<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 240.14a-11(c) or 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):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
March 26, 1999
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 Wednesday, April 21, 1999, at 10:00 a.m., E.D.T. at
the Kentucky Center for the Arts, 501 West Main Street, Louisville, Kentucky.
Business items to be acted upon at the Annual Meeting are the election of
nine directors, the approval of Arthur Andersen LLP as independent auditors of
the Company for 1999, the amendment of LG&E Energy's Omnibus Long-Term Incentive
Plan and the transaction of any other business properly brought before the
meeting. Additionally, we will 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 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 Kentucky Center for the Arts, 501 West
Main Street, Louisville, Kentucky, on Wednesday April 21, 1999, 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 nine directors, five for three-year terms expiring
in 2002, two for two-year terms expiring in 2001 and two for one-year
terms expiring in 2000;
2. A proposal to approve and ratify the appointment of Arthur Andersen LLP
as independent auditors of LG&E Energy for 1999;
3. A proposal to amend the LG&E Energy Corp. Omnibus Long-Term Incentive
Plan, including authorizing the issuance of additional shares of Common
Stock thereunder; and
4. Such other business as may properly come before the meeting.
The close of business on February 16, 1999, 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 26, 1999
<PAGE>
PROXY STATEMENT
--------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 21, 1999
----------------------
The Board of Directors of LG&E Energy Corp. ("LG&E Energy" or the "Company")
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 21, 1999, and at any adjournment of such meeting. The meeting will be held
at the Kentucky Center for the Arts, 501 West Main Street, Louisville, Kentucky.
This proxy statement and the accompanying proxy were first mailed to
shareholders on or about March 26, 1999.
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 16, 1999, the record date for the
Annual Meeting, there were 129,677,030 shares of Common Stock of LG&E Energy
outstanding and entitled to vote. LG&E Energy has no other outstanding voting
securities. Owners of record of LG&E Energy Common Stock at the close of
business on February 16, 1999, 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.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of members of the Board of Directors of LG&E Energy is currently
fixed at fourteen, pursuant to the Company's bylaws and resolutions adopted by
the Board of Directors. 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. Generally, 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. However, under Kentucky law,
directors appointed to fill vacancies serve terms which expire at the next
meeting of the shareholders at which directors are elected. These additional
required elections are also discussed below.
In May 1998, upon the closing of the merger (the "Merger") of KU Energy
Corporation ("KU Energy") into the Company, the size of the Board of Directors
was established at fifteen. In connection therewith, S. Gordon Dabney, Gene P.
Gardner and Donald L. Swain, Ph.D. resigned from the Board of Directors and
seven former KU Energy directors, Mira S. Ball, Carol M. Gatton, Frank V.
Ramsey, Jr., William L. Rouse, Jr., Charles L. Shearer, Ph.D., Lee T. Todd, Jr.,
Ph.D. and Michael R. Whitley, were appointed to fill the vacancies created by
the resignations and the increase in size of the Board. In December 1998, Mr.
Whitley retired as a director and the Board adopted a resolution reducing its
size to fourteen members.
Shareholders may not vote for a number of nominees greater than the number
of nominees named in this Proxy Statement. Procedures for reviewing and
nominating candidates to the LG&E Energy Board of Directors are discussed in
more detail in "Information Concerning the Board of Directors--Nominating and
Governance Committee."
At this Annual Meeting, the following nine persons are proposed for election
to the Board of Directors:
For three-year terms expiring at the 2002 Annual Meeting: Mira S. Ball,
Roger W. Hale, David B. Lewis, Anne H. McNamara and Frank V. Ramsey, Jr.
For two-year terms expiring at the 2001 Annual Meeting: Carol M. Gatton and
Lee T. Todd, Jr.
For one-year terms expiring at the 2000 Annual Meeting: William L. Rouse,
Jr. and Charles L. Shearer.
All of the nominees are presently directors of LG&E Energy, LG&E and
Kentucky Utilities Company ("KU").
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's
receiving a larger number of votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF THE NINE NOMINEES FOR DIRECTOR.
2
<PAGE>
INFORMATION ABOUT DIRECTORS AND NOMINEES
The following contains certain information as of February 16, 1999,
concerning the nominees for director, as well as the directors whose terms of
office continue after the 1999 Annual Meeting.
NOMINEES FOR DIRECTORS WITH TERMS EXPIRING AT 2002 ANNUAL MEETING OF
SHAREHOLDERS
<TABLE>
<S> <C>
MIRA S. BALL (AGE 64)
Mrs. Ball has been Secretary-Treasurer and Chief Financial Officer of
[PHOTO] Ball Homes, Inc., a residential developer and property management
company in Lexington, Kentucky, since August 1959. Mrs. Ball is a
graduate of the University of Kentucky. Mrs. Ball has been a director
of LG&E Energy and LG&E since May 1998 and of KU since 1992.
ROGER W. HALE (AGE 55)
Mr. Hale has been a Director and Chairman of the Board and Chief
Executive Officer of LG&E Energy since August 1990. Mr. Hale served as
[PHOTO3] President of LG&E Energy from August 1990 to May 1998. Mr. Hale has
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. Mr. Hale has
been a Director and Chairman of the Board and Chief Executive Officer
of KU since May 1998. 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 Global TeleSystems Group, Inc. and H&R Block, Inc.
DAVID B. LEWIS (AGE 54)
Mr. Lewis is a founding partner of the law firm of Lewis & Munday, a
[PHOTO] Professional Corporation, in Detroit, Michigan. Since 1972, Mr. Lewis
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 and of KU since May 1998. Mr. Lewis
is also a member of the Board of Directors of TRW, Inc., M.A. Hanna
Company and Comerica Bank, a subsidiary of Comerica Incorporated.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
ANNE H. MCNAMARA (AGE 51)
Mrs. McNamara has been Senior Vice President and General Counsel of AMR
[PHOTO] Corporation and its subsidiary, American Airlines, Inc., since June
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 and of KU since May 1998. Mrs.
McNamara is also a member of the Board of Directors of The SABRE Group
Holdings, Inc.
FRANK V. RAMSEY, JR. (AGE 67)
Mr. Ramsey has been President and a Director of Dixon Bank, Dixon,
[PHOTO] Kentucky, since October 1972. Mr. Ramsey is a graduate of the
University of Kentucky. Mr. Ramsey has been a director of LG&E Energy
and LG&E since May 1998 and of KU since 1986.
