, to which
performance goals, established for the Performance Period then in progress have
been met up through and including the effective date of the Change in Control or
(ii) 100% of the value on the date of grant of the Performance Units or number
of Performance Shares.
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION
13.1. AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from time
to time, the Board may terminate, amend, or modify the Plan. However, without
the approval of the shareholders of the Company if required by the Code, by the
insider trading rules of Section 16 of the Exchange Act, by any national
securities exchange or system on which the Stock is then listed or reported, or
by any regulatory body having jurisdiction with respect hereto, no such
termination, amendment, or modification may:
(a) Increase the total amount of Stock which may be issued under this plan,
except as provided in Section 4.3 herein; or
(b) Change the class of Employees eligible to participate in the Plan; or
(c) Materially increase the cost of the Plan or materially increase the
benefits to Participants; or
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(d) Extend the maximum period after the date of grant during which Options
or Stock Appreciation Rights may be exercised.
13.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification
of the Plan other than pursuant to Section 4.3 hereof shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
written consent of the Participant.
ARTICLE 14. WITHHOLDING
14.1. TAX WITHHOLDING. The Company and any of its Subsidiaries shall have
the power and the right to deduct or withhold, or require a Participant to remit
to the Company or any of its Subsidiaries, an amount sufficient to satisfy
Federal, state and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of this Plan.
14.2. STOCK DELIVERY OR WITHHOLDING. With respect to withholding required
upon the exercise of Nonqualified Stock Options, or upon the lapse of
restrictions on Restricted Stock, participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by tendering to the Company shares of previously acquired Stock or by
having the Company withhold Shares of Stock, in each such case in an amount
having a Fair Market Value equal to the amount required to be withheld to
satisfy the tax withholding obligations described in Section 14.1. The value of
the Shares to be tendered or withheld is to be based on the Fair Market Value of
the Stock on the date that the amount of tax to be withheld is to be determined.
All Stock withholding elections shall be irrevocable and made in writing, signed
by the Participant on forms approved by the Committee in advance of the day that
the transaction becomes taxable.
Stock withholding elections made by Participants who are subject to the
short-swing profit restrictions of Section 16 of the Exchange Act must comply
with the additional restrictions of Section 16 and Rule 16b-3 in making their
elections.
ARTICLE 15. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 16. REQUIREMENTS OF LAW
16.1. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares of Stock under this Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
16.2. GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Kentucky.
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EXHIBIT B
LG&E ENERGY CORP.
SHORT TERM INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1. ESTABLISHMENT OF THE PLAN. LG&E Energy Corp. (hereinafter referred to
as the "Company"), a Kentucky corporation, hereby establishes an annual
incentive compensation plan to be known as the "Short Term Incentive Plan"
(hereinafter referred to as the "Plan") as set forth in this document. The Plan
permits the awarding of annual cash bonuses to Key Employees of the Company and
its Subsidiaries, based on the achievement of preestablished performance goals.
With approval by the Board of Directors of the Company, the Plan shall
become effective as of January 1, 1996, subject to the approval of the Plan by
the shareholders of the Company by the affirmative vote of a majority of the
shares of common stock of the Company present or represented and entitled to
vote at a meeting of the Company's shareholders. The Plan shall remain in effect
until terminated by the Board of Directors.
1.2. PURPOSE. The purpose of the Plan is to provide Key Employees of the
Company and its Subsidiaries with a meaningful annual incentive opportunity
geared toward the achievement of specific corporate, business unit, line of
business, and/or individual goals. Payments pursuant to Article 6 of the Plan
are intended to qualify under the performance-based compensation exemption of
Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended.
ARTICLE 2. DEFINITIONS
2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the defined meaning is intended, the
term is capitalized:
(a) "Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Cause" shall mean the occurrence of any one of the following:
(i) The willful and continued failure by a Participant to substantially
perform his/her duties (other than any such failure resulting from
the Participant's disability), after a written demand for substantial
performance is delivered to the Participant that specifically
identifies the manner in which the Company or any of its
Subsidiaries, as the case may be, believes that the Participant has
not substantially performed his/her duties, and the Participant has
failed to remedy the situation within ten (10) business days of
receiving such notice; or
(ii) the Participant's conviction for committing a felony in connection
with the employment relationship; or
(iii) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company or any of its
Subsidiaries. However, no act, or failure to act, on the
Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that his/her action or omission was in the best
interest of the Company or any of its Subsidiaries.