</TABLE>
NOMINEES FOR DIRECTORS WITH TERMS EXPIRING AT 2001 ANNUAL MEETING OF
SHAREHOLDERS
<TABLE>
<S> <C>
CAROL M. GATTON (AGE 66)
Mr. Gatton has been Chairman and Director of Area Bancshares
[PHOTO] Corporation, an Owensboro, Kentucky bank holding company, since April
1976. Mr. Gatton is also owner of Bill Gatton Chevrolet-Cadillac-Isuzu
in Bristol, Tennessee. Mr. Gatton is a graduate of the University of
Kentucky, and received a master's degree in business administration
from the University of Pennsylvania, Wharton School of Business. Mr.
Gatton has been a director of LG&E Energy and LG&E since May 1998 and
of KU since 1996.
LEE T. TODD, JR., PH.D. (AGE 52)
Dr. Todd has been President and Chief Executive Officer and director of
[PHOTO] DataBeam Corporation, a Lexington, Kentucky high-technology firm, since
April 1976. Dr. Todd is a graduate of the University of Kentucky. He
also received a master's degree and doctorate in electrical engineering
from the Massachusetts Institute of Technology. Dr. Todd has been a
director of LG&E Energy and LG&E since May 1998 and of KU since 1995.
</TABLE>
4
<PAGE>
NOMINEES FOR DIRECTORS WITH TERMS EXPIRING AT 2000 ANNUAL MEETING OF
SHAREHOLDERS
<TABLE>
<S> <C>
WILLIAM L. ROUSE, JR. (AGE 66)
Mr. Rouse was Chairman of the Board and Chief Executive Officer and
[PHOTO] director of First Security Corporation of Kentucky, an Owensboro,
Kentucky multi-bank holding company, prior to his retirement in 1992.
Mr. Rouse is a graduate of the University of Kentucky. Mr. Rouse has
been a director of LG&E Energy and LG&E since May 1998 and of KU since
1989. Mr. Rouse is also a member of the Board of Directors of Ashland,
Incorporated and Kentucky-American Water Company, a subsidiary of
American Water Works Company, Inc.
CHARLES L. SHEARER, PH.D. (AGE 56)
Dr. Shearer has been President of Transylvania University since July
[PHOTO] 1983. Dr. Shearer is a graduate of the University of Kentucky and
received a master's degree in diplomacy and international commerce from
that institution. He also received a master's degree and a doctorate in
economics from Michigan State University. Dr. Shearer has been a
director of LG&E Energy and LG&E since May 1998 and of KU since 1987.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE AT 2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
OWSLEY BROWN II (AGE 56)
Mr. Brown has been the Chairman and Chief Executive Officer of Brown-
[PHOTO] Forman Corporation, a consumer products company, since July 1995, and
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, of LG&E since May
1989 and of KU since May 1998. Mr. Brown is also a member of the Board
of Directors of Brown-Forman Corporation and North American Coal
Corporation, a subsidiary of NACCO Industries, Inc.
J. DAVID GRISSOM (AGE 60)
Mr. Grissom has been Chairman of Mayfair Capital, Inc., a private
[PHOTO] investment firm, since April 1989. He served as Chairman and Chief
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, of LG&E since January 1982 and of KU since
May 1998. He is also a member of the Board of Directors of Providian
Financial Corporation and Churchill Downs, Inc.
</TABLE>
5
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE AT 2000 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
WILLIAM C. BALLARD, JR. (AGE 58)
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll &
[PHOTO] McDonald PLLC since May 1992. He served as Executive Vice President and
Chief Financial Officer of Humana, Inc., a healthcare services company,
from 1978 until May 1992. 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, of LG&E since May 1989 and
of KU since May 1998. Mr. Ballard is also a member of the Board of
Directors of United Healthcare Corp., Health Care REIT, Inc.,
Healthcare Recoveries, Inc., Mid-America Bancorp, American Safety
Razor, Inc. and Jordan Telecommunications Products, Inc.
JEFFERY T. GRADE (AGE 55)
Mr. Grade has been Chairman and Chief Executive Officer and a Director
[PHOTO] of Harnischfeger Industries, Inc., which is engaged in the manufacture
and distribution of equipment for the mining and papermaking
industries, since January 1993. He served as President and Chief
Executive Officer from 1992 to 1993 and President and Chief Operating
Officer from 1986 to 1992. Mr. Grade is a graduate of the Illinois
Institute of Technology and received a master's degree in business
administration from DePaul University. Mr. Grade has been a director of
LG&E Energy and LG&E since October 1997 and of KU since May 1998. He is
also a member of the Board of Directors of Case Corporation.
T. BALLARD MORTON, JR. (AGE 66)
Mr. Morton has been Executive in Residence at the College of Business
[PHOTO] and Public Administration of the University of Louisville since 1983.
Mr. Morton is a graduate of Yale University. Mr. Morton has been a
director of LG&E Energy since August 1990, of LG&E since May 1967 and
of KU since May 1998. Mr. Morton is also a member of the Board of
Directors of the Kroger Company.
</TABLE>
6
<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 and KU. The committees of the Board of Directors of LG&E Energy include an
Audit Committee, a Compensation Committee, a Nominating and Governance Committee
and a Long-Range Planning 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 and KU Board of Directors.
During 1998, there were a total of ten 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 with the exception
of Jeffery T. Grade.
COMPENSATION OF DIRECTORS
Directors who are also officers of LG&E Energy or its subsidiaries receive
no compensation in their capacities as directors. During 1998, non-employee
directors received a retainer of approximately $2,333 per month, or $28,000
annually ($30,000 annually for committee chairmen), a fee for Board meetings of
$1,100 per meeting, a fee for each committee meeting of $1,000 and, where
appropriate, reimbursement for expenses incurred in traveling to meetings.
Non-employee directors residing out of Kentucky received an additional $1,000
compensation for each Board or committee meeting they attended. The foregoing
amounts represent the aggregate fees paid to directors in their capacities as
directors of LG&E Energy, LG&E and KU during 1998. Upon their resignation as
directors of LG&E Energy during 1998, Messrs. Dabney and Gardner and Dr. Swain
each received one-time awards of $10,000 in recognition of their years of
service on the Board.
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
received, 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 by 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
16, 1999, seven directors of LG&E Energy 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
7
<PAGE>
the Company within the preceding three years, receives an option grant for 4,000
shares of LG&E Energy Common Stock. Following the initial grant, eligible
directors receive an annual option grant of 4,000 shares on the first Wednesday
of each February. Option grants for 1994-1996 were for 2,000 shares, all of
which were adjusted in April 1996 to reflect a two-for-one stock split. The
option exercise price per share for each share of LG&E Energy Common Stock is
the fair market value at the time of grant. 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 500,000 shares
of LG&E Energy Common Stock, of which 251,000 shares are subject to existing
options at a weighted average per share price of $22.83. 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 10 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.
AUDIT COMMITTEE
The Audit Committee of the Board is composed of Messrs. Ballard, Brown,
Gatton, Grade, Grissom, Lewis and Ramsey, Mrs. Ball and Drs. Shearer and Todd.
During 1998, 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 financial affairs that the Committee, the
Internal Auditor, or the independent auditors deemed necessary. The Audit
Committee met three times during 1998.
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. Gatton, Grade, Grissom, Morton, Ramsey and Rouse and Mrs. McNamara. The
Compensation Committee met five times during 1998.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance 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 Annual 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 members of the Nominating and
Governance Committee are Messrs. Ballard, Brown, Hale (ex officio), Lewis,
Ramsey and Rouse, Mrs. Ball and Mrs. McNamara and Dr. Shearer. The Nominating
and Governance Committee met two times during 1998.
8
<PAGE>
LONG-RANGE PLANNING COMMITTEE
The Long-Range Planning Committee is composed of Messrs. Grade, Grissom,
Lewis, Morton, Rouse and Todd, Mrs. Ball and Mrs. McNamara and Dr. Shearer. The
Long-Range Planning Committee considers and makes recommendations to the Board
regarding LG&E Energy's future strategy and direction, long-term goals and other
matters of long-term importance. The Long-Range Planning Committee did not meet
during 1998.
OWNERSHIP OF LG&E ENERGY COMMON STOCK
LG&E Energy does not know of any shareholder who, as of February 16, 1999,
beneficially owned more than five percent of LG&E Energy's outstanding Common
Stock.
The table below shows information as of February 16, 1999, concerning
beneficial ownership by each director, each nominee for director, each executive
officer named in the Summary Compensation Table beginning on page 24 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>
Mira S. Ball 19,228
William C. Ballard, Jr. 39,354
Owsley Brown II 22,966
R. Foster Duncan 61,721
Carol M. Gatton 9,366
Jeffery T. Grade 8,675
J. David Grissom 26,631
Roger W. Hale 329,782
David B. Lewis 21,400
John R. McCall 75,902
Anne H. McNamara 28,746
T. Ballard Morton, Jr. 39,202
Frank V. Ramsey, Jr. 20,644
William R. Rouse, Jr. 23,130
Charles L. Shearer 9,572
Victor A. Staffieri 166,027
Lee T. Todd, Jr. 6,939
Stephen R. Wood 107,179
All Directors and Executive Officers as a group (26 persons)(4) 1,216,710
</TABLE>
- ------------------------
(1) Includes the following share equivalents of LG&E Energy Common Stock
credited to the participating directors' accounts under the Deferred Stock
Plan as of February 16, 1999: Mrs. Ball 4,335; Mr. Brown 2,966; Mr. Gatton
3,696; Mr. Grade 676; Mrs. McNamara 7,226; Mr. Morton 13,281: Mr. Ramsey
14,386; Mr. Rouse 17,460; Dr. Shearer 3,284; and Dr. Todd 2,104.
Participants are eligible to receive distributions from their accounts upon
departure from the Board of Directors.
(2) Includes shares subject to stock options granted under LG&E Energy's Omnibus
Long-Term Incentive Plan, exercisable within 60 days following February 16,
1999, as follows: Mr. Hale, 269,630 shares; Mr. Duncan, 61,221 shares; Mr.
McCall, 72,384 shares; Mr. Staffieri, 156,338 shares and Mr. Wood, 96,206
shares.
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(3) Includes the following shares subject to stock options granted under the
Directors' Option Plan, exercisable within 60 days following February 16,
1999: 20,000 shares for each of Messrs. Ballard, Brown, Grissom, Lewis and
Morton, and Mrs. McNamara; 8,000 shares for Mr. Grade; and 4,000 shares for
each of Messrs. Gatton, Ramsey and Rouse, Mrs. Ball, and Drs. Shearer and
Todd.
(4) For each director and nominee, the number of shares of LG&E Energy Common
Stock beneficially owned as of February 16, 1999, is less than three-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 one percent of the then-
outstanding LG&E Energy Common Stock. In the case of executive officers, the
share total shown includes 800,770 stock options granted under LG&E Energy's
Omnibus Long-Term Incentive Plan, exercisable within 60 days of February 16,
1999.
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PROPOSAL NO. 2
APPROVAL OF INDEPENDENT AUDITORS FOR 1999
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, 1999. Arthur Andersen has audited the
accounts of LG&E Energy since its organization in 1990, and has audited the
accounts of LG&E (as well as those of KU) for many years. The shareholders
previously approved the employment of the firm at the Annual Meeting on April
22, 1998.
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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PROPOSAL NO. 3
PROPOSAL TO APPROVE THE AMENDMENT OF THE LG&E ENERGY CORP.
OMNIBUS LONG-TERM INCENTIVE PLAN, INCLUDING AUTHORIZING THE
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK THEREUNDER
Shareholders are being asked to approve amendments to LG&E Energy's Omnibus
Long-Term Incentive Plan (the "Long-Term Plan") to (i) authorize the issuance of
additional shares of Common Stock thereunder by deleting the prior numerical
limit of 3,000,000 shares reserved for issuance under the Long-Term Plan, and
(ii) insert a limit of 200,000 shares of Restricted Stock which may be granted
to any participant in any calendar year. On February 3, 1999 the Board of
Directors of LG&E Energy unanimously approved these amendments effective that
date, subject to shareholder approval.