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(d) "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
(i) Any Person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of
its Subsidiaries, or a corporation owned directly or indirectly by
the common shareholders of the Company in substantially the same
proportions as their ownership of common stock of the Company), is or
becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) during any period of two (2) consecutive years (not including any
period prior to the effective date of the Plan), individuals who at
the beginning of such period constitute the Board and any new
director, whose election by the Board or nomination for election by
the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve (A) a plan of complete
liquidation of the Company; or (B) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (C)
a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at least
50% of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such
merger or consolidation.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is part
of a purchasing group which consummates the Change in Control
transaction. The Participant shall be deemed "part of a purchasing
group..." for purposes of the preceding sentence if the Participant
is an equity participant or has agreed to become an equity
participant in the purchasing company or group (except for (i)
passive ownership of less than 5% of the voting securities of the
purchasing company or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a
majority of the nonemployee continuing members of the Board).
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means the committee of three or more persons appointed by
the Board to administer the Plan, pursuant to Article 3 herein.
(g) "Company" means LG&E Energy Corp., a Kentucky corporation, and any
successor thereto.
(h) "Company Performance Goals" shall have the meaning ascribed to it by
Section 6.1 hereof.
(i) "Company Performance Award" means an award established pursuant to
Article 6 hereof. Such Company Performance Awards shall be expressed as a
percentage of the Participant's base salary.
(j) "Earned Award" means the Earned Individual Award, if any, and the
Earned Company Award, if any, for a Participant for the applicable
Incentive Period.
(k) "Earned Company Award" means the actual award earned under a
Participant's Company Performance Award during an Incentive Period as
determined by the Committee at the end of the Incentive Period (pursuant
to Section 6.3 hereof).
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(l) "Earned Individual Award" means the actual award earned under a
Participant's Individual Performance Award during an Incentive Period as
determined by the Committee at the end of the Incentive Period (pursuant
to Section 5.4 hereof).
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(n) "Incentive Period" shall mean the period with respect to which a
Participant is eligible to earn an Earned Award. Subject to the
discretion of the Committee to select shorter or longer Incentive
Periods, the Incentive Period shall be the Plan Year.
(o) "Individual Performance Award" means an award established pursuant to
Article 5 hereof. Such Individual Performance Award shall be expressed as
a percentage of the Participant's actual base salary.
(p) "Key Employee" means the Chief Executive Officer of the Company and each
employee of the Company or any of its Subsidiaries who, in the opinion of
the Chief Executive Officer of the Company, is in a position to
significantly contribute to the growth and profitability of the Company
or any of its Subsidiaries (see Article 4 herein).
(q) "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the
regulations issued thereunder.
(r) "Participant" means a Key Employee who is nominated for participation by
the Chief Executive Officer and then is selected by the Committee to
participate in the Plan (see Article 4 herein).
(s) "Person" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Section 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(t) "Plan Year" means the Company's fiscal year commencing January 1 and
ending December 31.
(u) "Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock at the time outstanding is owned,
directly or indirectly, by the Company.
(v) "Target Performance Award" means the Individual Performance Award, if
any, and the Company Performance Award, if any, for a Participant for the
applicable Incentive Period.
(w) "Voting Stock" shall mean securities of any class or classes of stock of
a corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors.
2.2. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall be held
legally invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. This Plan shall be administered by the Committee in
accordance with rules that it may establish from time to time, that are not
inconsistent with the provisions of this Plan. To the extent required to comply
with Code Section 162(m) and the related regulations, each member of the
Committee shall be an Outside Director.
3.2. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to construe and interpret the Plan and to
establish, amend or waive rules and
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regulations for its administration. The determination of the Committee as to any
disputed question arising under this Plan, including questions of construction
and interpretation shall be final, binding, and conclusive upon all persons and
shall not be reviewable.
3.3. DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its
sole discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no such
delegation by the Committee shall be made with respect to the administration of
the Plan as it affects officers of the Company or its Subsidiaries, and provided
further that the Committee may not delegate its authority to correct errors,
omissions or inconsistencies in the Plan. All authority delegated by the
Committee under this Section 3.3 shall be exercised in accordance with the
provisions of the Plan and any guidelines for the exercise of such authority
that may from time to time be established by the Committee.
3.4. PROCEDURES OF THE COMMITTEE. All determinations of the Committee
shall be made by not less than a majority of its members present at the meeting
(in person or otherwise) at which a quorum is present. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Any action
required or permitted to be taken at a meeting of the Committee may be taken
without a meeting if a unanimous written consent, which sets forth the action,
is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee.
3.5. INDEMNIFICATION. Service on the Committee shall constitute service as
a director of the Company so that members of the Committee shall be entitled to
indemnification, limitation of liability and reimbursement of expenses with
respect to their services as members of the Committee to the same extent that
they are entitled under the Company's Articles of Incorporation and Kentucky law
for their services as directors of the Company.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1. ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to those Key Employees who are nominated for participation by the Chief
Executive Officer of the Company and then selected by the Committee to
participate in the Plan.
4.2. PARTICIPATION. Participation in the Plan shall be determined annually
based upon nomination by the Chief Executive Officer and selection by the
Committee. Specific criteria for participation shall be determined by the
Committee prior to the beginning of each Incentive Period. Key Employees
selected for participation shall be notified in writing of their selection, and
of their performance goals and related Target Performance Awards, as soon after
approval as is practicable.
4.3. PARTIAL INCENTIVE PERIOD PARTICIPATION. Subject to Article 6 herein,
the Committee may, upon recommendation of the Chief Executive Officer, allow an
individual who becomes eligible after the beginning of an Incentive Period to
participate in the Plan for that period. In such case, the Participant's Earned
Award normally shall be prorated based on the number of full months of
participation during such Incentive Period. However, subject to Article 6
herein, the Chief Executive Officer, subject to Committee approval, may
authorize an unreduced Earned Award.
4.4. TERMINATION OF APPROVAL. In its sole discretion, the Committee may
withdraw its approval for participation in the Plan with respect to an Incentive
Period for a Participant at any time during such Incentive Period; provided,
however that, such withdrawal must occur before the end of such Incentive Period
and provided further that, in the event a Change in Control occurs during an
Incentive Period, the Committee may not thereafter withdraw its approval for a
Participant during such Incentive Period. In the event of such withdrawal, the
employee concerned shall cease to be a Participant as of the date designated by
the Committee, and the employee shall not be entitled to any part of an Earned
Award for the Incentive Period in which such withdrawal occurs. Such employee
shall be notified of such withdrawal in writing as soon as practicable following
such action.
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ARTICLE 5. INDIVIDUAL PERFORMANCE AWARDS
5.1. AWARD OPPORTUNITIES. At the beginning of each Incentive Period, the
Committee shall establish Individual Performance Award levels for each
Participant who is to be granted an Individual Performance Award. The
established levels may vary in relation to the responsibility level of the
Participant. In the event a Participant changes job levels during the Incentive
Period, the Individual Performance Award may be adjusted at the discretion of
the Committee to reflect the amount of time at each job level. Notwithstanding
any provision in this Plan to the contrary, Individual Performance Awards shall
not be dependent in any manner on, and shall be established independently of and
in addition to, the establishment of any Company Performance Awards or the
payout of any Earned Company Awards pursuant to Article 6 herein.
5.2. INDIVIDUAL PERFORMANCE GOALS. At the beginning of each Incentive
Period, the Chief Executive Officer shall establish individual performance goals
for each Participant who is granted an Individual Performance Award; provided,
however, that the Committee shall establish the individual performance goals for
the Chief Executive Officer. The level of achievement of the individual
performance goals by a Participant at the end of the Incentive Period, as
determined pursuant to Section 5.4 below, will determine such Participant's
Earned Individual Award, which may range from 0% to 175% of such Participant's
Individual Performance Award.
5.3. ADJUSTMENT OF INDIVIDUAL PERFORMANCE GOALS. The Chief Executive
Officer shall have the right to adjust the individual performance goals (either
up or down) during the Incentive Period if he determines that external changes
or other unanticipated conditions have materially affected the fairness of the
goals and unduly influenced a Participant's ability to meet them; provided,
however, that no such adjustment to the Chief Executive Officer's individual
performance goals shall be made unless approved by the Committee; and provided
further that no adjustment of such individual performance goals for any
Participant shall be made based upon the failure, or the expected failure, to
attain or exceed the Company Performance Goals for any Company Performance Award
granted to such Participant under Article 6 herein. Further, in the event of an
Incentive Period of less than twelve (12) months, the Chief Executive Officer
shall have the right to adjust the individual performance goals, at his
discretion, to protect the purpose and intent of the Plan.