The Board of Directors believes that the Long-Term Plan has been useful in
advancing the interests of the Company by attracting and retaining
well-qualified persons to serve in key positions with the Company and its
subsidiaries by providing them with performance-related incentives. The marked
growth of the Company during recent years, and particularly the 1998
acquisitions of the KU and Big Rivers businesses, operations and facilities, has
significantly increased the number of Company employees who perform roles which
contribute significantly to the long-term financial success of the Company and
its subsidiaries and, ultimately, its shareholders. A number of these employees
received initial awards for current and upcoming performance periods under the
Long-Term Plan during 1998 and 1999, resulting in somewhat higher aggregate
awards under the Long-Term Plan than in prior years. Further, the scope and
complexity of the responsibilities of many prior and new Company employees has
increased concomitantly with LG&E Energy's growth. The Long-Term Plan, as
currently drafted, limits the number of shares that can be issued to the lesser
of 3,000,000 shares or 5% of the outstanding Common Stock of the Company, which
limits were established prior to the recent growth initiatives of the Company.
The Board of Directors believes that the continued availability and use of the
Long-Term Plan as an element of key employee compensation represents an
important aspect in promoting the future growth and profitability of LG&E Energy
and its subsidiaries.
The purpose of the amendment is to make available additional shares for
future awards under the Long-Term Plan and related changes. As of February 16,
1999, there are 100,496 shares available for future awards under the Long-Term
Plan. See "--Number of Shares." The proposed amendment would remove the
3,000,000 share numerical limit but retain the current cap of 5% of the
outstanding shares of Common Stock of the Company as the maximum number of
shares available for issuance under the Long-Term Plan. As required under
Section 162(m) of the Internal Revenue Code of 1986 (the "Code") and pursuant to
the terms of the Long-Term Plan, the amendments to the Long-Term Plan are being
submitted to shareholders for approval at the Annual Meeting.
Set forth below is a summary of certain important features of the Long-Term
Plan, as well as further explanation of the proposed amendments. This summary is
qualified in its entirety by reference to the actual plan. Any shareholder
desiring a copy of the Long-Term Plan may obtain one by writing John R. McCall,
Secretary, LG&E Energy Corp., 220 West Main Street, Louisville, Kentucky 40202.
All capitalized terms which are not defined herein are defined in the Long-Term
Plan.
DESCRIPTION OF THE LONG-TERM PLAN
BACKGROUND. The predecessor to the Long-Term Plan was established by the
Company's 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 Long-Term Plan was
unanimously amended and restated, effective January 1, 1996, by the Board of
Directors of LG&E Energy in December 1995 and approved by LG&E Energy's
shareholders in April 1996. These 1996 amendments included (i) amending the plan
to maintain the
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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 March 1996, in connection with approving the April 1996 stock split of the
Company's Common Stock, the Board of Directors also made the appropriate
adjustments to the Long-Term Plan to reflect the 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. The Long-Term Plan
terminates on January 1, 2001, which is the fifth (5(th)) anniversary of the
effective date of the 1996 amendment and restatement.
PURPOSE. The purpose of the 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.
The Long-Term Plan has been designed to comply with 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 Employees"). Certain
types of compensation, including performance-based compensation, are generally
excluded from this deduction limit. In most instances, compensation payable
pursuant to the Long-Term Plan will generally be deductible for federal income
tax purposes, however, under certain circumstances, including 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 Long-Term Plan.
ADMINISTRATION. The Long-Term Plan is administered by a committee (the
"Committee") of the Board of Directors 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 has 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 also
has the authority to construe and interpret the plan, establish, 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 has no authority to
adjust upward any amounts payable to a Covered Employee with respect to a
particular award. All decisions made by the Committee are 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. If the proposal to remove the numerical limit of
3,000,000 shares is approved by shareholders, the Long-Term Plan will provide
for the issuance of up to 5% of the outstanding shares of Common Stock of the
Company 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. Further, if amended as
proposed, no single participant may be granted restricted stock grants for in
excess of 200,000 shares of Common Stock in any calendar year. Also, no Covered
Employee may be granted any
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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 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 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 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.
Based upon the current capitalization of the Company, the proposed amendment
removing the 3,000,000 numerical limit has the effect of increasing the maximum
permitted number of shares available for issuance under the Long-Term Plan from
3,000,000 to 6,483,851, representing 5% of LG&E Energy's 129,677,030 currently
outstanding shares of Common Stock. Since the inception of the Long-Term Plan in
1990, 560,088 shares have been issued in payment of awards under the Long-Term
Plan and 2,339,416 shares are covered by currently outstanding but as-of-yet
unexercised or unearned grants of options, performance shares and SAR's, as
applicable. Excluding these amounts, there remain 100,496 shares available for
future awards under the Long-Term Plan. As discussed above, in connection with
the proposed amendment to delete the overall numerical cap, a second proposed
amendment adds a sub-limit on grants to a Covered Employee of a maximum of
200,000 of shares of restricted stock per calendar year. This is designed to
meet the requirement under Section 162(m) of the Code of yearly, individual
limits upon grants of Restricted Stock. As noted earlier, total restricted stock
grants further cannot exceed 50% of the aggregate number of shares issued under
the Long-Term Plan.
DESCRIPTION OF AWARDS
STOCK OPTIONS. The 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 at the time of grant, and in the case of a NQSO, may
not be less than 100% of the market price of such Common Stock at the time 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 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
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
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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 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.
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, rights with respect to restricted stock granted to a participant
under the Long-Term Plan shall accrue, except in cases of death, only to 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 transferable.
PERFORMANCE UNITS AND PERFORMANCE SHARES. The 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.
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 be distributed or paid out 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.
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LIMITS ON TRANSFERABILITY AND EXERCISABILITY. No award granted under the
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 for one year in cases of death or disability, or until their
expiration date, any Restricted Period with respect to restricted stock will
lapse and restricted stock will become freely transferable, 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, whichever is less, 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 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 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.
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.
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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. 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 amendments to the Long-Term Plan if the plan amendments are
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 "Employment Contracts and Termination of Employment
Arrangements and Change in Control Provisions" on page 28. The benefits and
amounts that were paid or allocated under the Long-Term Plan with respect to
1998 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 24-26 of this proxy statement.
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
amendments to Long-Term Plan with respect to Section 162(m) of the Code,
including 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 Rule 16b-3 under the
Securities Exchange Act, as applicable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE AMENDMENTS TO THE OMNIBUS LONG-TERM INCENTIVE PLAN.