5.4. EARNED INDIVIDUAL AWARD DETERMINATION. At the end of each Incentive
Period, the Chief Executive Officer shall review the performance of each
Participant who received an Individual Performance Award. Based on the Chief
Executive Officer's determination as to a Participant's level of achievement of
his or her individual performance goals, the Chief Executive Officer shall make
a recommendation to the Committee as to the Earned Individual Award to be
received by such Participant. Notwithstanding the foregoing, however, all
reviews and determinations with respect to the performance of the Chief
Executive Officer, and the payment of any Earned Individual Award to the Chief
Executive Officer, shall be made by the Committee. The payment of all Earned
Individual Awards is subject to approval by the Committee. The payment of an
Earned Individual Award to a Participant shall not be contingent in any manner
upon the attainment of, or failure to attain, the Company Performance Goals for
the Company Performance Awards granted to such Participant under Article 6.
5.5. MAXIMUM PAYABLE/AGGREGATE AWARD CAP. The maximum amount payable to a
Participant pursuant to this Article 5 for performance by the Participant during
any fiscal year of the Company shall be $500,000. The Committee also may
establish guidelines governing the maximum Earned Individual Awards that may be
earned by all Participants in the aggregate, in each Incentive Period. These
guidelines may be expressed as a percentage of a financial measure, or such
other measure as the Committee shall from time to time determine.
B-5
<PAGE>
ARTICLE 6. COMPANY PERFORMANCE AWARDS
In addition to any Individual Performance Awards granted under Article 5,
Company Performance Awards based solely on Company performance may be
established under this Article 6 for Participants. Company Performance Awards
are intended to satisfy the performance-based compensation exemption under Code
Section 162(m)(4)(C) and the related regulations and shall thus be subject to
the requirements set forth in this Article 6.
6.1. AWARD OPPORTUNITIES. On or before the 90th day of each Incentive
Period and in any event before 25% or more of the Incentive Period has elapsed,
the Committee shall establish in writing for each Participant for whom a Company
Performance Award is to be granted under this Article 6, the Company Performance
Award and specific objective performance goals for the Incentive Period, which
goals shall meet the requirements of Section 6.2 herein (such goals are
hereinafter referred to as "Company Performance Goals"). The extent, if any, to
which an Earned Company Award will be payable to a Participant will be based
solely upon the degree of achievement of such preestablished Company Performance
Goals over the specified Incentive Period; provided, however, that the Committee
may, in its sole discretion, reduce the amount which would otherwise be payable
with respect to an Incentive Period. Payment of an Earned Company Award to a
Participant shall consist of a cash award from the Company to be based upon a
percentage (which may exceed 100%) of the Participant's Company Performance
Award.
6.2. COMPANY PERFORMANCE GOALS. The Company Performance Goals established
by the Committee pursuant to Section 6.1 will be based on one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy production
availability performance measures. At the time of establishing a Company
Performance Goal, the Committee shall specify the manner in which the Company
Performance Goal shall be calculated. In so doing, the Committee may exclude the
impact of certain specified events from the calculation of the Company
Performance Goal. For example, if the Company Performance Goal were earnings per
share, the Committee could, at the time this Company Performance Goal was
established, specify that earnings per share are to be calculated without regard
to any subsequent change in accounting standards required by the Financial
Accounting Standards Board. Company Performance Goals also may be based on the
attainment of specified levels of performance of the Company and/or any of its
Subsidiaries under one or more of the measures described above relative to the
performance of other corporations. As part of the establishment of Company
Performance Goals for an Incentive Period, the Company shall also establish a
minimum level of achievement of the Company Performance Goals that must be met
for a Participant to receive any portion of his Company Performance Award. All
of the provisions of this Section 6.2 are subject to the requirement that all
Company Performance Goals shall be objective performance goals satisfying the
requirement for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code and the related regulations.