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised wholly of
non-employee directors and makes all decisions regarding the compensation of
LG&E Energy's executive officers, including the setting of base pay and the
administration of the Company's Omnibus Long-Term Incentive Plan (the "Long-Term
Plan") and Short-Term Incentive Plan (the "Short-Term Plan"), each as defined
herein.
The Company's executive compensation program and the target awards and
opportunities for executives are designed to be competitive with the
compensation and pay programs of comparable companies, including utilities,
utility holding companies and companies in general industry nationwide. The
executive compensation program has been developed and implemented over time
through consultation with, and upon the recommendations of,
nationally-recognized executive compensation consultants. The Compensation
Committee and the Board of Directors have continued access to such 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 during 1998 for
officers of LG&E Energy, including the executive officers named in the following
tables.
COMPENSATION PHILOSOPHY
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 that 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 not only with utilities and utility
holding companies, but also with companies in general industry 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 various compensation peer groups as established below, are not
the same as the utility industry index in the Comparison of Five-Year Total
Return graph included on page 23 of this proxy statement.
Pursuant to this competitive market positioning philosophy, in establishing
compensation levels for all executive positions for 1998, the Compensation
Committee reviewed competitive compensation information for general industry
companies with revenue between $2 - $3 billion (the "Survey Group") and
established targeted total direct compensation (base salary plus short-term
incentives and long-term incentives) for each executive for 1998 to approach the
50th percentile of the competitive range from the Survey Group. Salaries,
short-term incentives and long-term incentives for 1998 are described below.
The 1998 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
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address the compensation philosophy for 1998 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 21 of this proxy statement for a description of his 1998
compensation). Pursuant to the terms of existing employment and change in
control agreements, severance amounts were paid to certain departing executives
during 1998. See "Employment Contracts and Termination of Employment
Arrangements and Change in Control Provisions" on page 28 of this proxy
statement.
BASE SALARY
The base salaries for LG&E Energy executive officers for 1998 were designed
to be competitive with the Survey Group at approximately the 50th percentile of
the base salary 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
In the first quarter of 1998, the Committee established the performance
goals for the Company Performance Awards and Individual Performance Awards.
Payment of Company Performance Awards for executive officers was based 100% on
Net Income Available for Common Stock ("NIAC"), while payment of Individual
Performance Awards was based 100% on Management Effectiveness, which includes a
customer satisfaction element for certain participants. At the beginning of the
third quarter, the Compensation Committee established revised performance goals
to reflect the fundamental business shifts effected by the Company during 1998,
particularly the decision to discontinue merchant energy marketing and trading
operations and the completion of the KU Merger and the Big Rivers leasing
transactions. For participants with performance goals based upon LG&E Energy
Corp. and LG&E Energy Marketing performance measures, the Compensation Committee
determined that no Company Performance Awards would be payable with respect to
first and second quarter operations and results. Revised Company Performance
Award targets for July through December 1998 were established based upon the
Company's revised plan of continuing business operations for the third and
fourth quarters of the year.
For 1998, the revised Company Performance Award targets for executive
officers ranged from 21% to 30% of base salary, and the Individual Performance
Award targets ranged from 14% to 20% of base salary. Both awards were
established to be competitive with the 50th percentile of such awards granted to
comparable executives employed by companies in the Survey Group.
The individual officers were eligible to receive from 0% to 175% of their
targeted amounts, dependent upon Company and individual performance during 1998
as measured by NIAC with regard to Company Performance Awards, and were eligible
to receive from 0% to 175% of their targeted amounts dependent upon individual
performance as measured by Management Effectiveness with regard to Individual
Performance Awards. As indicated above, no Company Performance Awards were paid
in respect of first and second quarter operations or results for participants
with performance goals based upon LG&E Energy Corp. and LG&E Energy Marketing
performance measures. Based upon performances against the revised targets for
the second-half of 1998, payouts of Company Performance Awards for 1998 to the
executive officers ranged from 9% to 33%, of base salary. Payouts for the
Individual Performance Awards to the executive officers ranged from 20% to 35%,
of base salary.
LONG-TERM INCENTIVES
The Long-Term Plan is administered by a committee of not less than three
non-employee 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
19
<PAGE>
of the following types of awards: stock options, stock appreciation rights,
restricted stock, performance units and performance shares. In 1998, the
Compensation Committee chose to award stock options and performance units to
executive officers.
The Compensation Committee determined the competitive long-term grants to be
awarded for each executive based on the long-term awards for the 50th percentile
of the Survey Group. The aggregate expected value of the stock options and
performance units (delivered 50% in the form of performance units and 50% in the
form of nonqualified stock options in 1998) was intended to approach the
expected value of long-term incentives payable to executives in similar
positions with companies in the 50th percentile of the Survey Group, depending
upon achievement of targeted Company performance.
Stock options were granted to executive officers during the first quarter of
1998 at an exercise price equal to the fair market value at the time of grant
and were subject to a one-year vesting requirement. During the year, newly hired
or promoted officers were also eligible to receive pro-rated stock option grants
under the Long-Term Plan. 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 expected value to be provided in options, as determined above, and dividing
that amount by the estimated current value of an option using a variation of the
Black-Scholes Option Pricing methodology provided by the outside compensation
consultant. 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 long-term award to be delivered in performance units
(adjusted on a present value basis), 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 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 ("TSR") by a peer group selected by the
Committee. The peer group for measuring the Company's TSR performance (the
"Long-Term Plan Peer Group") consists of approximately 80 utility holding
companies and gas and electric utilities.(1)
Payouts of long-term incentive awards in February 1999 were based on Company
performance during the 1996-1998 period. During such period, LG&E Energy's
performance was at the 63rd percentile of its comparison group with respect to
TSR, resulting in payouts of 125% of the contingent awards. The performance
units are payable 50% in LG&E Energy Common Stock and 50% in cash.
Long-term incentive awards were also paid to certain former KU officers in
February 1999 in respect of KU's performance during the 1996-1998 period under
the KU Performance Share Plan (the "KU Plan"). Payouts were made at 100% of
contingent grants, based upon the Compensation Committee's assessment of KU's
performance during 1998 and KU's contribution to strong Company performance
following the Merger. These payouts were made in LG&E Energy Common Stock to
four executive officers of the Company who were participants in the KU Plan
prior to the Merger.