6.3. PAYMENT OF AN EARNED COMPANY AWARD. At the time the Company
Performance Award for a Participant is established, the Committee shall
prescribe a formula to determine the percentage (which may exceed 100%) of the
Company Performance Award which may be payable to the Participant based upon the
degree of attainment of the Company Performance Goals during the Incentive
Period. If the minimum level of achievement of Company Performance Goals
established by the Committee for a Participant for an Incentive Period is not
met, no payment of an Earned Company Award will be made to the Participant for
that Incentive Period. To the extent that the minimum level of achievement of
Company Performance Goals is satisfied or surpassed for a Participant for an
Incentive Period, and upon written certification by the Committee that the
Company Performance Goals have been satisfied to a particular extent and that
any other material terms and conditions of
B-6
<PAGE>
the Company Performance Awards have been satisfied, payment of an Earned Company
Award shall be made to the Participant for that Incentive Period in accordance
with the prescribed formula unless the Committee determines, in its sole
discretion, to reduce the payment to be made.
6.4. MAXIMUM PAYABLE. The maximum amount payable to a Participant pursuant
to this Article 6 for performance by the Participant during any fiscal year of
the Company shall be $1,000,000.
6.5. COMMITTEE DISCRETION. Notwithstanding Article 5 herein, the Committee
shall not have discretion to modify the terms of Company Performance Awards,
except as specifically set forth in this Article 6.
ARTICLE 7. FORM AND TIMING OF PAYMENT OF AWARDS
Subject to Article 6 herein, as soon as practicable following the release of
the Company's audited financial statements pertaining to the Plan Year ending
coincident with or immediately after the applicable Incentive Period, Earned
Award payments, if any, for such Incentive Period shall be paid in cash. Subject
to Article 6 herein, deferral of payments may be provided for under rules to be
determined by the Committee.
ARTICLE 8. TERMINATION OF EMPLOYMENT
8.1. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event a Participant's employment is terminated by reason of death, total and
permanent disability (as determined by the Committee), or retirement (as
determined by the Committee), the Earned Award, determined in accordance with
Section 5.4 and Section 6.3 herein, shall be reduced to reflect participation
prior to termination. This reduction shall be determined by multiplying said
Earned Award by a fraction; the numerator of which is the months of
participation through the date of termination rounded up to whole months and the
denominator of which is the number of whole months in the applicable Incentive
Period. The Earned Award thus determined shall be paid as soon as practicable
following the release of the Company's audited financial statements pertaining
to the Plan Year ending coincident with or immediately after the applicable
Incentive Period.
8.2. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated for any reason other than death, total
and permanent disability, or retirement (of which the Committee shall be the
sole judge), all of the Participant's rights to an Earned Award for the
Incentive Period then in progress shall be forfeited. However, except in the
event of a termination of employment for Cause, the Committee, in its sole
discretion, may pay a prorated award for the portion of that Incentive Period
that the Participant was employed by the Company or any of its Subsidiaries,
computed as determined by the Committee.
ARTICLE 9. RIGHTS OF PARTICIPANTS
9.1. EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any
way the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company or any of its Subsidiaries.
9.2. PARTICIPATION. No Participant or other employee shall at any time
have a right to be selected for participation in the Plan for any Incentive
Period, despite having been selected for participation in a previous Incentive
Period. Except as otherwise provided in Article 8 or Article 11 herein and
subject to Section 4.4 herein, a Participant shall not have any right to an
Earned Award for an Incentive Period, unless the Participant is an employee of
the Company at the end of such Incentive Period.
B-7
<PAGE>
9.3. NONTRANSFERABILITY. No right or interest of any Participant in this
Plan shall be assignable or transferable, or subject to any lien, directly, by
operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge, and bankruptcy.
9.4. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the Company nor any
of its Subsidiaries shall be required or be liable to make any payment under the
Plan.
9.5. NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company or any of its Subsidiaries whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company or any of its Subsidiaries, in its
sole discretion, may set aside in anticipation of a liability hereunder. Any
benefits which become payable hereunder shall be paid from the general assets of
the Company or the applicable Subsidiary. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company or any of its Subsidiaries. Nothing contained in the Plan
constitutes a guarantee by the Company or any of its Subsidiaries that the
assets of the Company or the applicable Subsidiary shall be sufficient to pay
any benefit to any person.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively and who may
include a trustee under a will or living trust) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, or if all
designated beneficiaries predecease the Participant, benefits remaining unpaid
at the Participant's death shall be paid to the Participant's estate.