- ------------------------
(1) While similar, the utilities and holding companies that are in the Long-Term
Plan Peer Group are not necessarily the same as those in the Standard &
Poor's Utility Index used in the Company Performance Graph on page 23 of the
proxy statement or the Survey Group. Nevertheless, in the judgment of the
Compensation Committee, the companies in the Long-Term Plan Peer Group
continue to represent the appropriate peer group for performance unit
compensation purposes.
20
<PAGE>
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. Following
commencement of his service with LG&E in April 1989, Mr. Hale's employment
agreement has been periodically updated by the Board, to recognize his
fundamental role in establishing LG&E Energy as a national and international
diversified energy services company. Mr. Hale's 1997 employment agreement (the
"1997 Agreement") was effective during the period of 1998 prior to the May 4,
1998 closing of the Merger. A revised employment agreement (the "Revised
Agreement") became effective upon such date and throughout the remainder of
1998. (See "Employment Contracts and Termination of Employment Arrangements and
Change in Control Provisions" on page 28 of this proxy statement.)
The 1997 Agreement and the Revised Agreement established the minimum levels
of Mr. Hale's 1998 and post-merger compensation, although the Compensation
Committee retained discretion to increase such compensation. For 1998, the
Compensation Committee compared Mr. Hale's compensation to that of chief
executive officers of companies contained in the Survey Group as well as
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.
Mr. Hale also receives LG&E Energy contributions to the savings plan, similar to
those of other officers and employees. Details of Mr. Hale's 1998 compensation
are set forth below.
BASE SALARY. Mr. Hale was paid a total base salary of $700,000 during 1998.
This amount was based upon the minimum salary amount provided in the 1997
Agreement, plus an increase awarded by the Compensation Committee. The
Compensation Committee, in determining Mr. Hale's annual salary, including
increases, focused on his individual performance (including his management
effectiveness, as described below), the growth of LG&E Energy and the
compensation provided to other LG&E Energy, LG&E and KU officers. The 1998
increase was 20.7%
SHORT-TERM INCENTIVES. Mr. Hale's target short-term incentive award was 65%
of his 1998 base salary. Like all other executive officers receiving short-term
incentive awards, Mr. Hale was eligible to receive more or less than the
targeted amount, based on Company performance and individual performance. His
1998 short-term incentive payouts were based 70% on Company Performance Goals
and 30% on Individual Performance Goals.
In 1998, no Company Performance Award was paid to Mr. Hale in respect of
first and second quarter operations or results. His Company Performance Award
payout for performance against the revised targets for the third and fourth
quarters was 23% of his 1998 base salary. Mr. Hale's Individual Performance
Award payout was 34% of his 1998 base salary. The Compensation Committee
considered Mr. Hale's effectiveness in several areas in determining the final
Individual Performance Award. These included the financial performance of LG&E
Energy, LG&E, KU and other LG&E Energy subsidiaries, Company growth, customer
satisfaction ratings and other measures, such as the Company's successful
completion of the leasing transaction with Big Rivers. In May 1998, the
Compensation Committee awarded Mr. Hale a special completion bonus of $250,000
as reward for his leadership role and contribution upon the successful closing
of the KU Merger. (See statement "Short-Term Incentives" on page 19 of this
proxy statement for a discussion of the revised Company Performance Award
targets).
LONG-TERM INCENTIVE GRANT. In 1998, Mr. Hale received 133,588 options and
39,244 performance units for the 1998-2000 performance period. These amounts
were determined in accordance with the terms of his 1997 Agreement and provide
expected value representing approximately 150% of his 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."
21
<PAGE>
LONG-TERM INCENTIVE PAYOUT. In the 1996-1998 period, LG&E Energy's
performance was at the 63rd percentile of its comparison group in TSR. That
resulted in a payout equal to 125% of the approved target. In addition, the
market value per share of LG&E Energy Common Stock increased from $21.22 at
grant to $28.31 during the performance period. This further increased the value
of the payout of the performance units originally awarded to Mr. Hale in 1996.
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. It is the Compensation
Committee's general intent to preserve the deductibility of executive
compensation to the extent reasonably practicable and to the extent consistent
with its other compensation objectives. In an effort to ensure that certain
compensation payable under the Long-Term Plan and Short-Term Plan remain
deductible, the Compensation Committee and the Board of Directors recommended,
and the shareholders approved, modification of the Long-Term Plan and adoption
of a new Short-Term Plan in 1996, although not all of the compensation paid to
executive officers under these two plans constitutes performance based
compensation. A portion of compensation received by Mr. Hale in 1998 was not
deductible.
CONCLUSION
The Compensation Committee believes that the Company's executive
compensation system served the interests of the Company and its shareholders
effectively during 1998. 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.
MEMBERS OF THE COMPENSATION COMMITTEE
J. David Grissom, Chairman
Carol M. Gatton
Jeffery T. Grade
Anne H. McNamara
T. Ballard Morton, Jr.
Frank V. Ramsey, Jr.
William L. Rouse, Jr.
22
<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, 1993, through December 31, 1998, 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INDEXED RETURNS
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDING
TOTAL SHAREHOLDER RETURNS
LG&E Energy Corp S&P Utilities S&P 500 Index
Dec-93 100.00 100.00 100.00
Dec-94 96.37 92.06 101.32
Dec-95 116.63 130.74 139.40
Dec-96 142.11 134.83 171.40
Dec-97 151.31 168.07 228.59
Dec-98 180.46 192.89 293.91
12/31/1993 1994 1995 1996 1997 1998
LG&E ENERGY $100 $96 $117 $142 $151 $180
S&P UTILITIES $100 $92 $131 $135 $168 $193
S&P 500 $100 $101 $139 $171 $229 $294
</TABLE>
- ------------------------
(1) Total Shareholder Return assumes $100 invested on December 31, 1993, with
quarterly reinvestment of dividends.
23
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows the cash compensation paid or to be paid by LG&E
Energy or any of its subsidiaries, as well as certain other compensation paid or
accrued for those years, to the Chief Executive Officer and the next four
highest compensated executive officers of LG&E Energy who were serving as such
at December 31, 1998, in all capacities in which they served during 1996, 1997
and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION
--------------------------------- AWARDS
OTHER ------------- PAYOUTS
ANNUAL SECURITIES ----------- ALL OTHER
COMPEN- UNDERLYING LTIP COMPEN-
NAME AND SALARY BONUS SATION OPTIONS/ SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#)(3) ($) ($)
- -------------------------------------------- ---- ---------- -------- --------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 1998 $ 700,000 $649,800 $32,301 133,588 $ 821,581 $ 36,191(1)
Chairman of the Board 1997 580,000 311,808 18,212 67,728 313,037 26,675
and Chief Executive Officer 1996 510,000 416,068 11,010 55,000 641,092 26,909
Victor A. Staffieri 1998 300,000 150,461 10,269 45,802 166,611 15,590(1)
President and Chief Operating Officer 1997 270,000 159,064 8,063 27,946 57,416 10,635
(Former position: Chief Financial Officer) 1996 245,000 175,310 7,4312 6,022 124,950 9,336
R. Foster Duncan 1998 262,903(2) 210,000 69,687(2) 81,221 -- 4,785(1)
Chief Financial Officer
(Former position: Executive Vice
President-
Planning and Development)
Stephen R. Wood 1998 265,000 120,711 7,373 42,799 94,543 13,377(1)
President-Distribution Services Division 1997 245,000 138,039 6,849 15,605 32,306 8,721
and President, Louisville Gas and 1996 226,000 106,256 7,082 14,772 67,130 7,877
Electric Company
John R. McCall 1998 260,000 140,399 7,870 34,733 96,635 15,582(1)
Executive Vice President, General Counsel 1997 245,000 114,764 6,922 15,605 32,306 11,414
and Corporate Secretary 1996 231,000 112,303 7,230 15,098 35,868 11,029
</TABLE>
- ------------------------
(1) Includes employer contributions to 401(k) plan, nonqualified thrift plan and
employer paid life insurance premiums in 1998 as follows: Mr. Hale $4,375,
$16,625 and $15,191, respectively; Mr. Staffieri $4,875, $8,897 and $1,818,
respectively; Mr. Duncan $4,050, $0 and $735, respectively; Mr. Wood $4,117,
$7,975 and $1,286, respectively; and Mr. McCall $4,318, $6,925 and $4,340,
respectively.
(2) Reported compensation is only for a portion of the year. Mr. Duncan joined
LG&E Energy on January 12, 1998."Other Annual Compensation" includes a
relocation payment of $68,686.
(3) As adjusted for the 2 for 1 stock split effective in April 1996.
24
<PAGE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN 1998 FISCAL YEAR
The following table contains information at December 31, 1998, with respect
to grants of stock options and stock appreciation rights (SARs) to the named
executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------- REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL
SECURITIES TOTAL EXERCISE RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION
OPTIONS/SARS GRANTED TO PRICE FOR OPTION TERM
GRANTED EMPLOYEES IN ($/ EXPIRATION ----------------------------------
NAME (#) (1) FISCAL YEAR SHARE) DATE 0%($) 5%($) 10%($)
- -------------------------------------- ------------ ------------ -------- ---------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 133,588 16.8% 23.47 02/04/2008 0 1,971,780 4,996,877
Victor A. Staffieri 45,802 5.8% 23.47 02/04/2008 0 676,045 1,713,230
R. Foster Duncan 41,211 5.2% 23.47 02/04/2008 0 608,428 1,541,877
R. Foster Duncan 40,000 5.0% 23.97 01/12/2008 0 602,984 1,596,555
Stephen R. Wood 35,401 4.4% 23.47 02/04/2008 0 522,524 1,324,179
Stephen R. Wood 7,398 0.9% 24.63 02/04/2008 0 114,593 290,400
John R. McCall 34,733 4.4% 23.47 02/04/2008 0 512,665 1,299,193
</TABLE>
- ------------------------
(1) Options are awarded at fair market value at time of grant; unless otherwise
indicated, options vest in one year and are exercisable over a ten-year
term.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN 1998 FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options and/or SARs during 1998
and the value of unexercised options and SARs held by them as of December 31,
1998:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SARS AT
ACQUIRED OPTIONS/SARS FY-END
ON VALUE AT FY-END (#) ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Roger W. Hale 29,900 $183,379 136,042/133,588 784,583/646,900
Victor A. Staffieri 0 N/A 110,536/45,802 837,050/221,796
R. Foster Duncan 0 N/A --/81,221 --/373,353
Stephen R. Wood 0 N/A 53,407/42,799 428,596/198,672
John R. McCall 0 N/A 37,651/34,733 235,255/168,195
</TABLE>
- ------------------------
(1) Dollar amounts reflect market value of LG&E Energy Common Stock at year-end,
minus the exercise price.
25
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN 1998 FISCAL YEAR
The following table provides information concerning awards made in 1998 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 39,244 12/31/2000 15,698 39,244 58,866
Victor A. Staffieri 6,728 12/31/2000 2,691 6,728 10,092
R. Foster Duncan 6,055 12/31/2000 2,422 6,055 9,083
Stephen R. Wood 5,200 12/31/2000 2,080 5,200 7,800
John R. McCall 5,102 12/31/2000 2,041 5,102 7,653
</TABLE>
- ------------------------
(1) The table indicates the number of performance units that 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. For awards made in 1998, the Long-Term
Plan rewards executives on a three-year rolling basis dependent upon the total
shareholder return for shareholders. 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 Long-Term Plan Peer Group. 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 1998 are
reported in the summary compensation table for the year of payout.
26
<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:
1998 PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 $47,896 $47,896 $47,896 $55,665
$200,000 $111,896 $111,896 $111,896 $111,896
$300,000 $175,896 $175,896 $175,896 $175,896
$400,000 $239,896 $239,896 $239,896 $175,896
$500,000 $303,896 $303,896 $303,896 $303,896
$600,000 $367,896 $367,896 $367,896 $367,896
$700,000 $431,896 $431,896 $431,896 $431,896
$800,000 $495,896 $495,896 $495,896 $495,896
$900,000 $559,896 $559,896 $559,896 $559,896
$1,000,000 $623,896 $623,896 $623,896 $623,896
$1,100,000 $687,896 $687,896 $687,896 $687,896
$1,200,000 $751,896 $751,896 $751,896 $751,896
$1,300,000 $815,896 $815,896 $815,896 $815,896
$1,400,000 $879,896 $879,896 $879,896 $879,896
$1,500,000 $943,896 $943,896 $943,896 $943,896
$1,600,000 $1,007,896 $1,007,896 $1,007,896 $1,007,896
$1,700,000 $1,071,896 $1,071,896 $1,071,896 $1,071,896
</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, 1998 is as follows: 32 years
for Mr. Hale; 1 year for Mr. Duncan; 4 years for Mr. McCall; 9 years for Mr.