ARTICLE 11. CHANGE IN CONTROL
Notwithstanding any other provisions of the Plan, in the event a
Participant's employment with the Company or any of its Subsidiaries is
terminated for any reason other than for Cause, within twenty-four (24) months
after a Change in Control of the Company or any of its Subsidiaries, all awards
previously deferred (with earnings) shall be paid to the Participant within ten
(10) business days of the termination; along with the Target Performance Award
established for the Participant for the Incentive Period in progress at the time
of the employment termination, prorated for the number of days in the Incentive
Period in which the Participant was employed by the Company or any of its
Subsidiaries, up to and including the date of termination.
In the event a Participant's employment with the Company or any of its
Subsidiaries is terminated for Cause, no Earned Award will be paid for the
Incentive Period in progress at the time of the employment termination.
ARTICLE 12. AMENDMENTS
The Board of Directors, in its absolute discretion, without notice, at any
time and from time to time, may modify or amend in whole or in part, any or all
of the provisions of this Plan, or suspend or terminate it entirely; provided,
that no such modification, amendment, suspension, or termination
B-8
<PAGE>
after an Incentive Period, may without the consent of a Participant (or his
beneficiary in the case of the death of the Participant) reduce the right of a
Participant (or his beneficiary, as the case may be) to a payment or
distribution hereunder to which he is entitled for that Incentive Period.
ARTICLE 13. REQUIREMENTS OF LAW
13.1. GOVERNING LAW. The Plan, and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Kentucky.
13.2. WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under this Plan any Federal, state, or local taxes required by the
law to be withheld with respect to such payments.
B-9
<PAGE>
[LGE ENERGY LOGO]
-------------------------
ADMISSION TICKET
LG&E ENERGY CORP.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 23, 1996
10:00 a.m., EDT
Hyatt Regency Louisville
320 West Jefferson Street
Louisville, Kentucky
If you plan to attend the meeting, please check the box on the proxy card
indicating that you plan to attend. Please bring this Admission Ticket to
the meeting with you.
THE BOTTOM PORTION OF THIS FORM IS THE PROXY CARD. Each proposal is fully
explained in the enclosed Notice of Annual Meeting of Shareholders and Proxy
Statement. To vote your proxy, please MARK by placing an "X" in the
appropriate box, SIGN and DATE the proxy. Then please DETACH and RETURN the
completed proxy promptly in the enclosed envelope.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH
PROPOSAL
1. Election of Directors
(see reverse)
/ / For / / Withheld
For, except vote withheld from the following nominee(s):
________________________________________________________________________________
2. Amendment of Articles of Incorporation to Increase the Number of Authorized
Shares of Common Stock from 75,000,000 to 125,000,000
/ / For / / Against / / Abstain
3. Approval of Amended and Restated Omnibus Long-Term Incentive Plan, including
the Issuance of an Additional 1,200,000 Shares (2,400,000 shares as adjusted
for the Authorized Stock Split) of Common Stock Thereunder
/ / For / / Against / / Abstain
4. Approval of Short-Term Incentive Plan
/ / For / / Against / / Abstain
5. Approval of Amendment to Employee Common Stock Purchase Plan to Authorize the
Issuance of an Additional 500,000 Shares (1,000,000 shares as adjusted for
the Authorized Stock Split) of Common Stock Thereunder
/ / For / / Against / / Abstain
6. Approval of Independent Auditors
/ / For / / Against / / Abstain
COMMON
[LG&E ENERGY LOGO]
PROXY
/ / I plan to attend the Annual Meeting, and I will bring ___ guest(s).
------------------------------ ------------------------------
SIGNATURE SIGNATURE
SIGNATURE(S) SHOULD CORRESPOND
TO THE NAME(S) APPEARING IN
------------------------------ THIS PROXY. IF EXECUTOR,
DATE TRUSTEE, GUARDIAN, ETC. PLEASE
INDICATE.
<PAGE>
Complimentary parking will be available
at the Hyatt Regency and the Cowger
Parking Garage. Please visit the
[MAP] registration table to receive your
parking voucher, which you will give to
the parking attendant upon leaving.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
LG&E ENERGY CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- APRIL 23, 1996
Roger W. Hale, Victor A. Staffieri and John R. McCall are hereby
appointed as proxies, with full power of substitution, to vote the shares of
the shareholder(s) named on the reverse side hereof, at the Annual Meeting
of Shareholders of LG&E Energy Corp. to be held on April 23, 1996, and at
any adjournment thereof, as directed on the reverse side hereof, and in
their discretion to act upon any other matters that may properly come before
the meeting or any adjournment thereof.