Wood; and 6 years for Mr. Staffieri. 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, LG&E and KU with
at least one year of service with any company are eligible to participate in
LG&E Energy'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, LG&E and KU. 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 36 months average compensation, less benefits
payable from the Retirement Income Plan, benefits payable from
27
<PAGE>
any other qualified or nonqualified plan sponsored by LG&E Energy, LG&E or
certain prior employers, and primary Social Security benefits. Under Mr. Hale's
employment agreement (see below), 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 $712,328 for Mr.
Hale; $253,136 for Mr. Duncan; $249,108 for Mr. McCall; $292,023 for Mr.
Staffieri; and $241,739 for Mr. Wood.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS
On May 20, 1997, Mr. Hale entered into a new employment agreement with LG&E
Energy for services to be provided to the Company and its subsidiaries,
including LG&E and KU. This agreement became effective upon the May 4, 1998
consummation of the merger with KU Energy and has an initial term of five years
ending on May 4, 2003. Under the agreement, Mr. Hale is entitled to an annual
base salary of not less than $675,000, subject to annual review by the
Compensation Committee, and to participate in the Short-Term Plan and the
Long-Term Plan. Mr. Hale's agreement with LG&E Energy provides for a short-term
incentive target award of not less than 60% of base salary and long-term
incentive grants with a present value of not less than 110% of base salary to be
delivered two-thirds in the form of performance units/shares and one-third in
the form of non-qualified stock options. In addition, the agreement provides
that at the Company's expense a life insurance policy in the amount of not less
than $2 million shall be provided to Mr. Hale. 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 plus his target
short-term incentive award for the remaining term of his employment contract,
but not less than two years.
During 1998, officers of LG&E Energy entered into revised change in control
agreements, which agreements generally provide for the benefits described below.
In the event of a change in control, all such 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 bonus or "target" award paid or
payable pursuant to the Short-Term Plan. Payments may be made to executives
which would 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 and, in the latter case, LG&E Energy will "gross up" the applicable
severance payments to the executive to cover any excise taxes that may be due.
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 and prorated for the executive's deemed period of service
during the relevant performance period. Additionally, executives shall receive
continuation of certain welfare benefits and payments in respect of accrued but
unused vacation days and for out-placement assistance. During 1998, Michael R.
Whitley, former Vice Chairman, President and Chief Operating Officer, and Walter
Z. Berger, former Group President--Energy Marketing Division, received cash
payments before tax
28
<PAGE>
"gross up" of approximately $3.9 million and $1.2 million, respectively,
pursuant to existing employment and change in control agreements, as applicable,
in addition to the stock-based awards and other benefits described above, in
connection with their departures from LG&E Energy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
LG&E Energy has adopted procedures to assist its directors and officers in
complying with Section 16(a) of the Exchange Act of 1934, which includes
assisting the director or officer in preparing forms for filing. Based solely
upon information provided to LG&E Energy by individual directors and officers,
the Company believes that during the year ended December 31, 1998, all filing
requirements have been complied with, except that a Form 4 report covering one
transaction in connection with Mr. Whitley's retirement was filed late.
SHAREHOLDER PROPOSALS
FOR 2000 ANNUAL MEETING
Any shareholder may submit a proposal for consideration at the 2000 Annual
Meeting. Any shareholder desiring to submit a proposal for inclusion in the
proxy statement for consideration at the 2000 Annual Meeting should forward the
proposal so that it will be received at LG&E Energy's principal executive
offices no later than November 28, 1999. 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 2000
proxy statement.
Under the Company's bylaws, shareholders intending to submit a proposal in
person at the Annual Meeting must provide advance written notice along with
other prescribed information. In general, such notice must be received by the
Secretary of the Company (a) not less than 90 days prior to the meeting date or
(b) if the meeting date is not publicly announced more than 100 days prior to
the meeting, by the tenth day following such announcement. Proposals not
properly submitted will be considered untimely.
OTHER MATTERS
At the Annual Meeting, it is intended that the first three 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 that
may be presented at the meeting.
LG&E Energy will bear the costs of printing and preparing 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 $9,000 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 1998, 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.
29
<PAGE>
[LGE ENERGY LOGO]
-------------------------
ADMISSION TICKET
LG&E ENERGY CORP.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, April 21, 1999
10:00 a.m., EDT
Bomhard Theater
Kentucky Center for the Arts
501 West Main 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
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS / / I plan to attend the Annual Meeting,
/ / For / / Withheld and I will bring guest(s).
For, except vote withheld from
the following nominee(s):
----------------------------------
Terms expiring in:
2002: MIRA S. BALL ANNE H. MCNAMARA
ROGER W. HALE FRANK V. RAMSEY, JR.
DAVID B. LEWIS
2001: CAROL M. GATTON
LEE T. TODD, JR.
2000: WILLIAM L. ROUSE, JR.
CHARLES L. SHEARER
2. APPROVAL OF ARTHUR ANDERSEN LLP
AS INDEPENDENT AUDITORS
/ / For / / Against / / Abstain
3. APPROVAL OF AMENDMENTS TO ------------------------------------------------
OMNIBUS LONG-TERM INCENTIVE PLAN, SIGNATURE
INCLUDING AUTHORIZING THE ISSUANCE
OF ADDITIONAL SHARES THEREUNDER DATE
/ / For / / Against / / Abstain
<CAPTION>
1. COMMON
[LGE ENERGY LOGO]
PROXY
2.
3. ------------------------------------------------
SIGNATURE
SIGNATURE(S) SHOULD CORRESPOND TO THE NAME(S)
APPEARING IN THIS PROXY. IF EXECUTOR, TRUSTEE,
GUARDIAN, ETC. PLEASE INDICATE.
</TABLE>
<PAGE>
Complimentary parking will be available
at the Riverfront PARC garage off Sixth
Street. Please visit the registration
table at the annual meeting for a
[MAP] parking voucher, which you should submit
with your parking ticket to the
attendant upon leaving.
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
LG&E ENERGY CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- APRIL 21, 1999
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 21, 1999, 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.
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.