Election of Directors. Nominees: Roger W. Hale, David B. Lewis, Anne H.
McNamara and Donald C. Swain.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS YOU SPECIFY. IF NOT SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL OF
THE PROPOSALS. A VOTE FOR PROPOSAL 1 INCLUDES DISCRETIONARY AUTHORITY TO
CUMULATE VOTES SELECTIVELY AMONG THE NOMINEES AS TO WHOM AUTHORITY TO VOTE
HAS NOT BEEN WITHHELD.
Please mark, sign and date this proxy on the reverse side and return the
completed proxy promptly in the enclosed envelope.
<PAGE>
[LGE ENERGY LOGO]
-------------------------
ADMISSION TICKET
LG&E ENERGY CORP.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 23, 1996
10:00 a.m., EDT
Hyatt Regency Louisville
320 West Jefferson Street
Louisville, Kentucky
If you plan to attend the meeting, please check the box on the proxy card
indicating that you plan to attend. Please bring this Admission Ticket to
the meeting with you.
THE BOTTOM PORTION OF THIS FORM IS THE PROXY CARD. Each proposal is fully
explained in the enclosed Notice of Annual Meeting of Shareholders and Proxy
Statement. To vote your proxy, please MARK by placing an "X" in the
appropriate box, SIGN and DATE the proxy. Then please DETACH and RETURN the
completed proxy promptly in the enclosed envelope.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH
PROPOSAL
1. Election of Directors
(see reverse)
/ / For / / Withheld
For, except vote withheld from the following nominee(s):
________________________________________________________________________________
2. Amendment of Articles of Incorporation to Increase the Number of Authorized
Shares of Common Stock from 75,000,000 to 125,000,000
/ / For / / Against / / Abstain
3. Approval of Amended and Restated Omnibus Long-Term Incentive Plan, including
the Issuance of an Additional 1,200,000 Shares (2,400,000 shares as adjusted
for the Authorized Stock Split) of Common Stock Thereunder
/ / For / / Against / / Abstain
4. Approval of Short-Term Incentive Plan
/ / For / / Against / / Abstain
5. Approval of Amendment to Employee Common Stock Purchase Plan to Authorize the
Issuance of an Additional 500,000 Shares (1,000,000 shares as adjusted for
the Authorized Stock Split) of Common Stock Thereunder
/ / For / / Against / / Abstain
6. Approval of Independent Auditors
/ / For / / Against / / Abstain
ESOP
[LG&E ENERGY LOGO]
PROXY
/ / I plan to attend the Annual Meeting, and I will bring ___ guest(s).
------------------------------ ------------------------------
SIGNATURE SIGNATURE
SIGNATURE(S) SHOULD CORRESPOND
TO THE NAME(S) APPEARING IN
------------------------------ THIS PROXY. IF EXECUTOR,
DATE TRUSTEE, GUARDIAN, ETC. PLEASE
INDICATE.
<PAGE>
Complimentary parking will be available
at the Hyatt Regency and the Cowger
Parking Garage. Please visit the
[MAP] registration table to receive your
parking voucher, which you will give to
the parking attendant upon leaving.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
LG&E ENERGY CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- APRIL 23, 1996
Roger W. Hale, Victor A. Staffieri and John R. McCall are hereby
appointed as proxies, with full power of substitution, to vote the shares of
the shareholder(s) named on the reverse side hereof, at the Annual Meeting
of Shareholders of LG&E Energy Corp. to be held on April 23, 1996, and at
any adjournment thereof, as directed on the reverse side hereof, and in
their discretion to act upon any other matters that may properly come before
the meeting or any adjournment thereof.
Election of Directors. Nominees: Roger W. Hale, David B. Lewis, Anne H.
McNamara and Donald C. Swain.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS YOU SPECIFY. IF NOT SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL OF
THE PROPOSALS. A VOTE FOR PROPOSAL 1 INCLUDES DISCRETIONARY AUTHORITY TO
CUMULATE VOTES SELECTIVELY AMONG THE NOMINEES AS TO WHOM AUTHORITY TO VOTE
HAS NOT BEEN WITHHELD.
Please mark, sign and date this proxy on the reverse side and return the
completed proxy promptly in the enclosed envelope.
